Rolls-Royce (LSE:RR.) reported a sharp rise in annual earnings for 2025, driven by strong performance in its civil aerospace business, while upgrading its medium-term financial targets and outlining increased capital returns to shareholders.
Underlying operating profit climbed 40% to £3.46 billion for the year, delivering an operating margin of 17.3% and exceeding the market consensus forecast of £3.27 billion. Free cash flow reached £3.3 billion, supported by solid operational execution and continued expansion of long-term service agreement balances. The group ended the year with a net cash position of £1.9 billion as of 31 December 2025.
For 2026, Rolls-Royce expects underlying operating profit to rise further to between £4.0 billion and £4.2 billion, alongside projected free cash flow of £3.6 billion to £3.8 billion.
The company also lifted its medium-term ambitions, now targeting underlying operating profit in the range of £4.9 billion to £5.2 billion, compared with its previous goal of £3.6 billion to £3.9 billion. Operating margin targets were raised to 18%–20%, up from the earlier 15%–17% range.
Free cash flow expectations over the medium term were also increased to £5.0 billion to £5.3 billion, compared with prior guidance of £4.2 billion to £4.5 billion. The company now anticipates return on capital of 23% to 26%, up from its earlier target of 18% to 21%.
As part of its enhanced shareholder distribution strategy, Rolls-Royce announced plans for a share buyback programme valued between £7 billion and £9 billion covering the period from 2026 to 2028, including £2.5 billion scheduled for completion this year.
The group also declared a final dividend of 5 pence per share.
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