Aero engine maker Rolls-Royce has upgraded its medium-term targets after reporting a surge in profit and a further boost for shareholders.
The company, whose engines power Airbus A350 widebodied jets and Boeing 787s, posted a full-year underlying operating profit of £3.5 billion for 2025, up from £2.5bn in 2024 after the operating margin improved to 17.3% from 13.8%.
It is now expecting £4.9bn to £5.2bn in underlying operating profit and £5bn to £5.3bn in free cash flow by 2028, while also announcing a significant £7bn to £9bn multi-year share buyback programme for 2026-2028, including £2.5bn this year.
It proposes a final dividend for 2025 of 5p per share, bringing the total to 9.5p, representing a 32% payout ratio of underlying profit after tax..
Chief executive Tufan Erginbilgic said: “Beyond the mid-term we continue to see significant growth from existing businesses as well as from new business opportunities.
“With our new ?capabilities and mindset, we have navigated challenges from supply chain to tariffs, and delivered a strong performance in 2025.”
Shares in the company where up by about 5% in early trade.
Analysts were impressed with the figures, and while the shares buy-back helped provide a further surge, one questioned the rationale of the strategy.
Dan Coatsworth, head of markets at AJ Bell, said: “Better than expected results from Rolls-Royce put a new rocket under its share price, taking it to a new all-time high.
“This is one of the most impressive business turnarounds in decades. Not simply fixing a few broken doors, Rolls-Royce has sorted out its problems and then taken the business to another level. It is rare to pull off such a stunt so smoothly and without bumps in the road.
“Investors are jumping for joy at the gains they’ve made in recent years, but one must question why Rolls-Royce is still ploughing billions of pounds into share buybacks when the stock is on a premium rating.
“Trading on close to 40 times forward earnings is a rating richer than a chocolate torte. It is common sense that companies should be buying back stock when it is cheap, not expensive.”
Chris Beauchamp, chief market analyst at IG, said: “Rolls-Royce has managed to do what Nvidia couldn’t – engineer a share price bounce following results.
“The share buyback provided the magic sauce for today’s surge to fresh highs, since, like Nvidia, the strong earnings backdrop was already expected by investors.
“Plus there seems to be an unending appetite right now for FTSE companies, as the index’s march towards 11,000 proves.
“It looks like the FTSE 100’s version of Nvidia will keep delivering for investors, as it responds to renewed demand for defence spending across Europe and a fresh ramp up in US outlays on the way too.”
… more follows
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