Rolls-Royce upgrades outlook as profits surge, begins new buyback

(Sharecast News) - Aerospace firm Rolls‑Royce lifted its mid‑term targets and set out plans for a major share buyback on Thursday as it posted what it called a "strong" performance for 2025, underpinned by further progress in its transformation programme and continued end‑market growth. Rolls-Royce said underlying revenues were up 12.38% at £20.05bn in the year ended 31 December, while underlying operating profits came in 28.82% higher year-on-year at £3.46bn, giving it an operating margin of 17.3%, up from 13.8% twelve months earlier.

Pre-tax profits were up 46.1% at £3.35bn, while free cash flow totalled £3.3bn, helping lift the group's net cash position to £1.9bn as of 31 December.

Looking ahead, guidance for FY26 was set at £4.0bn to £4.2bn of underlying operating profits and £3.6bn to £3.8bn of free cash flow, while Rolls-Royce's increased mid‑term targets now have the group expecting underlying operating profits of £4.9bn to £5.2bn, an operating margin of 18% to 20%, free cash flow of £5.0bn to £5.3bn and a return on capital of 23% to 26% by 2028.

Alongside the results, Rolls‑Royce announced that it will repurchase up to £2.5bn of shares, starting with a £2.3bn programme set to begin immediately, alongside a previously completed £200m interim buyback. The new programme, expected to run until 23 December, will be carried out by Morgan Stanley and UBS, with all acquired shares set to be cancelled. Rolls‑Royce has authority to buy back up to 834.51m shares under the plan.

The FTSE 100-listed firm also proposed a final dividend of 5p per share, taking the total payout for FY25 to 9.5p, representing a 32% payout ratio of underlying pre-tax profits.

Reporting by Iain Gilbert at Sharecast.com