Rolls-Royce reaffirmed its full-year targets and accelerated cash returns to shareholders as the momentum behind chief executive Tufan Erginbilgic’s turnaround gathered pace.
The turnaround plan has been in the offing for years, and today’s update from Rolls-Royce shows more evidence of its effectiveness, with strong performance in emerging divisions and positioning for AI-inspired growth.
The engineering group stuck by guidance of £4.7bn-£4.9bn of underlying operating profit and £3.8bn-£4.0bn of free cash flow for 2026, and said it would announce a fresh £1.5bn share buyback to be completed by its results on 25 February.
Investors should note this is accelerated timing rather than additional returns, as the tranche sits within the existing £7bn-£9bn buyback programme running to 2028.
Where is Rolls-Royce’s growth coming from?
In Civil Aerospace, demand remained strong, with the order backlog swelling to around 2,500 large engines on the back of new orders from the likes of Cathay, Air China and Philippine Airlines.
Engine flying hours rose 4%, though the company expects the full-year figure to land towards the lower end of its 115%-120%-of-2019 range, a modest soft spot it attributed partly to airlines trimming capacity in response to fuel prices. Flying hours from Middle Eastern carriers have recovered above pre-conflict levels.
Power Systems was the fastest-growing division, with order intake jumping 62% and the backlog hitting a record £8.6bn.
Orders for gas engines nearly tripled, driven by demand for prime power from data centres, and Rolls said it was finalising a significant multi-year contract to supply backup engines to an unnamed hyperscaler.
Alongside a strong defence order book and continued progress on its small modular reactor business, the update reinforced why Rolls-Royce has been one of London’s best-performing stocks of the past decade.
Chris Beauchamp, Chief Market Analyst UK at investing and trading platform IG: “Rolls shares were already climbing as investors went bargain hunting for non-AI stocks, but today’s numbers should reinforce the bounce, thanks to the solid demand in civil engines. Concerns about a further hit to aviation activity due to the Iran war have not materialised, with Rolls well-placed to benefit from a further recovery.”
Rolls-Royce shares were 2% higher at the time of writing.