Rolls-Royce Holdings Plc 2025 Half Year Results

Strong first half performance, demonstrating our transformation in action; FY25 guidance raised

• Strong first half performance driven by continued progress in our multi-year transformation, despite challenges from the supply chain and tariffs
• Underlying operating profit rose by 50% to £1.7bn with a margin of 19.1%, reflecting the impact of our strategic initiatives, operational effectiveness, and performance management
• Free cash flow of £1.6bn driven by higher operating profit and continued LTSA balance growth
• Full year 2025 guidance raised: we now expect £3.1bn-£3.2bn underlying operating profit and £3.0bn-£3.1bn free cash flow
• Growing resilience: Net cash balance stood at £1.1bn and TCC/GM ratio improved to 0.35x
• Shareholder returns: An interim dividend of 4.5p per share to be paid in September; and, in addition, we completed £0.4bn of our planned £1bn share buyback programme for 2025 during the period

Tufan Erginbilgic, CEO said: “Our multi-year transformation continues to deliver. Our actions led to strong first half year results, despite the challenges of the supply chain and tariffs. We are continuing to expand the earnings and cash potential of Rolls-Royce.  

We delivered continued strong operational and strategic progress in the first half of 2025. In Civil Aerospace, we achieved significant time on wing milestones and delivered improved aftermarket profitability. In Power Systems, where we now see further growth potential, we continued to capture profitable growth across data centres and governmental. In addition, Rolls-Royce SMR was selected as the sole provider of the UK’s first small modular reactor programme. We expect Rolls-Royce SMR to be profitable and free cash flow positive by 2030. 

A strong start to the year gives us confidence to raise our guidance for 2025. We now expect to deliver underlying operating profit of £3.1bn-£3.2bn and free cash flow of £3.0bn-£3.1bn. This builds further conviction in our mid-term targets, which include underlying operating profit of £3.6bn-£3.9bn and free cash flow of £4.2bn-£4.5bn. We see these targets as a milestone, not a destination, with substantial growth prospects beyond the mid-term.” 

Half Year 2025 Group Results

¹ All underlying income statement commentary is provided on an organic basis unless otherwise stated. A reconciliation of alternative performance measures to their statutory equivalent is provided on pages 43 to 46
² In H1 2025, the Group recognised a £277m credit to underlying profit after tax (PAT) in respect of deferred tax assets on UK tax losses. This £277m credit has been adjusted in the calculation of the dividend per share, earnings per share and return on capital. For further details, see note 5, page 29
³ Adjusted Return on Capital is defined on page 46 and is abbreviated to return on capital

Half Year 2025 performance summary

• Strategic delivery: The first half of 2025 has been another period of strong strategic delivery, with significant year on year improvement across all key financial metrics. Driving this improvement were our strategic initiatives, including commercial optimisation and cost efficiency benefits. Strong financial performance was achieved despite an uncertain external environment, including continued supply chain challenges and tariffs. We expect to fully offset the impact of the announced tariffs through the mitigating actions we are taking. We are closely monitoring the potential indirect impact on economic growth, foreign exchange rates, and inflation and we will continue to take the necessary actions. We have seen some improvement in the supply chain, notably the availability of finished parts, helped by our actions, although we continue to see inflationary pressure in product costs.
• Significant operating profit and margin growth: Underlying operating profit was £1.7bn (H1 2024: £1.1bn) with an operating margin of 19.1% (H1 2024: 14.0%). The largest margin improvement was in Civil Aerospace, which delivered an operating margin of 24.9% (H1 2024: 18.0%). This was driven by strong large engine aftermarket performance, contractual margin improvements, and higher spare engine profit. Defence delivered an underlying operating margin of 15.4% (H1 2024: 15.5%), driven by improved performance in transport offset by the continued impact of supply chain challenges. Power Systems reported an operating margin of 15.3% (H1 2024: 10.3%), primarily driven by continued profitable growth in power generation, notably in data centres, and governmental. Across all divisions, our cost efficiency actions have helped to mitigate the impact of inflation.
• Sustainable free cash flow growth: Free cash flow was £1.6bn (H1 2024: £1.2bn), driven by strong operating profit and continued long-term service agreement (LTSA) balance growth. Civil net LTSA balance growth net of risk and revenue sharing agreements (RRSAs) of £472m (H1 2024: £544m) in the period was supported by higher large engine flying hours (EFH) at 109% of 2019 levels (H1 2024: 101%) and an improved EFH rate, partly offset by higher shop visit volumes. The actions we are taking to improve LTSA contracts are driving both higher margins and stronger cash flows.
• Building further resilience: As well as strengthening the balance sheet, we are delivering a more robust and less volatile free cash flow that is more resilient to the external environment. Net cash increased by £609m to £1.1bn (2024 FY: £475m). Gross debt stood at £3.5bn, of which $1.0bn matures in October 2025 and will be repaid from free cash flow, and lease liabilities were £1.4bn. Together with cash and cash equivalents of £6.0bn, we have a robust liquidity position of £8.5bn at 30 June 2025 (2024 FY: £8.1bn). In addition, total underlying cash costs as a proportion of underlying gross margin (TCC/GM) continued to improve to 0.35x (H1 2024: 0.49x).
• Growing shareholder returns: In line with our capital framework, we will pay an interim dividend per share of 4.5p in September¹. We are making good progress with our £1bn share buyback programme for 2025, having completed £0.4bn by the end of June. Taken together, the 6p dividend per share in respect of the full year 2024, the interim dividend, and the share buyback will see us return £1.9bn to shareholders through 2025.

¹ Further information on the dividend and the Company’s Dividend Reinvestment Programme can be found in Note 7 to the condensed consolidated interim financial statements, page 30

Transformation programme and strategic initiatives

Our strategic framework is founded on four strategic pillars. We continue to make strong progress against each of these pillars.

• Portfolio choices & partnerships:
  • ČEZ Group became a shareholder in Rolls-Royce SMR in March. Alongside a commitment to buy up to six Small Modular Reactors (SMRs), ČEZ Group brings significant experience as a nuclear power plant operator with an established nuclear supply chain.
  • Rolls-Royce and Turkish Technic announced plans to establish a state-of-the-art maintenance, repair, and overhaul (MRO) facility at Istanbul Airport which will help address growing long-term aftermarket demand. This facility will be operational by the end of 2027, providing maintenance services for Trent XWB-84, Trent XWB-97, and Trent 7000 engines.
  • In Power Systems, we are continuing to invest in our next generation engine that will offer higher power density, lower emissions, and improved fuel consumption compared to its peers, and will enter into service in 2028. We are also significantly upgrading our military engines, with higher power density, to capture growing demand.
  • In July, we completed the sale of our naval propulsors business to Fairbanks Morse Defence (FMD) and we expect to close the sale of the naval handling business, also to FMD, at a later date.

• Advantaged businesses & strategic initiatives:
  • In Civil Aerospace, we continue to drive for improved commercial terms and lower costs across our widebody and business aviation contracts, which will deliver a significant benefit to underlying operating profit and cash flow to the mid-term and beyond. All our original equipment (OE) contracts have now been successfully renegotiated. We have also now renegotiated the most significant onerous aftermarket contracts and expect to largely conclude the remainder through 2025 and 2026.
  • Our time on wing programme, which will deliver more than an 80% improvement on average across modern Trent engines by 2027, is progressing well. We have now either delivered or secured more than half of the targeted improvement. A significant milestone achieved in the period, supporting this target, was on the Trent XWB-84 where the analysis of millions of hours of operating data will allow us to systematically raise the cycle limit of critical parts, and combined with a compressor blade modification, further increases the time on wing of this engine. The achievement of this milestone, combined with the renegotiations of onerous contracts, supported total gross contractual margin improvements of £402m in the period.
  • In June, the improved high-pressure turbine (HPT) blade for the Trent 1000 TEN, that will more than double the time on wing of the engine, was certified. We remain on track to deliver improvements for the Trent 1000 and Trent 7000 that will deliver a further 30% time on wing benefit by the end of this year. In addition, the Airbus A350-900 powered by the new Trent XWB-84EP variant, which will improve fuel consumption by more than 1% relative to the baseline engine and deliver a further time on wing benefit, entered into service in May.
  • In business aviation, the Pearl 700-powered Gulfstream G800 was certified by the FAA and EASA in April, ahead of the aircraft’s entry into service later this year. On the Pearl 10X engine, for the Dassault Falcon 10X, we have successfully completed all major engine certification tests and will submit the certification reports to the regulators for approval.
  • In Defence, we were awarded a £0.5bn five-year support contract with the UK Ministry of Defence for maintenance and service of the EJ200 engine that powers the UK Royal Air Force’s Typhoon aircraft. We also secured orders for Trent 7000 engines for the new upgraded Airbus MRTT+ (multi role tanker transport plus) aircraft. In addition, we signed a sustainment contract worth £1.0bn with the US Air Force for the AE 2100 engines.
  • In Power Systems, we have made focused investments in our production capacity in the US that will support continued data centre growth. Demand for our backup power generators for data centres remains very strong, and we now expect higher revenue growth, at around 20% per year to the mid-term in the power generation segment (previously 15%-17%). Our governmental business is also well positioned to capture the benefits from increased European defence spending. As a result, we now expect higher governmental revenue growth of 12%-14% per year to the mid-term, mainly driven by growth in land defence.

• Efficiency & Simplification:
  • Our TCC/GM ratio further improved to 0.35x. This represents a best-in-class ratio and a competitive advantage as we transform Rolls-Royce into a more resilient business.
  • We have delivered more than £450m of Efficiency & Simplification benefits since the start of 2022 and remain on track to deliver more than £500m by the end of this year. Our Efficiency & Simplification targets are supported by zero-based budgeting and our Group Business Services (GBS) strategy. GBS efficiencies are scaling up: we have opened a new GBS centre in Poland and are expanding our centre in India.
  • We have delivered more than £850m of gross third-party cost savings since the start of 2022 which has helped to partially offset inflationary pressures, and we remain on track to deliver more than £1bn by the end of this year.

• Lower carbon & digitally enabled businesses:
  • In June, Rolls-Royce SMR was chosen as the sole provider in the Great British Energy - Nuclear (GBEN) SMR competition to build three SMR units in the UK. Contractual terms are expected to be finalised in the fourth quarter of 2025, resulting in a two-stage contract that will see the first SMR connected to the grid by the mid-2030s. This project will start to generate revenues and profit from late 2025 onwards, with positive cash flows throughout. We expect Rolls-Royce SMR to be profitable and free cash flow positive by 2030. We continue to see significant international interest in Rolls-Royce SMRs, including in Sweden where we have been shortlisted as one of two potential SMR providers by Vattenfall.
  • In Power Systems, our battery energy storage systems (BESS) business has won major orders, including for the Ignitis Group in Lithuania, which are supporting strong revenue growth and our ambition to achieve breakeven performance in the near-term.
  • We are increasingly adopting Artificial Intelligence (AI) across the Group as part of our digital strategy. We are testing our own Generative AI platform for a variety of use cases including accelerating new product introductions and more efficient MRO processes. We are also working to provide greater transparency across our supply chain through digital, data and AI.
  • Our Engine Health Monitoring (EHM) has moved to the cloud for key widebody and business aviation engines. This offers improved performance, scalability, and resilience as well as advanced AI capabilities that can be used for improvements in engine performance.

These strategic initiatives are continuing to expand the earnings and cash potential of the business. 

Outlook and 2025 Guidance

A strong first half delivery gives us confidence to raise our full year 2025 guidance, despite a challenging and uncertain external environment. This reflects the continued execution of our strategic initiatives, notably commercial optimisation and cost efficiencies.

Operating profit guidance for the full year 2025 now stands at £3.1bn-£3.2bn. Compared to an operating profit of £1.7bn in the first half, we expect a slightly lower delivery in the second half of 2025 due to a lower contribution from net contractual margin improvements (H1 2025: £288m), an increased number of OE deliveries and higher MRO investment related costs in Civil Aerospace.

Free cash flow guidance for the full year 2025 now stands at £3.0bn-£3.1bn. We expect a slightly lower free cash flow in the second half compared to the first half of 2025. This reflects a slightly lower operating profit in the second half of the year, alongside an increased number of large engine major shop visits with a significant increase in Trent 1000 major shop visits. Investments across the Group will also be higher in the second half as we continue to support growth to the mid-term and beyond.

As guided in February, our free cash flow guidance for full year 2025 still includes a £150-200m cash impact related to the aerospace supply chain. Our actions have resulted in some improvements in parts availability across the supply chain. However, we anticipate challenges to persist through 2025 and 2026.

Our guidance assumes Civil net LTSA creditor growth at the low end of the range of £0.8bn-£1.2bn. In Civil Aerospace, we continue to expect large EFH in the range of 110-115% of 2019 levels and 1,400-1,500 total shop visits. We now expect total OE deliveries at the low end of the 540-570 range.

Results meeting and webcast

Our results presentation will be held at UBS, 5 Broadgate, London EC2M 2QS and webcast live at 09:00 (BST) today. Attendance is by pre-registration only. Downloadable materials will also be available on the Investor Relations section of the Rolls-Royce website: https://www.rolls-royce.com/investors/results-and-events.aspx

To register for the webcast, including Q&A participation, please visit the following link: Rolls-Royce 2025 Half Year Results - webinar.net

Please use this same link to access the webcast replay which will be made available shortly after the event concludes. Photographs and broadcast-standard video are available at www.rolls-royce.com

Enquiries:

The person responsible for arranging the release of this announcement on behalf of Rolls-Royce Holdings plc is Claire-Marie O'Grady, Chief Governance Officer.

This results announcement contains forward-looking statements. Any statements that express forecasts, expectations and projections are not guarantees of future performance and will not be updated. By their nature, these statements involve risk and uncertainty, and a number of factors could cause material differences to the actual results or developments. This report is intended to provide information to shareholders, is not designed to be relied upon by any other party, or for any other purpose and Rolls-Royce Holdings plc and its directors accept no liability to any other person other than under English law.

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