Rolls-Royce Holdings plc

Rolls-Royce reported 2025 group revenue of GBP 20 billion, up 14% year over year. Group operating profit was GBP 3.5 billion, up around 40%, and operating margin improved by 3.2 percentage points to 17.3%. Free cash flow was GBP 3.3 billion, up by over GBP 800 million, and the company ended the year with net cash of GBP 1.9 billion, almost GBP 1.5 billion higher than a year ago. Return on capital rose to 18.9%. By division, Civil Aerospace revenue was GBP 10.4 billion, operating profit was GBP 2.1 billion, and margin was 20.5%; Defence revenue was GBP 4.8 billion, operating profit was GBP 689 million, and margin was 14.4%; and Power Systems revenue was GBP 4.9 billion, operating profit was GBP 852 million, and margin was 17.4%. Looking ahead, 2026 guidance is for 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. Midterm 2028 targets were raised to GBP 4.9 billion to GBP 5.2 billion of operating profit, 18% to 20% operating margin, and GBP 5 billion to GBP 5.3 billion of free cash flow.

Tufan Erginbilgic said the transformation is continuing and that Rolls-Royce is becoming a higher-performing, more resilient, and growing business. He emphasized that the company reached its prior midterm margin target three years early and now sees further upside, including stronger civil aftermarket economics, better Power Systems profitability, and longer-term opportunities in nuclear and narrow-body engines. His tone was notably confident, with repeated comments that the business has more optionality and growth potential than before.

Helen McCabe framed 2025 as another year of strong delivery, highlighting double-digit growth in revenue, profit and free cash flow. She pointed to Civil Aerospace cash flow of GBP 2.5 billion, Defence cash flow of GBP 745 million, and Power Systems cash flow of GBP 658 million, along with GBP 600 million of LTSA balance growth, over GBP 400 million of working capital release, and nearly GBP 300 million of provisions outflow. She also quantified the shareholder return plan: a 5p final dividend for 2025, a full-year dividend of 9.5p per share, and a 3-year buyback totaling GBP 7 billion to GBP 9 billion, including GBP 2.5 billion in 2026.

Analysts pressed management on narrow-body strategy, including whether Rolls-Royce would need government launch support and whether it might pursue a partnership outside the existing engine makers. Tufan said the company is not asking for any loan, prefers partnership, is talking to multiple parties, and is still developing the demonstrator; he also said the narrow-body effort could imply roughly GBP 3 billion to GBP 6 billion of investment over the next 12 years depending on the structure. Questions on AI and LTSA margins were answered by Helen, who said concrete AI use cases are already embedded in the midterm plan, including on-wing maintenance prediction, MRO scheduling, technical variance handling, and back-office automation, with one AI agent reducing effort by 75% and another automating over 90% of balance-sheet reconciliations.