TLDR
- The British engine manufacturer posted a 40% increase in annual underlying operating profit, reaching £3.46 billion for 2025
- The company generated £3.3 billion in free cash flow and ended the year with £1.9 billion in net cash
- Management unveiled a £7–9 billion shareholder return initiative spanning 2026–2028, including £2.5 billion this year
- Updated medium-term operating profit outlook now stands at £4.9–5.2 billion, up from the previous £3.6–3.9 billion guidance
- The board approved a final dividend of 5 pence per share, bringing full-year 2025 payouts to 9.5 pence
Rolls-Royce Holdings (LSE: RR) posted impressive full-year 2025 financial results on February 26, propelling shares higher by almost 6% in trading.
Rolls-Royce Holdings plc, RR.L
The company’s underlying operating profit totalled £3.46 billion for the twelve-month period, representing a 40% year-over-year gain and exceeding the £3.27 billion consensus estimate from analysts. Operating margin expanded to 17.3%.
The engineering giant produced £3.3 billion in free cash flow during the year. At year-end, the balance sheet showed net cash of £1.9 billion.
Looking ahead to 2026, the company provided underlying operating profit guidance of £4.0–4.2 billion. This projection sits at least 8% above pre-announcement analyst expectations.
Management forecasts free cash flow of £3.6–3.8 billion for the current year.
The aerospace and defence company also revealed enhanced medium-term financial objectives. Operating profit is now projected to land between £4.9–5.2 billion over the medium term, a substantial increase from the earlier £3.6–3.9 billion outlook.
The operating margin forecast has been elevated to 18–20%, climbing from the previous 15–17% range. Medium-term free cash flow is now targeted at £5.0–5.3 billion, improving on the former £4.2–4.5 billion guidance.
Return on capital employed is now expected to reach 23–26%, up from the prior 18–21% objective.
Buyback and Dividend
Management disclosed a substantial £7–9 billion share repurchase initiative covering the 2026 to 2028 timeframe. Within this programme, £2.5 billion will be returned to shareholders during 2026.
A £2.3 billion buyback commencing today, paired with the £200 million interim repurchase that began on January 2, 2026, comprises the complete £2.5 billion 2026 allocation.
The share repurchase will be conducted through Morgan Stanley and UBS, with repurchased shares to be cancelled, thereby reducing total outstanding share capital.
The board declared a final dividend of 5 pence per share, lifting the total 2025 shareholder distribution to 9.5 pence per share.
What’s Behind the Numbers
The impressive performance stems primarily from two business segments: aero-engines and power systems.
The aero-engines business benefited from increased flying hours on aircraft fitted with Rolls-Royce powerplants, combined with enhanced engine reliability and longevity. The company’s engines are installed on the Airbus A350 and Boeing 787 widebody aircraft.
The power systems segment experienced growth driven by the accelerating global expansion of data centre infrastructure.
Chief Executive Tufan Erginbilgic, who assumed leadership in 2023, has prioritized margin expansion as a central component of his transformation strategy. With the updated 18–20% margin guidance, the company is narrowing the gap with GE Aerospace, its primary competitor in the widebody engine sector.
Analysts at Bernstein highlighted that the results exceeded expectations and characterized the 2026 and 2028 guidance as “very strong,” suggesting the numbers should prompt upward earnings revisions throughout the analyst community.
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