Rolls-Royce Holdings plc

Group revenue increased 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 rose by more than GBP 800 million to GBP 3.3 billion, and net cash ended the year at GBP 1.9 billion, about GBP 1.5 billion higher than a year earlier. Return on capital was 18.9%. By division, 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, margin 14.4%; and Power Systems revenue was GBP 4.9 billion, operating profit GBP 852 million, margin 17.4%. For 2026, management expects 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. The upgraded 2028 midterm targets are operating profit of GBP 4.9 billion to GBP 5.2 billion, margin of 18% to 20%, free cash flow of GBP 5 billion to GBP 5.3 billion, and return on capital of 23% to 26%.

Tufan Erginbilgic framed the quarter as evidence that Rolls-Royce’s transformation is continuing to deliver, with stronger margins, cash generation, and resilience despite supply chain and tariff pressures. He emphasized that the company reached its prior midterm margin target of 15% to 17% three years early and said the business now has more growth optionality than before, including in civil aerospace, power systems, defence, nuclear, and narrow-body engines. His tone was confident and forward-leaning, especially around higher LTSA margins, time-on-wing gains, and the long-term cash value still to come from current actions.

Helen McCabe focused on the numbers behind the progress: revenue of GBP 20 billion, operating profit of GBP 3.5 billion, free cash flow of GBP 3.3 billion, and year-end net cash of GBP 1.9 billion. She highlighted the Civil Aerospace contribution, including GBP 392 million of net contractual margin improvements, and noted that supply chain pressure remains a headwind through 2026, with cash drag of GBP 150 million to GBP 200 million still expected next year. She also detailed capital allocation, including a 2025 final dividend of 5p per share, a full-year dividend of 9.5p, and a 2026 buyback of GBP 2.5 billion including the already completed GBP 200 million interim tranche.

Analysts pressed management on the narrow-body strategy, including whether Rolls-Royce would go it alone or seek partners, whether government launch support or loans are needed, and how much the program could cost. Erginbilgic said partnership is the strong preference, that the company is not asking for loans, and that any public support would be more like R&D/ATI-style backing than borrowing; he also suggested the narrow-body effort could involve GBP 3 billion to GBP 6 billion over the next 12 years depending on architecture and partnership. Questions also focused on AI and margins, and McCabe said concrete AI use cases with KPIs and governance are already included in midterm projections, citing a certified AI agent that reduced technical-variation effort by 75%.