Rolls-Royce Holdings plc

Group revenues grew 14% to GBP 20 billion. Group operating profit grew around 40% to GBP 3.5 billion, and operating margin improved by 3.2 percentage points to 17.3%. Free cash flow increased by over GBP 800 million to GBP 3.3 billion, and net cash ended at GBP 1.9 billion, about GBP 1.5 billion higher than a year ago. Return on capital was 18.9%. Civil Aerospace revenue was GBP 10.4 billion, operating profit GBP 2.1 billion, and margin 20.5%; Defence revenue was GBP 4.8 billion, operating profit GBP 689 million, and margin 14.4%; Power Systems revenue was GBP 4.9 billion, operating profit GBP 852 million, and margin 17.4%. For 2026, management guided to underlying operating profit of GBP 4 billion to GBP 4.2 billion and free cash flow of GBP 3.6 billion to GBP 3.8 billion, with supply chain headwinds still present but expected to disappear by the midterm. Midterm 2028 targets were raised to GBP 4.9 billion to GBP 5.2 billion of operating profit, 18% to 20% operating margin, GBP 5 billion to GBP 5.3 billion of free cash flow, and return on capital of 23% to 26%. The company also announced a GBP 7 billion to GBP 9 billion share buyback program for 2026 to 2028, with GBP 2.5 billion planned for 2026, including the GBP 200 million interim tranche already completed.

Tufan Erginbilgic framed the quarter as proof that Rolls-Royce’s transformation is still accelerating, saying the business has become high-performing, resilient and growing. He emphasized that the company is seeing longer-term cash and margin benefits from Civil Aerospace LTSA contracts, time-on-wing work, and improving commercial terms, and said the majority of LTSA cash benefits are still ahead. His tone was confident and expansive, especially on growth beyond the midterm, including nuclear, narrow-body engines, and demand tied to data centers and defense spending.

Helen McCabe focused on the quality of earnings, cash conversion and balance sheet repair. She cited 2025 free cash flow of GBP 3.3 billion, net cash of GBP 1.9 billion, a 9.5p full-year dividend, and the new multiyear buyback, while noting operating profit rose to GBP 3.5 billion and ROCE to 18.9%. She also highlighted that net LTSA balance grew by GBP 600 million, working capital released over GBP 400 million, provisions were just under GBP 300 million, overhedge costs were around GBP 150 million, and cash tax was GBP 555 million; for 2026 she said LTSA balance growth should be broadly similar, shop visits should rise to 1,480 to 1,550, and cash tax should be around GBP 200 million higher.

Analysts pressed management on narrow-body strategy, partnership structure, government support, and whether AI benefits were already embedded in targets. Erginbilgic said Rolls-Royce strongly prefers a partnership for narrow-body but is not ruling anything out, denied needing any loan, and said any support would be more like industry R&T/R&D backing than borrowing. McCabe said concrete AI use cases, including maintenance prediction and MRO planning, are already in the midterm plan, while Erginbilgic also suggested AI and digital tools could help reduce shop visit costs further.