Rolls-Royce Reports Strong First Half 2025 Results, Increases Full-Year Guidance Amid Strategic Momentum
Rolls-Royce Holdings Plc has reported a robust financial and operational performance for the first half of 2025, underscoring the tangible benefits of its ongoing multi-year transformation program. Despite ongoing external pressures such as persistent supply chain disruptions and tariff-related challenges, the company delivered significant improvements across all major financial metrics. This progress has led to an upward revision of its full-year outlook for both operating profit and free cash flow.
Substantial Growth in Profitability and Cash Flow
The first six months of 2025 saw Rolls-Royce achieve a 50% increase in underlying operating profit, rising from £1.1 billion in H1 2024 to £1.7 billion, with the operating margin climbing to 19.1% compared to 14.0% in the prior year. This growth is credited to effective performance management, strategic commercial initiatives, and efficiency gains across business segments.
Free cash flow surged to £1.6 billion, a significant improvement from £1.2 billion in the same period last year. This was primarily driven by higher profitability and continued growth in the long-term service agreement (LTSA) balance. The company reported that Civil Aerospace flying hours reached 109% of 2019 levels, which supported sustained LTSA cash inflows despite an increase in shop visit volumes.
Strengthening Financial Resilience
Rolls-Royce continued to reinforce its balance sheet, ending the half-year period with a net cash position of £1.1 billion, up from £475 million at the end of 2024. Gross debt stood at £3.5 billion, with $1.0 billion scheduled to mature in October 2025—an amount the company intends to repay using free cash flow. Lease liabilities amounted to £1.4 billion, and the firm held £6.0 billion in cash and cash equivalents, bringing total liquidity to £8.5 billion.
Additionally, the company improved its Total Cash Cost to Gross Margin (TCC/GM) ratio to 0.35x from 0.49x a year earlier, reflecting its ability to manage costs efficiently while sustaining margin growth.
Upgraded Full-Year 2025 Outlook
In light of the strong first-half performance, Rolls-Royce has raised its full-year 2025 guidance. The company now expects underlying operating profit to be between £3.1 billion and £3.2 billion, and free cash flow in the range of £3.0 billion to £3.1 billion. These upgrades are aligned with the company’s mid-term targets of £3.6–£3.9 billion in operating profit and £4.2–£4.5 billion in free cash flow.
CEO Tufan Erginbilgic noted, “Our actions led to strong first half results, despite the challenges of the supply chain and tariffs. We are continuing to expand the earnings and cash potential of Rolls-Royce. This builds further conviction in our mid-term targets, which we see as a milestone rather than a destination.”
Segment Highlights
- Civil Aerospace: Delivered a 24.9% operating margin, driven by strong aftermarket performance, improved contractual terms, and higher profitability from spare engine sales.
- Power Systems: Achieved a 15.3% margin, up from 10.3% last year, supported by profitable growth in power generation for data centres and governmental applications.
- Defence: Maintained solid performance with a 15.4% margin, slightly below the 15.5% posted in H1 2024 due to continued supply chain constraints.
Shareholder Returns
To reward shareholders, Rolls-Royce announced an interim dividend of 4.5p per share, to be paid in September. This comes in addition to a share buyback program, with £0.4 billion already executed out of a planned £1 billion for the year. Including the dividend and buybacks, the company is set to return £1.9 billion to shareholders over the course of 2025.
Strategic and Operational Initiatives
Rolls-Royce continues to execute its transformation strategy anchored around four strategic pillars:
1. Portfolio Choices & Partnerships
- Rolls-Royce SMR: Gained a strategic partner in ČEZ Group, which agreed to potentially purchase up to six small modular reactors (SMRs). The UK government also selected Rolls-Royce SMR as the sole provider for the country’s first SMR program.
- MRO Expansion: Announced a partnership with Turkish Technic to build a maintenance facility in Istanbul, expected to be operational by 2027.
- Power Systems Investment: Ongoing investments in next-gen military and commercial engines, with improved efficiency and emissions performance.
- Divestitures: Completed the sale of the naval propulsors business to Fairbanks Morse Defence; another naval handling unit sale is pending.
2. Advantaged Businesses & Contract Renegotiations
- Successfully renegotiated all original equipment contracts and the majority of onerous aftermarket agreements, contributing £402 million in gross contractual margin improvements.
- Certified new high-pressure turbine blade for the Trent 1000 TEN, doubling engine time-on-wing.
- Introduced the Trent XWB-84EP on the Airbus A350-900, improving fuel efficiency and durability.
- Pearl 700 engine for Gulfstream G800 received FAA and EASA certification; Pearl 10X for Dassault Falcon 10X nears final regulatory approval.
3. Efficiency & Simplification
- Over £450 million in cumulative savings achieved since 2022, with a target of £500 million by the end of 2025.
- Opened a new Group Business Services (GBS) centre in Poland and expanded operations in India.
- Achieved over £850 million in third-party cost savings, aiming for £1 billion total by year-end.
4. Lower Carbon & Digitally Enabled Growth
- Rolls-Royce SMR selected for the UK’s GBEN nuclear project, with the first reactor expected to connect to the grid by the mid-2030s.
- The battery energy storage business secured significant orders, such as from the Ignitis Group in Lithuania.
- AI and digitalization efforts accelerated across the company, including the use of Generative AI in MRO and new product development, and cloud migration of engine health monitoring systems for enhanced analytics and scalability.
