REG - Rolls-Royce Holdings - Full Year Results 2025
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RNS Number : 4380U Rolls-Royce Holdings plc 26 February 2026
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ROLLS-ROYCE HOLDINGS PLC - 2025 Full Year Results 26 February 2026
Strong 2025 results; Upgraded mid-term guidance; Multi-year share buyback
announced
- Significant progress in 2025 driven by our transformation programme, which has
also allowed us to capture profitable end market growth
- Underlying operating profit of £3.5bn with a margin of 17.3%, reflecting the
impact of our strategic initiatives and commercial optimisation
- Free cash flow of £3.3bn driven by strong operating profit and continued LTSA
balance growth, supporting a net cash balance of £1.9bn at 31 December 2025
- 2026 guidance of £4.0bn-£4.2bn underlying operating profit and
£3.6bn-£3.8bn free cash flow
- Upgraded mid-term targets of £4.9bn-£5.2bn underlying operating profit,
18%-20% operating margin, £5.0bn-£5.3bn free cash flow, and 23%-26% return
on capital based on a 2028 timeframe
- Final dividend of 5.0p per share, taking the total dividend for 2025 to 9.5p;
a 32% payout ratio of underlying profit after tax
- £7bn - £9bn multi-year share buyback across 2026-2028 following completion
of the £1bn share buyback in 2025
Tufan Erginbilgic, CEO said: "Our transformation continues with pace and
intensity. We are consistently achieving outcomes that were not possible
before our transformation. With our new capabilities and mindset, we have
navigated challenges from supply chain to tariffs, and delivered a strong
performance in 2025, all while we built the foundations for significant growth
for years to come.
Based on our 2026 guidance, we expect to deliver underlying operating profit
within the prior mid-term guidance range two years earlier than planned. Our
upgraded mid-term targets include underlying operating profit of
£4.9bn-£5.2bn and free cash flow of £5.0bn-£5.3bn. Beyond the mid-term we
continue to see significant growth from existing businesses as well as from
new business opportunities.
With a strong balance sheet, significant investment to support our long-term
growth, and confidence in the future, we are announcing a £7bn-£9bn share
buyback for 2026-2028 with £2.5bn to be completed this year."
Full Year 2025 Group Results
Underlying Underlying Statutory Statutory
2025
2024
2025 (1) 2024 (1)
£ million
Revenue 20,059 17,848 21,207 18,909
Operating profit 3,462 2,464 4,468 2,906
Operating margin % 17.3% 13.8% 21.1% 15.4%
Profit before taxation 3,352 2,293 6,935 2,234
Basic earnings per share (pence) (2) 29.55 20.29 69.41 30.05
Free cash flow 3,270 2,425
Return on capital (%) (2, 3) 18.9% 13.8%
Net cash flow from operating activities 4,565 3,782
Net cash 1,895 475
(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 52 to 55
(2) In 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 earnings per share, the proposed
dividend payout ratio, and return on capital. For further details, see note 5,
page 33
(3) Adjusted return on capital is defined on page 55 and is abbreviated to return
on capital
Full Year 2025 performance summary
- Strategic delivery: 2025 has been another year of strong strategic and
financial delivery with a significant improvement across all financial
metrics. Over the past three years, our transformation programme has delivered
a step‑change in performance, with higher operating profit and free cash
flow delivered alongside a doubling of capital expenditure, as we continue to
transform Rolls-Royce into a high-performing, competitive, resilient, and
growing business. Our actions have driven stronger financial performance
despite an external environment that remains challenging, including supply
chain constraints which we are actively managing.
- Significant operating profit and margin growth: Underlying operating profit
increased to £3.5bn in 2025 compared with £2.5bn in 2024, with an operating
margin of 17.3% (2024: 13.8%). Civil Aerospace delivered an underlying
operating margin of 20.5% (2024: 16.6%), driven by stronger large engine
aftermarket performance, contractual margin improvements and higher spare
engine profitability. Defence reported an underlying operating margin of 14.4%
(2024: 14.2%), which reflects stronger performance across transport and
combat, and the absence of a one-off benefit in submarines in the prior year.
Power Systems delivered an operating margin of 17.4% (2024: 13.1%), driven by
power generation, where we continue to capture profitable growth in data
centres, and governmental. Across the Group, improved profitability was
supported by our ongoing efficiency and simplification programme.
- Sustainable free cash flow growth: Free cash flow of £3.3bn (2024: £2.4bn)
was driven by strong operating profit, continued long-term service agreement
(LTSA) balance growth, and a strong working capital performance offset by net
investments. Civil Aerospace LTSA balance growth net of risk and revenue
sharing arrangements (RRSAs) was £0.6bn (2024: £0.7bn), this was supported
by 8% growth in large engine flying hours (EFH) and an improved EFH rate,
partly offset by a higher number of shop visits and supply chain costs.
Working capital was an inflow of £421m (2024: £280m), reflecting the
continued benefits of our working capital initiatives. Net investments of
£257m (2024: £282m) supported maintenance repair and overhaul (MRO) capacity
growth in Civil Aerospace and additional capacity in Power Systems.
- Building resilience: Net cash stood at £1.9bn at 31 December 2025 compared
with £475m at the end of 2024, supported by continued strong cash flow
delivery. Gross debt reduced to £2.8bn (2024: £3.6bn), as we repaid a $1bn
bond in October from available cash, and lease liabilities stood at £1.5bn
(2024: £1.6bn). Liquidity remained robust at £8.7bn (2024: £8.1bn), which
included cash and cash equivalents of £6.2bn (2024: £5.6bn). Total
underlying cash costs as a proportion of underlying gross margin (TCC/GM)
further improved to 0.36x (2024: 0.47x), reflecting further cost discipline
and operational efficiency. We are building a more resilient company with a
less volatile free cash flow.
- Growing shareholder returns: Reflecting strong strategic and financial
progress and in line with our capital framework, we reinstated regular
shareholder dividends in 2025 and completed a £1.0bn share buyback programme.
This represented the first time that Rolls-Royce has paid a dividend in more
than five years and the first buyback for 10 years. The final dividend for
2025 is 5.0p per share, taking the total dividend for 2025 to 9.5p, which
represents a 32% payout ratio of underlying profit after tax. The final
dividend will be paid subject to shareholder approval at our Annual General
Meeting on 30 April 2026(1). Our strong balance sheet position, alongside our
upgraded mid-term targets for operating profit and free cash flow, gives us
confidence to announce our first multi-year buyback programme, totalling
£7bn-£9bn across 2026 to 2028, of which £2.5bn will be completed in 2026,
which includes the £200m that was completed between 2 January and 20 February
2026.
(1) The dividend will be paid on 3 June 2026 to ordinary shareholders on the
register on 24 April 2026. In addition to the cash dividend, shareholders will
be offered a dividend reinvestment plan. For further details, see note 7, page
34
Transformation programme and strategic initiatives
Our strategic framework is founded on four strategic pillars. We have made
significant progress against each of these pillars over the past three years,
including in 2025.
- Portfolio choices & partnerships:
• ČEZ Group completed strategic investments in Rolls-Royce SMR, alongside a
commitment for up to six units in the Czech Republic.
• We are continuing to expand our MRO capacity, which has supported a more than
50% increase in large engine shop visits over the past three years. In 2025,
we added capacity in Derby, Dahlewitz, and Singapore. By the mid-term, we will
increase our capacity by an additional 20% across the network to support
long-term fleet growth. The Beijing Aero Engine Services Limited (BAESL) joint
venture with Air China opened in December and will support up to 250 Trent
XWB-84, Trent 1000, and Trent 700 overhauls per annum by the mid‑2030s. In
partnership with Turkish Technic, we announced the establishment of a
state-of-the-art independent maintenance centre in Istanbul, targeted to be
operational by the end of 2027, supporting up to 200 shop visits annually for
Trent XWB-84, Trent XWB-97, and Trent 7000 engines.
• The Pearl 700-powered Gulfstream G800 entered service in August. Certification
for the Pearl 10X engine, which powers the Dassault Falcon 10X, is underway,
with all engine certification tests successfully completed in 2025 and the
on-going finalisation of the certification reports for the European Union
Aviation Safety Agency (EASA) is progressing to plan.
• In Power Systems, testing of our next-generation engines for power generation
and governmental applications is progressing to plan. This includes our next
generation Series 4000 engine, to be released in 2028, which targets the data
centre market with a significantly improved power density, alongside the
development of an upgraded military engine.
• We continue to invest in power generation, significantly increasing capacity
in Germany and at our US sites in Aiken and Mankato to support growing demand,
driven by data centres.
• In Defence, testing of the AE 1107 and F130 engines, which will power the
MV-75 (Future Long-Range Assault Aircraft) and B-52 aircraft, is progressing
to plan. We are supporting the ramp-up of these programmes with significant
investments in the US, which totalled around $1bn in Indianapolis alone over
the past decade.
• Rolls-Royce submarines, alongside Assystem, AtkinsRéalis, and Frazer-Nash,
formed the Capability Assured Strategic Partnership, which brings together
nuclear capability in the UK to support the Royal Navy's submarines programme
and the wider Defence Nuclear Enterprise.
• In July, we completed the sale of our naval propulsors business to Fairbanks
Morse Defense.
- Advantaged businesses & strategic initiatives:
• In Civil Aerospace, we continued to increase the LTSA margins across our
in-production widebody engines through improved commercial terms alongside
operational improvements. As a result of our actions, the value of our LTSA
contracts has increased significantly since 2022.
• Our time on wing programme now targets more than a 100% increase in durability
across our in-production Trent engines by the end of 2027, with more than half
of this improvement now delivered. The increase compared to our previous
target of more than 80% is primarily driven by further life extensions for the
Trent XWB-84, where we have refined and accelerated our programme to extend
critical part lives. The life extension programme for the Trent XWB-84 will be
completed in 2026. Building on this, the recently introduced Trent XWB-84EP
improves fuel efficiency by over 1% and improves time on wing for new engines.
In June, the Trent 1000 XE phase one HPT blade improvement was certified and
is being fitted to new and in-service engines. In December, the phase two HPT
blade was certified for the Trent 1000 XE and Trent 7000 engines and will
begin to be incorporated into new and in-service engines in 2026. Durability
upgrades for the Trent XWB-97 made significant progress through material,
component, and cyclic engine testing in 2025, with time on wing improvements
remaining on track for completion by the end of 2027. We are continually
seeking to improve the time on wing of all our engines. For example, we also
delivered durability enhancements for the Trent 900 engine which will yield up
to a 30% time on wing improvement.
• In Power Systems, we are capturing profitable growth opportunities in power
generation and governmental. In power generation, we announced a new
fast-start gas generator product in October that will offer prime power for
data centre customers who are awaiting grid connection, and which can later be
switched to backup power generation once the data centre is connected to the
grid. In governmental, we received a major order in December to supply more
than 300 Leopard 2 engines.
• In Defence, demand for our products remains robust and we secured major orders
in 2025. In the first half of the year, we secured key aftermarket contracts
worth more than £1.5bn with the UK MoD and US DoW covering EJ200 and AE 2100
engines. In the second half of the year, the Republic of Türkiye and the UK
signed an agreement to export 20 British-built Eurofighter Typhoon aircraft,
with an option for more in the future. In September, on the Global Combat Air
Programme (GCAP), the international consortium announced a major expansion of
their partnership to accelerate development of the power and propulsion system
for the next-generation fighter aircraft.
- Efficiency & simplification:
• Our efficiency and simplification programme has delivered £0.6bn of savings
since the start of 2022, above our target of £0.5bn by the end of 2025.
• We delivered £1.2bn of gross third-party procurement savings since the start
of 2022, also above our target of £1.0bn by the end of 2025.
• We are driving further efficiencies to support disciplined growth across the
Group, including scaling up our Group Business Services (GBS) capabilities in
India and Poland, alongside growing our digital capabilities and the continued
implementation of zero-based budgeting.
• We further improved our best-in-class TCC/GM ratio to 0.36x (2024: 0.47x),
evidence of the continued strengthening of our competitive advantage and
resilience.
- Lower carbon & digitally enabled businesses:
• In June, Rolls-Royce SMR was chosen as the sole provider in the Great British
Energy - Nuclear (GBE-N) small modular reactors (SMR) competition to build
three SMR units in the UK. In November, it was confirmed that the Wylfa site
on the coast of Ynys Môn (Anglesey) will host three Rolls-Royce SMRs, with
this site capable of taking eight units. In the Czech Republic, work began at
the Temelin site. In August, Rolls-Royce SMR advanced to the final stage of
the Swedish competition to select a nuclear technology partner, with
Vattenfall moving ahead with small nuclear options only.
• We reached a key milestone with the launch of our AI platform, AiRR, with
capabilities in generative and agentic AI. This sits at the core of our
efforts to develop and deploy high-value AI capabilities across engineering,
MRO, and the supply chain which are expected to reduce turnaround times and
product and shop visit costs.
• In Power Systems, demand for battery energy storage systems (BESS) remains
high, with major orders across Europe, including a large order in Lithuania
that will provide approximately 600MWh of capacity to the grid. We continue to
advance lower carbon propulsion. In October, we conducted the world's first
successful test of a highspeed marine engine running on pure methanol,
futureproofing our solutions for the marine sector.
• Rolls-Royce, together with Xanadu and Riverlane, demonstrated state-of-the-art
quantum computing algorithms which can reduce airflow simulation times from
weeks to less than an hour. As quantum computing matures, this technology has
the potential to reduce prototyping runtimes by up to 1,000-fold in certain
applications.
These strategic initiatives are continuing to expand the earnings and cash
potential of the business.
Outlook and 2026 guidance
We expect significant further progress in 2026.
2026 financial guidance
Underlying operating profit £4.0bn-£4.2bn
Free cash flow £3.6bn-£3.8bn
Our free cash flow guidance for full year 2026 includes a £150m-£200m cash
impact related to the supply chain, similar to 2025, with parts availability
improving but still constrained. We are actively managing these challenges and
are working to mitigate the impacts.
In Civil Aerospace, we expect 2026 large EFH will grow to 115%-120% of 2019
levels, alongside 550-600 total OE deliveries and 1,480-1,550 total shop
visits. Our 2026 free cash flow guidance is based on Civil Aerospace net LTSA
balance growth broadly similar to the prior year (2025: £0.6bn). Additional
details are included in the results presentation and supplementary data
slides.
Upgraded mid-term targets
Our strong delivery in 2025 and our actions to expand earnings and free cash
flow gives us confidence to upgrade our mid-term targets. The increase in our
mid-term operating profit and margin guidance is primarily driven by higher
LTSA and time and materials profit in Civil Aerospace and stronger performance
in power generation and governmental in Power Systems.
Upgraded mid-term targets (2028) Previous mid-term targets (2028)
Group targets:
Underlying operating profit £4.9bn-£5.2bn £3.6bn-£3.9bn
Underlying operating margin 18%-20% 15%-17%
Free cash flow £5.0bn-£5.3bn £4.2bn-£4.5bn
Return on capital 23%-26% 18%-21%
Divisional margin targets:
Civil Aerospace 21%-23% 18%-20%
Defence 14%-16% 14%-16%
Power Systems 18%-20% 14%-16%
Underlying operating profit is expected to increase from £3.5bn in 2025 to
£4.9bn-£5.2bn in the mid-term and underlying operating margin from 17.3% in
2025 to 18%-20%; a strong delivery with highly competitive margins across all
divisions:
· Civil Aerospace: We now target a mid-term margin of 21%-23%
compared to 20.5% in 2025. We expect large EFH growth to be 130% to 140% of
2019 levels, alongside 650-750 total OE deliveries and 1,300-1,400 total shop
visits in 2028. Higher operating profit will be driven by:
o Stronger widebody aftermarket performance across LTSA and time and
materials.
o Improved widebody OE profitability as Trent XWB installed engine
deliveries become breakeven or positive by the mid-term due to commercial
optimisation and efficiency actions.
o A further increase in business aviation performance across both OE and
aftermarket.
o Higher spare engine profitability reflecting commercial optimisation and
mix.
o A reduced contribution from contractual margin improvements.
· Defence: We continue to target a 14%-16% margin in the mid-term
compared to 14.4% in 2025. Higher operating profit will be primarily driven
by:
o Stronger performance across all end markets, with higher aftermarket
profit alongside increased OE volumes.
o Continued self-help actions.
o Productivity improvements due to capacity expansion.
· Power Systems: We now target a mid-term margin of 18%-20% compared
to 17.4% in 2025. Higher operating profit will be driven by:
o Power generation OE revenue growth of around 20% per annum driven by data
centres, with higher margins reflecting an improved product mix and
efficiencies.
o Governmental OE revenue growth of around 20% per annum (previously
12%-14%) reflecting increased global defence spending.
o Marine OE revenue growth of 5%-7% per annum.
o BESS: double-digit OE revenue growth.
o Strong growth in service revenue will support margin improvements to the
mid-term.
These targets are significantly underpinned by our strategic initiatives and
the actions that we have taken across the Group and will be supported by
further efficiencies to drive disciplined growth, including expanding our
digital and GBS capabilities, as well as zero-based budgeting activities, all
of which will drive a further improvement in our TCC/GM ratio.
Free cash flow of £5.0bn-£5.3bn in the mid-term compares to £3.3bn in 2025.
Free cash flow will be driven by operating profit alongside continued growth
of the Civil Aerospace net LTSA balance in the £0.8bn-£1.2bn range. LTSA
balance growth reflects large EFH growth to 130% to 140% of 2019 levels, a
higher average normalised EFH rate, the benefits of our time on wing
initiatives with shop visits falling to 1,300-1,400 in the mid-term, alongside
continued business aviation growth. Our mid-term targets assume a forecast
achieved foreign exchange rate of $1.33/£ and the absence of a cash impact
related to the supply chain.
Growth prospects beyond the mid-term
We see strong growth prospects from our existing businesses beyond the
mid-term. These businesses are well positioned to benefit from key global
trends, and we expect further performance improvement from self-help.
In Civil Aerospace, we have strong positions on leading platforms in both
widebody and business aviation. With our young and growing widebody fleet, we
see continued installed engine growth beyond the mid-term. Higher LTSA margins
and continued LTSA balance growth will be supported by the full benefit of our
strategic initiatives, notably the impact of our time on wing programme
driving a proportionately lower number of shop visits, and a continued benefit
from new, renewed, and renegotiated contracts with better terms. We also
expect improving OE profitability, alongside further growth in business
aviation. Our investment in UltraFan leaves us uniquely placed for the next
generation of widebody aircraft.
In Defence, where we have growing visibility of future demand, we anticipate
prolonged demand for our existing portfolio of profitable products including
EJ200 and our AE engine family alongside the ramp up of new platforms. These
new platforms will remain in service for decades to come and include AUKUS,
B-52, GCAP, MV-75, and MQ-25, alongside a growing opportunity from autonomous
platforms.
In Power Systems, growth will mainly be driven by power generation and
governmental. We anticipate sustained power generation growth driven by data
centres, where our strong market position will be supported by the
introduction of our more power-dense next generation engine. In governmental,
rising defence spending supports both land and naval applications, where we
are the incumbent supplier on the main European NATO platforms, and we remain
well positioned to support US growth. We also see opportunities for profitable
growth in marine, rail, mining, and BESS.
In addition, we see additional growth opportunities from new businesses, which
our transformation has unlocked.
Our unique nuclear capabilities, alongside existing customer commitments,
means that we are well-placed to become a market leader in SMRs. We see a
significant value creation opportunity with our differentiated SMR offering
and expect Rolls-Royce SMR to be profitable and free cash flow positive by
2030, with strong profit and cash flow growth thereafter. We see further
opportunity in the adjacent Advanced Modular Reactor (AMR) market, with these
smaller, more flexible powerplants having potential applications in defence
and commercial power.
We also see an opportunity to re-enter the large and growing narrowbody
market, which offers attractive synergies to our existing widebody and
business aviation activities, based on our UltraFan technologies. We would
look to address this opportunity through a partnership.
Financial performance by business
£ million Underlying revenue Organic change (1) Underlying operating profit/(loss) Organic change (1) Underlying operating margin Organic margin change (1)
Civil Aerospace 10,382 15% 2,130 41% 20.5% 3.9pt
Defence 4,772 8% 689 9% 14.4% 0.1pt
Power Systems 4,892 19% 852 60% 17.4% 4.5pt
All Other Businesses (2) 13 nm(3) (140) nm(3) nm(3) nm(3)
Corporate/eliminations - nm(3) (69) -3% nm(3) nm(3)
Total 20,059 14% 3,462 38% 17.3% 3.2pt
Trading cash flow
£ million 2025 2024
Civil Aerospace 2,512 2,030
Defence 745 591
Power Systems 658 452
All Other Businesses (2) 9 (176)
Corporate/eliminations (62) (60)
Total trading cash flow 3,862 2,837
Underlying operating profit charge exceeded by contributions to defined (37) (31)
benefit schemes
Taxation (555) (381)
Total free cash flow 3,270 2,425
( )
(1) Organic change is the measure of change at constant translational currency
applying full year 2024 average rates to 2024 and 2025 and excludes M&A
and business closures. All underlying income statement commentary is provided
on an organic basis unless otherwise stated
(2) All Other Businesses include the financial results of Rolls-Royce SMR (also
referred to as Rolls-Royce SMR Limited), electrical power solutions and the UK
Civil Nuclear business (see note 2 for further details)
(3) nm is defined as not meaningful
Civil Aerospace
2025 key Civil Aerospace operational metrics: Large engine Business aviation/ regional Total Change
OE deliveries 259 224 483 -9%
LTSA engine flying hours (millions) 17.0 3.0 20.0 +6%
Total LTSA shop visits 1,079 361 1,440 +10%
…of which major shop visits 517 330 847 +4%
Higher Civil Aerospace operating profit reflected stronger large engine
aftermarket performance, contractual margin improvements and spare engine
profitability.
In 2025, large engine EFH rose by 8% to 111% of 2019 levels, driven primarily
by new aircraft deliveries. Business aviation and regional EFH were broadly
unchanged in the year. A total of 638 large engines were ordered in 2025
(2024: 494) with a gross book-to-bill of 2.5x (2024: 1.8x). The Trent XWB-97
and Trent 7000 were our bestselling engines in the year, with 226 and 212
orders, respectively. Significant new orders included Riyadh Air, IndiGo, and
IAG. As a result of strong order intake, our large engine order book increased
by 20% and now stands at 2,207 engines at the end of December 2025.
Total OE deliveries of 483 engines (2024: 529) were aligned to airframer
production schedules, reflecting the impact of industry-wide supply chain
issues. Business aviation deliveries were 224 (2024: 251) and large engine
deliveries were 259 (2024: 278), which includes a slightly lower number of
spare engine deliveries. Total shop visits increased by 10% versus the prior
year to 1,440 (2024: 1,313), including a step-up in Trent 1000 shop visits in
the second half of the year. Of the total shop visits, 517 were large engine
major shop visits (2024: 430).
Underlying revenue of £10.4bn increased 15%, driven by a higher number of
shop visits and commercial optimisation. Underlying OE revenue grew by 3% in
the year to £3.2bn and services revenue grew by 21% to £7.2bn. LTSA revenue
catch-ups were £279m (2024: £311m).
Underlying operating profit was £2.1bn (20.5% margin) versus £1.5bn in 2024
(16.6% margin). The increase in operating profit was driven by stronger large
engine aftermarket performance across LTSA and time and materials, a larger
contribution from contractual margin improvements, and improved spare engine
profitability.
Our work on commercial optimisation and cost reduction across large engine and
business aviation contracts supported gross contractual margin improvements of
£553m (2024: £617m). These were primarily driven by the continued successful
renegotiation of onerous contracts in the year, alongside the achievement of
key time on wing milestones on the Trent XWB-84. These benefits were partially
offset by £161m (2024: £382m) of additional charges associated with the
impact of prolonged supply chain challenges, which were booked across onerous
provisions and contract catch-ups. As a result, net contractual margin
improvements were £392m (2024: £235m), comprising contract catch-ups of
£226m (2024: £290m) and net onerous provision releases of £166m (2024:
charges of £55m).
Trading cash flow of £2.5bn was 24% higher than the prior year (2024:
£2.0bn). The increase in trading cash flow was primarily driven by higher
operating profit, partly offset by slightly lower year-on-year LTSA balance
growth. LTSA balance growth net of RRSAs was £0.6bn (2024: £0.7bn),
supported by continued EFH growth, a higher normalised EFH rate due to our
commercial actions, with LTSA invoiced flying hour receipts of £6.0bn (2024:
£5.5bn), offset by a higher number of shop visits.
Defence
Higher operating profit reflected stronger performance across transport and
combat, partly offset by the absence of a one-off benefit in submarines in the
prior year.
Defence's order intake was £5.5bn with a book-to-bill ratio of 1.1x. We
captured growing demand for our mature products, including AE 2100 and the
EJ200 engine for the Eurofighter. New Eurofighter aircraft orders from Italy,
Germany and Spain, alongside the recent commitment from Türkiye, now provides
visibility of EJ200 OE production into the 2030s. In addition, we saw strong
order intake for new programmes, including GCAP and MV-75, that will support
strong revenue growth from the late-2020s. Defence's order backlog at the year
end stood at £17.4bn, equivalent to more than three years of revenue, with
order cover of around 90% for 2026.
Underlying revenue grew by 8% to £4.8bn (2024: £4.5bn), with 20% growth in
transport, 7% growth in combat, and 11% growth in naval, partly offset by 1%
lower submarines revenue. Total OE revenue growth was 18% and services revenue
growth was 1%. Excluding the impact of a one-off benefit in submarines revenue
in the prior year (1), total revenue growth was 14%, services revenue growth
was 11% and submarines revenue growth was 17%.
Key milestones in the year included the announcement by the international GCAP
consortium of a major expansion of their partnership to accelerate the
development of power and propulsion systems, the first MV-75 engine entering
development testing, continued testing of the F-130 engine for the B-52, and
the first engine delivery for the MQ-25 unmanned refuelling aircraft
programme.
Underlying operating profit was £689m (14.4% margin) compared to £644m
(14.2% margin) in the prior year. The year-on-year improvement reflected
stronger performance in transport OE, driven by increased volumes and a more
favourable mix including improved margins from international sales. Combat OE
profit was also higher. This was partly offset by the absence of a one-off
benefit in submarines in the prior year.
Trading cash flow was £745m compared to £591m in the prior year, driven by
higher operating profit and a stronger working capital performance.
Power Systems
Significantly higher operating profit was driven by power generation, where we
have captured profitable growth in data centres, and governmental.
Order intake was £6.1bn, a 21% increase compared to the prior year, with a
book-to-bill ratio of 1.2x. OE order coverage for 2026 is 79%. Demand remains
particularly strong in power generation, where order intake rose by 31%, and
governmental where order intake rose by 15%.
Underlying revenue was £4.9bn, an increase of 19% versus the prior year.
Power generation revenue growth was 30%, including data centre revenue growth
of 35%. Governmental revenue growth was 14%, driven by both land and naval
defence. Underlying OE revenue grew by 23% to £3.4bn. Underlying services
revenue grew by 12% to £1.5bn.
Underlying operating profit grew by 60% to £852m. Underlying operating margin
rose by 4.5pts to 17.4% (2024: 13.1%). The increase in operating profit was
driven by significant profitable growth in power generation OE, stronger
governmental services growth and our young and growing BESS business, which is
now breakeven. Power generation growth was driven by data centres, where we
continued to capture the benefits of volume, mix and commercial optimisation.
Trading cash flow was £658m compared to £452m last year. The increase in
trading cash flow was mainly due to stronger operating profit, partly offset
by higher investments and working capital to support disciplined business
growth.
(1) Defence revenue in 2024 included a c.£220m benefit of a one-off capital and
lease transaction
Statutory and underlying Group financial performance
2025 2024
£ million Statutory Impact of hedge book (1) Impact of acquisition accounting Impact of other non-underlying items Underlying Underlying
Revenue 21,207 (1,148) - - 20,059 17,848
Gross profit 6,175 (799) 14 (264) 5,126 4,091
Operating profit 4,468 (797) 16 (225) 3,462 2,464
Gain arising on disposal of businesses (2) 809 - - (809) - -
Profit before financing and taxation 5,277 (797) 16 (1,034) 3,462 2,464
Net financing income/(costs) 1,658 (1,823) - 55 (110) (171)
Profit before taxation 6,935 (2,620) 16 (979) 3,352 2,293
Taxation (3) (1,099) 660 (3) (151) (593) (282)
Profit for the year 5,836 (1,960) 13 (1,130) 2,759 2,011
Basic earnings per share (pence) (3) 69.41 29.55 20.29
Revenue: Underlying revenue of £20.1bn was higher by 14%, with strong growth
across all divisions. Statutory revenue of £21.2bn was 12% higher compared
with 2024. The difference between statutory and underlying revenue is driven
by statutory revenue being measured at average prevailing exchange rates
(2025: GBP:USD 1.32; 2024: GBP:USD 1.28) and underlying revenue being measured
at the hedge book achieved rate during the year (2025: GBP:USD 1.44; 2024:
GBP:USD 1.48).
Operating profit: Underlying operating profit of £3.5bn (17.3% margin)
compared to £2.5bn (13.8% margin) in the prior year. Underlying operating
profit was higher in all three core divisions, driven by our strategic
initiatives, including commercial optimisation and cost efficiency benefits.
The largest increase in underlying operating profit was in Civil Aerospace,
driven by stronger large engine aftermarket performance, contractual margin
improvements and spare engine profitability. Power Systems also delivered a
significant increase in underlying operating profit, driven by continued
profitable growth in power generation, notably in data centres, and
governmental. Higher Defence profit reflected stronger performance across
transport and combat, partly offset by the absence of a one-off benefit in
submarines. Statutory operating profit of £4.5bn compares to underlying
profit of £3.5bn. The £(1)bn difference between statutory and underlying
operating profit comprises a £(797)m negative impact from currency hedges in
the underlying results alongside a net £(209)m of other adjustments to
underlying operating profit. The £(209)m is made up of: impairment reversal
of £(179)m related to a Civil Aerospace programme asset impairment previously
recorded, £(83)m onerous provision release, £(6)m pension past service
credit, £(1)m other credits, £44m of charges relating to transformation and
restructuring costs and £16m amortisation of intangible assets arising on
previous acquisitions.
Profit before taxation: Underlying profit before taxation of £3.4bn included
£(110)m net financing costs comprising £265m interest receivable, £(240)m
interest payable and £(135)m of other financing charges and costs of undrawn
facilities. Statutory profit before tax of £6.9bn included £1.3bn net fair
value gains on derivative contracts, £(31)m net interest payable, net foreign
exchange gains of £499m and £(134)m other financing charges and costs of
undrawn facilities.
Taxation: Underlying tax charge of £(593)m (2024: £(282)m) reflects an
overall tax charge on profits of Group companies and includes a £277m tax
credit relating to the recognition of previously unrecognised deferred tax
asset on underlying UK tax losses and a £31m tax credit relating to the
utilisation of previously unrecognised UK tax loss deferred tax asset against
underlying profits in the year. These are reflected in the statutory tax
charge of £(1.1)bn (2024: tax credit of £250m) which also include a further
£286m tax credit on the recognition of previously unrecognised deferred tax
asset on non-underlying UK tax losses, offset by a tax charge of £(660)m
related to unrealised gains on foreign exchange derivatives, a £(44)m tax
charge related to programme asset impairment reversals, a tax charge of
£(58)m relating to the reduction in the substantively enacted tax rate in
Germany and a £(30)m tax charge relating to other non-underlying items.
(1) Reflecting the impact of measuring revenue and costs at the average exchange
rate during the year and the valuation of assets and liabilities using the
year end exchange rate rather than the rate achieved on settled foreign
exchange contracts in the year or the rate expected to be achieved by the use
of the hedge book
(2) For further information, see note 25, page 49
(3) In 2025, the underlying profit attributable to ordinary shareholders has been
adjusted for the one-off non-cash impact of £277m related to the recognition
of deferred tax assets on UK tax losses (2024: £346m), see note 5, page 33
for further details
Free cash flow
2025 2024
£ million Cash flow Impact of hedge book Impact of acquisition accounting Impact of other non-underlying items Funds flow Funds flow
Operating profit 4,468 (797) 16 (225) 3,462 2,464
Depreciation, amortisation and impairment 737 - (16) 179 900 853
Movement in provisions (486) 78 - 118 (290) (167)
Movement in Civil Aerospace LTSA balance 123 378 - - 501 910
Movement in RRSA prepayments for parts 90 (19) - - 71 (219)
Movement in cost to obtain contracts (44) - - - (44) (18)
Settlement of excess derivatives (148) - - - (148) (146)
Interest received 270 - - - 270 269
Other operating cash flows (1) 110 - - 5 115 43
Operating cash flow before working capital and income tax 5,120 (360) - 77 4,837 3,989
Working capital (2) 613 (195) - 3 421 280
Cash flows on other financial assets and liabilities held for operating (578) 532 - - (46) (24)
purposes
Income tax (590) - - 35 (555) (381)
Cash from operating activities 4,565 (23) - 115 4,657 3,864
Capital element of lease payments (232) 23 - - (209) (275)
Capital expenditure (978) - - - (978) (876)
Cash received on maturity of share-based payment schemes 40 - - - 40 -
Investments (7) - - 37 30 16
Interest paid (262) - - - (262) (298)
Other 144 - - (152) (8) (6)
Free cash flow 3,270 - - - 3,270 2,425
Free cash flow in the year was £3.3bn, £845m higher than the prior year
driven by:
Underlying operating profit of £3.5bn was £1.0bn higher than the prior year.
This reflects higher underlying operating profit and margins in all three core
divisions, notably Civil Aerospace.
Movement in provisions of £(290)m was primarily driven by a net release of
onerous provisions.
Movement in Civil Aerospace LTSA balance was £501m (2024: £910m), driven by
continued EFH growth and a higher normalised EFH rate due to our commercial
actions, offset by an increased number of shop visits. Catch-ups were £(279)m
in 2025 compared with £(311)m in the prior year.
Movement in RRSA prepayments for parts of £71m (2024: £(219)m) is driven by
growth in income received from customers (based on EFH flown) where the
partner receives a share in advance of them providing goods and services to
the Group.
Working capital inflow of £421m, compared to an inflow of £280m in the prior
year. This reflected the continued benefits of our working capital
initiatives, partly offset by investment to support growth across the Group. A
net £1.1bn inflow from receivables, payables and contract liabilities, was
partly offset by a £(685)m increase in inventory.
Income tax of £(555)m was higher than the prior year of £(381)m due to
increased profits and timing of payments.
Capital expenditure of £(978)m includes £(621)m of property, plant and
equipment additions and £(364)m of intangibles additions. The combined
additions were higher than the prior year as a result of investment across the
Group to support strategic growth and safety.
(1) Other operating cash flows includes profit/(loss) on disposal, share of
results and dividends received from joint ventures and associates, flows
relating to our defined benefit post-retirement schemes, and share based
payments
(2) Working capital includes inventory, trade and other receivables and payables,
and contract assets and liabilities (excluding Civil Aerospace LTSA balances,
prepayment to RRSAs and costs to obtain contracts)
Balance Sheet
£ million 2025 2024 Change
Intangible assets 4,598 4,402 196
Property, plant and equipment 4,013 3,724 289
Right-of-use assets 759 761 (2)
Joint ventures and associates 1,285 592 693
Civil Aerospace LTSA (1) (10,397) (10,184) (213)
RRSA prepayments for parts (1) 1,771 1,668 103
Costs to obtain contracts (1) 178 135 43
Working capital (1) (2,216) (1,731) (485)
Provisions (1,557) (1,994) 437
Net cash (2) 1,895 475 1,420
Net financial assets and liabilities (2) (38) (1,980) 1,942
Net post-retirement scheme deficits (606) (191) (415)
Taxation 3,068 3,383 (315)
Assets and liabilities held for sale (3) (4) 53 (57)
Other net assets and liabilities 4 6 (2)
Net assets / (liabilities) 2,753 (881) 3,634
US$ hedge book (US$bn) 21 19
Key drivers of balance sheet movements were:
Joint ventures and associates: The £693m increase was largely a result of
Rolls-Royce SMR being recognised at its fair value as an equity-accounted
investment following the strategic investment by ČEZ Group (ČEZ) in
Rolls-Royce SMR during the year.
Civil Aerospace LTSA: The £(213)m movement in the net liability balance was
mainly driven by an increase in invoiced LTSA receipts exceeding revenue
recognised in the year. This is especially prevalent on new contracts where
the first shop visits do not occur for some time after the engine is
delivered.
RRSA prepayments for parts: The £103m increase corresponds to the increase
seen in the Civil Aerospace LTSA balance above. RRSA prepayments typically
move in line with the Civil Aerospace LTSA balance as the RRSA prepayment
represents amounts that we have paid to Risk and Revenue Share Partners for
the parts that they will ultimately provide in support of our contracts.
Working capital: The £(2.2)bn net working capital position increased by
£(485)m compared to the prior year. The movement comprised an increase in net
contract liabilities of £(541)m and £(580)m increase in net payables due to
changes in operational volumes and timing of supplier payments. This was
partly offset by a £636m increase in inventory reflecting higher sales
volumes.
Provisions: The £437m net reduction in provisions was due to onerous
provision reversals and utilisation being greater than onerous provision
charges in the year, supported by continued efforts to renegotiate our most
significant onerous contracts.
Net cash: Increased to £1.9bn from £475m driven by a free cash inflow of
£3.3bn. Our liquidity position is strong with £8.7bn of liquidity including
cash and cash equivalents of £6.2bn and undrawn facilities of £2.5bn. During
the year, the Group repaid a $1.0bn bond in line with its maturity date. Net
cash included £(1.5)bn of lease liabilities (2024: £(1.6)bn).
Net financial assets and liabilities: A £1.9bn increase in the net financial
assets primarily driven by fair value gains on foreign exchange and commodity
contracts due to the impact on the movement in GBP:USD exchange rates.
Net post-retirement scheme deficits: Increased £415m largely due to the
Rolls-Royce UK Pension Fund entering into a buy-in transaction in 2025, the
buy-in was done in anticipation of entering into a full buy-out during 2026.
Taxation: The net tax asset decrease of £(315)m was driven by a £130m
decrease in deferred tax liabilities (primarily due to a reduction in the UK
defined benefit pension surplus) which was more than offset by a £(245)m
increase in net current tax liabilities (driven by timing of payments) and a
net reduction in the deferred tax asset of £(200)m. The reduction in the
deferred tax asset was a result of a £(504)m reduction in deferred tax
related to foreign exchange derivatives, which moved from a net financial
liability to a net financial asset position, a £(178)m reduction in other
deferred tax assets driven by a reactivation of previously disallowed interest
in the UK and asset impairment reversals, and other movements on UK tax losses
of £(81)m. These were partly offset by the recognition of a £563m deferred
tax asset relating to UK tax losses previously not recognised.
(1) The total of these lines represent inventory, trade receivables and payables,
contract assets and liabilities and other assets and liabilities in the
statutory balance sheet
(2) Net cash includes £(77)m (2024: £33m) of the fair value of derivatives
included in fair value hedges and the element of fair value relating to
exchange differences on the underlying principal of derivatives in cash flow
hedges
(3) Assets and liabilities held for sale relate to the sale of the naval handling
business. During the year, the Group disposed of the naval propulsors business
to Fairbanks Morse Defence (FMD) that was held for sale in 2024
Results meeting and webcast
Our results presentation will be held at UBS, 5 Broadgate, London EC2M 2QS and
webcast live at 09:00 (GMT) 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-reports-and-presentations/financial-results.aspx
(https://www.rolls-royce.com/investors/results-reports-and-presentations/financial-results.aspx)
To register for the webcast, including Q&A participation, please visit the
following link:
https://app.webinar.net/jQRlpWE3moJ (https://app.webinar.net/jQRlpWE3moJ)
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
(http://www.rolls-royce.com) .
Enquiries:
Investors: Media:
Jeremy Bragg +44 7795 840875 Richard Wray +44 7810 850055
Ruchi Malaiya +44 7900 189184
For retail shareholder queries, please contact governanceteam@rolls-royce.com.
Individual holders of ordinary shares can contact our Registrar, Equiniti for
support with their shareholding. Contact details and FAQs are available on our
website, www.rolls-royce.com/investors/investor-contacts
(http://www.rolls-royce.com/investors/investor-contacts) .
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.
LSE: RR.; ADR: RYCEY; LEI: 213800EC7997ZBLZJH69
Condensed Consolidated Financial Statements
Condensed consolidated income statement
For the year ended 31 December 2025
( )
2025 2024
Notes £m £m
Revenue 2 21,207 18,909
Cost of sales (1, 2) (15,032) (14,688)
Gross profit 2 6,175 4,221
Commercial and administrative costs 2 (1,268) (1,284)
Research and development costs (2) 2, 3 (495) (203)
Share of results of joint ventures and associates 12 56 172
Operating profit 4,468 2,906
Gain arising on disposal of businesses (3) 25 809 16
Profit before financing and taxation 5,277 2,922
Financing income 4 2,137 536
Financing costs 4 (479) (1,224)
Net financing income/(costs) (4) 1,658 (688)
Profit before taxation 6,935 2,234
Taxation 5 (1,099) 250
Profit for the year 5,836 2,484
Attributable to:
Ordinary shareholders 5,841 2,521
Non-controlling interests (NCI) (5) (37)
Profit for the year 5,836 2,484
Other comprehensive (expense)/income (OCI) (545) 50
Total comprehensive income for the year 5,291 2,534
Earnings per ordinary share attributable to ordinary shareholders: 6
Basic 69.41p 30.05p
Diluted 69.14p 29.87p
(1)( ) Cost of sales includes a net charge for expected credit losses
(ECLs) of £28m (2024: £14m). Further detail can be found in note 14
(2) In the year ended 31 December 2025, the impact of an exceptional
impairment reversal was included within both cost of sales, £179m (2024:
£132m), and research and development, £6m (2024: £413m). Further details
can be found in notes 2 and 9
(3) In the year ended 31 December 2025, the Group completed the sale of the
naval propulsors business and also recognised an exceptional gain on disposal
as a result of the deconsolidation of Rolls-Royce SMR Limited during the year.
Further details can be found in note 25
(4) Included within net financing are fair value changes on derivative
contracts. Further details can be found in notes 2, 4 and 20
Condensed consolidated statement of comprehensive income
For the year ended 31 December 2025
2025 2024
Notes £m £m
Profit for the year 5,836 2,484
Other comprehensive (expense)/income (OCI)
Actuarial movements in post-retirement schemes (1) 22 (444) 22
Revaluation to fair value of other investments 12 (1) (2)
Share of OCI of joint ventures and associates (1) (1)
Related tax movements 5 115 61
Items that will not be reclassified to profit or loss (331) 80
Foreign exchange translation differences on foreign operations (169) (29)
Foreign exchange translation differences reclassified to income statement on (18) -
disposal of businesses
NCI disposed through disposal of business 25 (23) -
Movement on fair values charged to cash flow hedge reserve (CFHR) (38) (17)
Reclassified to income statement from cash flow hedge reserve (CFHR) 27 22
Share of OCI of joint ventures and associates 2 (3)
Related tax movements 5 5 (3)
Items that will be reclassified to profit or loss (214) (30)
Total other comprehensive (expense)/income (545) 50
Total comprehensive income for the year 5,291 2,534
Attributable to:
Ordinary shareholders 5,319 2,571
NCI (28) (37)
Total comprehensive income for the year 5,291 2,534
(1)( )This movement includes a charge of around £450m as a result of the
agreement to transfer the future pension obligations in the UK scheme to
Pension Insurance Corporation plc. See note 22 for further information
Condensed consolidated balance sheet
At 31 December 2025
2025 2024
Notes £m £m
ASSETS
Goodwill (1) 8 1,028 1,009
Intangible assets (1) 9 3,570 3,393
Property, plant and equipment 10 4,013 3,724
Right-of-use assets 11 759 761
Investments (2) 12 1,289 597
Other financial assets 20 523 126
Deferred tax assets 5 3,460 3,660
Post-retirement scheme surpluses 22 286 790
Non-current assets 14,928 14,060
Inventories 13 5,728 5,092
Trade receivables and other assets 14 8,946 8,713
Contract assets 15 1,897 1,813
Taxation recoverable 75 71
Other financial assets 20 282 209
Cash and cash equivalents 16 6,244 5,575
Current assets 23,172 21,473
Assets held for sale 25 15 153
TOTAL ASSETS 38,115 35,686
LIABILITIES
Borrowings and lease liabilities 17 (1,426) (1,097)
Other financial liabilities 20 (293) (642)
Trade payables and other liabilities 19 (8,863) (8,009)
Contract liabilities 15 (7,832) (6,309)
Current tax liabilities (366) (117)
Provisions for liabilities and charges 21 (507) (589)
Current liabilities (19,287) (16,763)
Borrowings and lease liabilities 17 (2,846) (4,035)
Other financial liabilities 20 (627) (1,640)
Trade payables and other liabilities 19 (1,778) (1,965)
Contract liabilities 15 (8,762) (9,447)
Deferred tax liabilities 5 (101) (231)
Provisions for liabilities and charges 21 (1,050) (1,405)
Post-retirement scheme deficits 22 (892) (981)
Non-current liabilities (16,056) (19,704)
Liabilities associated with assets held for sale 25 (19) (100)
TOTAL LIABILITIES (35,362) (36,567)
NET ASSETS 2,753 (881)
EQUITY
Called-up share capital (3) 1,689 1,701
Share premium (3) - 1,012
Capital redemption reserve (3) 5 168
Cash flow hedge reserve 7 13
Translation reserve 418 603
Retained earnings/(accumulated losses) 607 (4,409)
Equity attributable to ordinary shareholders 2,726 (912)
Non-controlling interest (NCI) 27 31
TOTAL EQUITY 2,753 (881)
(1)( ) Goodwill has been disclosed separately from other intangible assets
at 31 December 2025 (and its comparative represented) as such presentation is
deemed relevant to an understanding of the Group's financial position
(2)( ) An equity-accounted investment was recognised at fair value on the
balance sheet as a result of the deconsolidation of Rolls-Royce SMR Limited
during the year. Further details can be found in note 25
(3) On 1 May 2025 Rolls-Royce Holdings plc performed a bonus issue of one
share from its merger reserve for £6,962m, the merger reserve is eliminated
within the consolidated balance sheet and therefore is not shown above. The
Company subsequently performed a capital reduction against share capital,
share premium, and capital redemption reserve
Condensed consolidated cash flow statement
For the year ended 31 December 2025
Notes 2025 2024
£m £m
Reconciliation of cash flows from operating activities
Operating profit 4,468 2,906
Loss on disposal of property, plant and equipment 18 32
(Profit)/loss on disposal of intangible assets (2) 6
Share of results of joint ventures and associates 12 (56) (172)
Dividends received from joint ventures and associates 12 88 77
Impairment of goodwill 8 - 13
Amortisation and impairment of intangible assets 9 241 (133)
Depreciation and impairment of property, plant and equipment 10 338 400
Depreciation and impairment of right-of-use assets 11 158 265
Adjustment of amounts payable under residual value guarantees within lease - (6)
liabilities
Impairment of and other movements on investments - 4
Decrease in provisions (486) (56)
Increase in inventories (685) (323)
Movement in trade receivables/payables and other assets/liabilities 763 833
Movement in contract assets/liabilities 704 752
Cash flows on other financial assets and liabilities held for operating (578) (676)
purposes (1)
Cash flows on settlement of excess derivative contracts (2) (148) (146)
Interest received 270 269
Net defined benefit post-retirement cost recognised in profit before financing 22 42 56
Cash funding of defined benefit post-retirement schemes 22 (84) (74)
Share-based payments 104 136
Net cash inflow from operating activities before taxation 5,155 4,163
Taxation paid (590) (381)
Net cash inflow from operating activities 4,565 3,782
Cash flows from investing activities
Additions of intangible assets 9 (364) (367)
Disposals of intangible assets 5 5
Purchases of property, plant and equipment (621) (519)
Disposals of property, plant and equipment 2 5
Disposal of businesses (including cash flows on disposals in prior periods) 25 80 62
Movement in investments in joint ventures and associates 12 (41) (17)
Net cash outflow from investing activities (939) (831)
Cash flows from financing activities
Repayment of loans (927) (475)
Settlement of swaps hedging fixed rate borrowings 93 (11)
Proceeds from increase in loans 177 7
Capital element of lease payments (232) (299)
Net cash flow from decrease in borrowings and lease liabilities (889) (778)
Interest paid (180) (200)
Interest element of lease payments (74) (83)
Fees paid on undrawn facilities (8) (15)
Cash received on maturity of share-based payment schemes 40 -
Transactions with NCI (3) 34 33
Dividends to NCI (1) (3)
Redemption of C Shares (2) (1)
Share buyback (1,008) -
Dividends paid 7 (885) -
Net cash outflow from financing activities (2,973) (1,047)
Change in cash and cash equivalents 653 1,904
Cash and cash equivalents at 1 January 5,573 3,731
Exchange gains/(losses) on cash and cash equivalents 15 (62)
Cash and cash equivalents at 31 December (4) 6,241 5,573
(1 ) Predominantly relates to cash settled on derivative contracts held for
operating purposes
(2) In 2020, the Group took action to reduce the size of the USD hedge book
by $11.8bn across 2020-2026 to reflect the fact that at that time, future
operating cash flows were no longer forecast to materialise. To achieve the
necessary reduction in the hedge book, a separate and distinct set of foreign
exchange derivative instruments were entered into to buy $11.8bn which had the
impact of fixing the fair value of the over-hedged position and provided
certainty over when the cash flows to settle the position would occur in
future periods. The associated cash outflow of these transactions is £1,674m
and occurs over the period 2020-2026. During the year, the Group incurred a
cash outflow of £148m (2024: £146m) and estimates that future cash outflows
of £27m will be incurred during 2026
(3)( ) Relates to NCI investment received in the year in respect of
Rolls-Royce SMR Limited
(4)( )The Group considers overdrafts (repayable on demand) to be an
integral part of its cash management activities and these are included in cash
and cash equivalents for the purposes of the cash flow statement
Condensed consolidated cash flow statement continued
For the year ended 31 December 2025
In deriving the condensed consolidated cash flow statement, movements in
balance sheet line items have been adjusted for non-cash items. The cash flow
in the year includes the sale of goods and services to joint ventures and
associates - see note 24.
2025 2024
£m £m
Reconciliation of movements in cash and cash equivalents to movements in net
cash
Change in cash and cash equivalents 653 1,904
Cash flow from decrease in borrowings and lease liabilities 889 778
Less: settlement of related derivatives included in fair value of swaps 93 (11)
below
Change in net cash resulting from cash flows 1,635 2,671
Lease additions, modifications and other non-cash adjustments on borrowings (232) (193)
and lease liabilities
Exchange gains/(losses) on net cash/(debt) 118 (50)
Net debt disposed of on disposal of businesses 1 -
Fair value adjustments 8 (11)
Movement in net cash 1,530 2,417
Net cash/(debt) at 1 January excluding the fair value of swaps 442 (1,975)
Net cash at 31 December excluding the fair value of swaps 1,972 442
Fair value of swaps hedging fixed rate borrowings (77) 33
Net cash at 31 December 1,895 475
The movement in net cash (defined by the Group as including the items shown
below) is as follows:
At 1 January Funds flow Net funds on disposal of business Exchange differences Fair value adjustments Reclassi-fications ( ) Other movements At 31 December
£m £m £m £m £m £m £m £m
2025
Cash at bank and in hand 714 182 - (7) - - - 889
Money market funds 1,900 484 - 40 - - - 2,424
Short-term deposits 2,961 (12) - (18) - - - 2,931
Cash and cash equivalents 5,575 654 - 15 - - - 6,244
(per balance sheet)
Overdrafts (2) (1) - - - - - (3)
Cash and cash equivalents 5,573 653 - 15 - - - 6,241
(per cash flow statement)
Other current borrowings (799) 750 - (32) 40 (988) (2) (1,031)
Non-current borrowings (2,776) - - 54 (32) 988 (2) (1,768)
Lease liabilities (1,555) 232 - 81 - - (228) (1,470)
Lease liabilities included within liabilities held for sale (1) - 1 - - - - -
Financial liabilities (5,131) 982 1 103 8 - (232) (4,269)
Net cash/(debt) excluding fair value of swaps 442 1,635 1 118 8 - (232) 1,972
Fair value of swaps hedging fixed rate borrowings (1) 33 (93) - (22) 5 - - (77)
Net cash/(debt) 475 1,542 1 96 13 - (232) 1,895
2024
Cash at bank and in hand 739 (15) - (10) - - - 714
Money market funds 1,077 841 - (18) - - - 1,900
Short-term deposits 1,968 1,027 - (34) - - - 2,961
Cash and cash equivalents 3,784 1,853 - (62) - - - 5,575
(per balance sheet)
Overdrafts (53) 51 - - - - - (2)
Cash and cash equivalents 3,731 1,904 - (62) - - - 5,573
(per cash flow statement)
Other current borrowings (478) 471 - - (18) (774) - (799)
Non-current borrowings (3,568) (3) - 19 7 774 (5) (2,776)
Lease liabilities (1,660) 299 - (7) - 1 (188) (1,555)
Lease liabilities included within liabilities held for sale - - - - - (1) - (1)
Financial liabilities (5,706) 767 - 12 (11) - (193) (5,131)
Net cash/(debt) excluding fair value of swaps (1,975) 2,671 - (50) (11) - (193) 442
Fair value of swaps hedging fixed rate borrowings (1) 23 11 - (18) 17 - - 33
Net cash/(debt) (1,952) 2,682 - (68) 6 - (193) 475
(1)( ) Fair value of swaps hedging fixed rate borrowings reflects the
impact of derivatives on repayments of the principal amount of debt. Net
cash/(debt) therefore includes the fair value of derivatives included in fair
value hedges (2025: £(26)m, 2024: £62m) and the element of fair value
relating to exchange differences on the underlying principal of derivatives in
cash flow hedges (2025: £(51)m, 2024: £(29)m)
Condensed consolidated statement of changes in equity
For the year ended 31 December 2025
Attributable to ordinary shareholders
Notes Share capital Share premium Capital redemption reserve Cash flow hedging reserve Translation reserve Retained earnings / (accum-ulated losses) (1) Total NCI Total equity
£m £m £m £m £m £m £m £m £m
At 1 January 2025 1,701 1,012 168 13 603 (4,409) (912) 31 (881)
Profit/(loss) for the year - - - - - 5,841 5,841 (5) 5,836
Foreign exchange translation differences on foreign operations - - - - (169) - (169) - (169)
Foreign exchange translation differences reclassified to income statement on 25 - - - - (18) - (18) - (18)
disposal of businesses
NCI disposed of on disposal of business 25 - - - - - - - (23) (23)
Actuarial movements on post-retirement schemes (2) 22 - - - - - (444) (444) - (444)
Fair value movement on cash flow hedges - - - (38) - - (38) - (38)
Reclassified to income statement from cash flow hedge reserve - - - 27 - - 27 - 27
Revaluation to fair value of other investments 12 - - - - - (1) (1) - (1)
OCI of joint ventures and associates 12 - - - 2 - (1) 1 - 1
Related tax movements 5 - - - 3 2 115 120 - 120
Total comprehensive income/(expense) for the year - - - (6) (185) 5,510 5,319 (28) 5,291
Bonus issue (3) 6,962 - - - - (6,962) - - -
Capital reduction (3) (6,962) (1,012) (177) - - 8,151 - - -
Share buyback programme (4) (12) - 12 - - (1,019) (1,019) - (1,019)
Redemption of C shares 20 - - 2 - - (2) - - -
Share-based payments - direct to equity (5) - - - - - 138 138 - 138
Dividends paid - - - - - (885) (885) - (885)
Dividends to NCI - - - - - - - (1) (1)
Transactions with NCI - - - - - 9 9 25 34
Related tax movements 5 - - - - - 76 76 - 76
Other changes in equity in the year (12) (1,012) (163) - - (494) (1,681) 24 (1,657)
At 31 December 2025 1,689 - 5 7 418 607 2,726 27 2,753
Condensed consolidated statement of changes in equity continued
For the year ended 31 December 2024
Attributable to ordinary shareholders
Notes Share capital Share premium Capital redemption reserve Cash flow hedging reserve Translation reserve Accum-ulated losses (1) Total NCI Total equity
£m £m £m £m £m £m £m £m £m
At 1 January 2024 1,684 1,012 167 12 634 (7,190) (3,681) 52 (3,629)
Profit/(loss) for the year - - - - - 2,521 2,521 (37) 2,484
Foreign exchange translation differences on foreign operations - - - - (29) - (29) - (29)
Actuarial movements on post-retirement schemes 22 - - - - - 22 22 - 22
Fair value movement on cash flow hedges - - - (17) - - (17) - (17)
Reclassified to income statement from cash flow hedge reserve - - - 22 - - 22 - 22
Revaluation to fair value of other investments 12 - - - - - (2) (2) - (2)
OCI of joint ventures and associates 12 - - - (3) - (1) (4) - (4)
Related tax movements 5 - - - (1) (2) 61 58 - 58
Total comprehensive income/(expense) for the year - - - 1 (31) 2,601 2,571 (37) 2,534
Issue of ordinary shares 17 - - - - - 17 - 17
Redemption of C Shares 20 - - 1 - - (1) - - -
Shares issued to employee share trust - - - - - (17) (17) - (17)
Share-based payments - direct to equity (5) - - - - - 95 95 - 95
Dividends to NCI - - - - - - - (3) (3)
Transactions with NCI - - - - - 32 32 19 51
Related tax movements 5 - - - - - 71 71 - 71
Other changes in equity in the year 17 - 1 - - 180 198 16 214
At 31 December 2024 1,701 1,012 168 13 603 (4,409) (912) 31 (881)
(1 ) At 31 December 2025, 69,290,662 ordinary shares with an aggregate
value of £503m were held for the purpose of share-based payment plans and
included in retained earnings / (accumulated losses) (2024: 106,066,831
ordinary shares with an aggregate value of £26m). During the year:
- 81,979,149 ordinary shares with an aggregate value of £22m vested
in share-based payment plans (2024: 35,117,065 ordinary shares with an
aggregate value of £14m);
- the Company issued nil new ordinary shares to the Group's share
trust for its employee share-based payment plans with an aggregate value of
£nil (2024: 88,200,000 ordinary shares with an aggregate value of £17m);
- the Company, through the Employee Benefit Trust, acquired none
(2024: none) of its ordinary shares via reinvestment of dividends received on
its own shares and purchased none (2024: 71,490) of its ordinary shares
through purchases on the London Stock Exchange; and
- the Employee Benefit Trust purchased 3,719,489 (2024: nil) ordinary
shares with an aggregate value of £40m from the Company, the Company
purchased these shares through the share buyback scheme and held them as
Treasury shares
(2)( ) This movement includes a charge of around £450m as a result of the
agreement to transfer the future pension obligations in the UK scheme to
Pension Insurance Corporation plc. See note 22 for further information
(3 ) On 1 May 2025 Rolls-Royce Holdings plc performed a bonus issue of one
share from its merger reserve for £6,962m, the merger reserve is eliminated
within the consolidated statement of changes in equity and therefore is not
shown in the movement table above. The Company subsequently performed a
capital reduction against share capital, share premium, and capital redemption
reserve
(4)( ) Following the announcement of the £1bn share buyback on 27 February
2025, during the year the Company purchased with cash 106,291,417 (2024: none)
of its ordinary shares at a cost of £1bn. The Company also separately paid
costs of £8m in relation to the programme. Of these ordinary shares purchased
by the Company, 61,088,437 shares at a cost of £500m were cancelled during
the year. As detailed above 3,719,489 shares at a cost of £40m were sold to
the Employee Benefit Trust for consideration of £40m and in December 2025 the
Company gifted the remaining 41,483,491 ordinary shares at a cost of £460m to
the Employee Benefit Trust
(5)( ) Share-based payments - direct to equity is the share-based payment
charge for the year less actual cost of vesting excluding those vesting from
own shares and cash received on share-based schemes
Notes to the Condensed Consolidated Financial Statements
1 Basis of preparation and accounting policies
Reporting entity
Rolls-Royce Holdings plc (the 'Company') is a public company limited by shares
incorporated under the Companies Act 2006 and domiciled in England in the
United Kingdom. These Condensed Consolidated Financial Statements of the
Company for the year ended 31 December 2025 consist of the consolidation of
the Financial Statements of the Company and its subsidiaries (together
referred to as the 'Group') together with the Group's interest in jointly
controlled and associated entities.
The Consolidated Financial Statements of the Group for the year ended 31
December 2025 (2025 Annual Report) are available upon request from the Company
Secretary, Rolls-Royce Holdings plc, Kings Place, 90 York Way, London, N1
9FX.
Statement of compliance
These Condensed Consolidated Financial Statements have been prepared in
accordance with UK-adopted International Accounting Standards (IAS) and
interpretations issued by the IFRS Interpretations Committee applicable to
companies reporting under UK-adopted IFRS. They do not include all the
information required for full annual statements and should be read in
conjunction with the 2025 Annual Report.
The Board of Directors approved the Condensed Consolidated Financial
Statements on 26 February 2026. They are not statutory accounts within the
meaning of section 435 of the Companies Act 2006.
The Group's Financial Statements for the year ended 31 December 2025 were
approved by the Board on 26 February 2026. They have been reported on by the
Group's auditors and will be delivered to the registrar of companies in due
course. The report of the auditors was (i) unqualified, (ii) did not include a
reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
The comparative figures for the financial year 31 December 2024 have been
extracted from the Group's statutory accounts for that financial year. The
Board of Directors approved the Group Financial Statements on 24 February
2025. The report of the auditors was (i) unqualified, (ii) did not include a
reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
Revisions to IFRS applicable in 2025
There are no new standards or interpretations issued by the International
Accounting Standards Board (IASB) that had a significant impact on these
Condensed Consolidated Financial Statements.
Revisions to IFRS not applicable in 2025
Standards and interpretations issued by the IASB are only applicable if
endorsed by the UK. Other than IFRS 18 Presentation and Disclosure in
Financial Statements described below, the Group does not consider that any
other standards, amendments or interpretations issued by the IASB, but not yet
applicable will have a significant impact on the Condensed Consolidated
Financial Statements.
IFRS 18 Presentation and Disclosure in Financial Statements
The IASB issued a new Standard, IFRS 18 Presentation and Disclosure in
Financial Statements, on 9 April 2025 that will replace IAS 1 Presentation of
Financial Statements. The purpose of the new standard is to provide more
consistent presentation of the financial information across preparers as it is
acknowledged that existing standards have given flexibility to present
information in different ways. IFRS 18 Presentation and Disclosure in
Financial Statements will not impact the recognition or measurement of items
in the Financial Statements. Many of the existing presentation principles in
IAS 1 Presentation of Financial Statements are retained, but there are some
more specific requirements that will require the Group to make some changes in
its future Annual Reports and Interim Financial Statements.
The new Standard was endorsed by the UK Endorsement Board (UKEB) and will be
applicable for reporting periods beginning on or after 1 January 2027. The
Group does not anticipate its early adoption of the new Standard. Comparative
information for 2026 will need to be restated when subsequent Financial
Statements are published. The Group has continued its implementation
activities and expects the most significant changes post 2027 to be in
relation to the presentation of items within the Statutory Consolidated Income
Statement. The changes are expected to include: 'share of results of joint
ventures and associates' being presented in the new investing category and
included when arriving at a new subtotal 'operating profit including share of
results of joint ventures and associates'; interest income will be
reclassified from net financing into the new investing category; the majority
of foreign exchange differences will be reclassified from net financing into
the operating category; and fair value gains/(losses) related to foreign
currency contracts and commodity contracts will be reclassified from net
financing into the operating category. The process of assessing the financial
impact on the Consolidated Financial Statements will continue during 2026.
Post balance sheet events
Rolls-Royce plc and the Trustee of the UK pension scheme signed an agreement
on 2 February 2026 triggering the wind up of the UK scheme. The Group's
current expectation is that the residual surplus on the scheme will be shared
between the Group and the scheme's members, and communications to this effect
have been made to members. This is subject to a statutory consultation process
between the Trustee and the members, expected to be completed in 2026. Subject
to the outcome of that process, it is currently expected that this will result
in a constructive obligation of around £100m being recognised as a past
service charge in the income statement in 2026.
Following the completion in November 2025 of its £1bn share buyback programme
for 2025, the Group announced in December 2025 that it was commencing a
further share buyback programme of up to £200m in January 2026. This
programme was completed in February 2026, with the Group having purchased
15,971,931 shares for consideration of £200m. These shares have all been
cancelled.
On 26 February 2026, the Group announced a multi-year share buyback programme
(see page 21 for further details).
On 16 February 2026, the Group repaid €750m of borrowings on their
contractual maturity date which, along with the associated cross currency
interest rate swaps, resulted in a cash outflow of £677m.
The Group has taken the latest legal position in relation to any ongoing legal
proceedings and reflected these in the 31 December 2025 results as
appropriate.
Basis of preparation and accounting policies continued
Climate change
In preparing the Condensed Consolidated Financial Statements the Directors
have considered the potential impact of climate change, particularly in the
context of the disclosures included in the Strategic Report that set out
climate-related commitments, targets and the pillars of the Rolls-Royce energy
transition strategy which are:
- optimising our operations, including decarbonising operations,
facilities, product testing and business activities. This will be met through
a combination of procuring clean energy, reducing overall energy demand, and
clean power generation. An estimate of the investment required to meet Scope 1
+ 2 emission improvements is included in the forecasts that support the
Condensed Consolidated Financial Statements;
- enabling our customers, by delivering innovative products and
solutions that can accelerate the global energy transition. This includes the
development and deployment of a future portfolio that includes the UltraFan
engine in Civil Aerospace, Battery Energy Storage Solutions in Power Systems
and small modular reactors. An estimate of the investment required to deliver
these technologies is included in the forecasts that support the Condensed
Consolidated Financial Statements; and
- engaging and collaborating with customers, suppliers, industry and
policymakers supporting the necessary enabling environment to achieve
collective energy transition and climate goals.
In this context the Directors have assessed the impact of climate change on a
number of estimates, including those identified as being key sources of
estimation uncertainty within the financial statements such as Civil Aerospace
LTSA revenues.
When making these assessments the Directors include consideration of the risks
associated with changing customer demand, changes in costs due to carbon
pricing and commodity price changes and change in investment requirements. As
details of what specific future intervention measures will be taken by
governments are not yet available, carbon pricing has been used to quantify
the potential impact of future policy changes on the Group. The approach is
consistent with that disclosed in note 1 in the 2025 Annual Report.
There has been no material impact on the Group's financial reporting from
changes in climate-related estimates in the year. The Group's assessment
remains that climate change is not expected to have a significant impact on
the Group's current going concern assessment nor on the viability of the Group
over the next five years.
Going concern
Overview
In accordance with the requirements of the 2024 UK Corporate Governance Code,
the Directors have assessed the prospects of the Group, taking into account
its current position, the Group's principal risks which are described on pages
48 to 56 of the Group's 2025 Annual Report, and the Group's mid-term forecasts
together with factors that could affect its future development, performance
and position, as set out in the Strategic Report.
The Financial Review on pages 19 to 30 of the 2025 Annual Report sets out the
financial position of the Group, its cash flows, liquidity position and the
Group's capital framework. The notes to the accounts include the objectives,
policies and procedures over financial risk management including financial
instruments and hedging activities, exposure to credit risk, liquidity risk,
interest rate risk and commodity price risk.
In adopting the going concern basis for preparing the Consolidated and Company
Financial Statements, the Directors have undertaken a review of the Group's
cash flow forecasts and available liquidity, along with consideration of
possible risks and uncertainties over an 18-month period from the balance
sheet date to June 2027. The Directors have determined that the period to June
2027 ('the going concern period') is an appropriate timeframe over which to
assess going concern as it considers the Group's short to medium-term cash
flow forecasts and available liquidity.
Forecasts
Recognising the challenges of reliably estimating and forecasting the impact
of external factors on the Group, the Directors have considered two forecasts
in their assessment of going concern, along with a likelihood assessment of
these forecasts. The base case forecast reflects the Directors current
expectations of future trading. A downside forecast has also been modelled
which envisages severe but plausible downside risks. Both forecasts have been
modelled over the going concern period.
The Group's base case forecast reflects the Directors best estimation of how
the business plans to perform over the going concern period. Macro-economic
assumptions have been modelled using externally available data based on the
most likely forecasts with general inflation at around 2%-3%, wage inflation
at an average of 3%-4%, interest rates at around 2%-4% and GDP growth at
around 2%-4%.
The downside forecast assumes Civil Aerospace large engine flying hours remain
at average fourth quarter 2025 levels throughout the going concern period,
reflecting slower GDP growth in this forecast when compared with the base
case. It also assumes a more pessimistic view of general inflation at around
2%-3% higher than the base case covering a broad range of costs including
product costs, energy, commodities and jet fuel. Wage inflation in the
downside forecast is 1%-2% higher than the base case and interest rates are
1%-2% higher. These macro-economic pressures have been modelled across the
whole going concern period. The downside forecast also considers lower demand
as a result of slower market growth, and potential output risks associated
with increasing volumes and possible ongoing supply chain challenges.
On 26 February 2026, the Group announced a multi-year share buyback programme
across 2026-2028 of £7.0bn to £9.0bn. Of this, £2.5bn is expected to be
completed in 2026, including the £200m completed between 2 January and the
date of this report. The share buybacks expected to be completed during the
going concern period have been included in the going concern assessment in
both the base case and downside forecast.
In reviewing the Group's cash flow forecasts and available liquidity, the
Directors have considered the current volatility in macroeconomic variables
and an external environment that remains challenging, including geopolitical
tensions, the uncertainty introduced by tariffs and supply chain challenges.
The Directors continue to actively manage the potential impact of these
factors on the Group's cash flow forecasts and available liquidity.
In modelling both the base case and downside forecast, the repayment of a
€750m bond that matured in February 2026 and a £375m bond that is due to
mature in June 2026 have been assumed to be repaid from cash in both the base
case and downside forecast.
The future impact of climate change on the Group has been considered through
climate scenarios. The climate scenarios modelled do not have a material
impact on either the base case or downside forecast over the going concern
period. Further detail on these climate scenarios is set out above.
Basis of preparation and accounting policies continued
Going concern continued
Liquidity and borrowings
During 2025, the Group repaid a $1bn bond at its maturity in October. The
Group also repaid a €750m bond that matured in February 2026. The £2.5bn
undrawn revolving credit facility was refinanced in December 2025, extending
the revolving credit facility maturity to December 2030.
At 31 December 2025, the Group had liquidity of £8.7bn including cash and
cash equivalents of £6.2bn and undrawn facilities of £2.5bn. The going
concern period includes the repayment of a €750m bond that matured in
February 2026 and a £375m bond that is due to mature in June 2026. Given the
Group's cash and liquidity position over the going concern period, the bond
maturities in 2026 have been assumed to be repaid from cash, should the Group
wish to not refinance.
Based on borrowing facilities available at the date of this report the Group's
committed borrowing facilities at 31 December 2025 and 30 June 2027 are set
out below. None of the facilities are subject to any financial covenants or
rating triggers which could accelerate repayment.
£m 31 December 2025 30 June 2027
Issued bond notes (1) 2,859 1,806
Revolving credit facility (undrawn) (2) 2,500 2,500
Total committed borrowing facilities 5,359 4,306
(1) The value of issued bond notes reflects the impact of derivatives on
repayments of the principal amount of debt. The bonds mature by May 2028
(2) The £2.5bn revolving credit facility matures in December 2030
Taking into account the maturity of these borrowing facilities, the Group has
committed facilities of at least £4.3bn available throughout the period to 30
June 2027.
Conclusion
After reviewing the current liquidity position and the cash flows modelled
under both the base case and downside forecasts, the Directors consider that
the Group has sufficient liquidity to continue in operational existence over
the going concern period to 30 June 2027 and are therefore satisfied that it
is appropriate to adopt the going concern basis of accounting in preparing the
financial statements.
Basis of preparation and accounting policies continued
Key areas of judgement and sources of estimation uncertainty
The determination of the Group's accounting policies requires judgement. The
subsequent application of these policies requires estimates, and the actual
outcome may differ from that calculated. The key judgements and sources of
estimation uncertainty as at 31 December 2025, that were assessed as having a
significant risk of causing material adjustments to the carrying amount of
assets and liabilities, are set out in
note 1 to the Consolidated Financial Statements in the 2025 Annual Report and
are summarised below. Sensitivities for key sources of estimation uncertainty
are disclosed where this is appropriate and practical.
Area Key judgements Key sources of estimation uncertainty Sensitivities performed
Revenue recognition and contract assets and liabilities Whether Civil Aerospace OE and aftermarket contracts should be combined. Estimates of future revenue, including customer pricing, and costs of Based upon the stage of completion of all LTSA contracts within Civil
long-term contractual arrangements, including the impact of climate change. Aerospace as at 31 December 2025, the following reasonably possible changes in
How performance on long-term aftermarket contracts should be measured. estimates would result in catch-up adjustments being recognised in the period
in which the estimates change (at underlying FX rates):
Whether long-term aftermarket contracts contain a significant financing
component. - A change in forecast EFHs of 1% over the remaining term of the contracts
would impact LTSA income and to a lesser extent costs, resulting in an impact
Whether any costs should be treated as wastage. of around £20m.
Whether the Civil Aerospace LTSA contracts are warranty style contracts - A 2% increase or decrease in our pricing to customers over the life of the
entered into in connection with OE sales and therefore can be accounted for contracts would lead to a revenue
under IFRS 15 Revenue from Contracts with Customers.
catch-up adjustment in the next 12 months of around £400m.
Whether sales of spare engines to joint ventures are at fair value. - A 2% increase or decrease in shop visit costs over the life of the
contracts would lead to a revenue catch-up adjustment in the next 12 months of
When revenue should be recognised in relation to spare engine sales. around
£120m.
Risk and revenue sharing arrangements (RRSAs) Determination of the nature of entry fees received.
Research and development Determination of the point in time where development costs incurred on an
internal programme meet the criteria for capitalisation.
Determination of the basis for amortising capitalised development costs.
Leases Determination of the lease term.
Impairment of non-current assets Determination of cash-generating units (CGU's) for assessing impairment of
goodwill.
Basis of preparation and accounting policies continued
Key areas of judgement and sources of estimation uncertainty continued
Area Key judgements Key sources of estimation uncertainty Sensitivities performed
Provisions Whether any costs should be treated as wastage. Estimates of the time and cost to incorporate required modified parts into the Our forecast increases in shop visit capacity could be impacted by several
fleet to resolve technical issues on certain programmes (which could be factors, including prolonged supply chain challenges. If forecast increases in
exacerbated by prolonged supply chain challenges) and the implications of this shop visit capacity are not achieved, this could have the impact of reducing
on forecast future costs when assessing onerous contracts. planned output of engine overhauls. A 20% reduction in Trent 1000 planned
output during the first half of 2026 (and thus delayed incorporation of
Estimates of the future revenues and costs to fulfil onerous contracts. modified parts into the fleet) could lead to around a £20m to £30m charge.
Assumptions implicit within the calculation of discount rates. An increase in Civil Aerospace large engines estimates of LTSA costs of 1%
over the remaining term of the contracts could lead to a around a £50m to
£70m increase in the onerous contract provision across all programmes.
A 1% change in the discount rates used could lead to around a £20m to £30m
change in the onerous contract provision.
Post-retirement benefits Estimates of the assumptions for valuing the net defined benefit obligation. A reduction in the discount rate of 0.25% from 5.60% could lead to an increase
in the defined benefit obligations of the RR UK Pension Fund (RRUKPF) of
approximately £140m.
An increase in the assumed rate of inflation of 0.25% (RPI of 3.05% and CPI of
2.70%) could lead to an increase in the defined benefit obligations of the
RRUKPF of approximately £55m.
In August 2025 the scheme completed a Buy-in, with the purchase of a bulk
insurance annuity policy, with the effect that the majority of scheme
liabilities, and therefore these potential risks, are covered by this policy.
2 Segmental analysis
The analysis by segment is presented in accordance with IFRS 8 Operating
Segments, on the basis of those segments whose operating results are regularly
reviewed by the Board (who acts as the Chief Operating Decision Maker as
defined by IFRS 8 Operating Segments). The Group's three divisions are set out
below.
Civil Aerospace - development, manufacture, marketing and sales of commercial aero engines
and aftermarket services
Defence - development, manufacture, marketing and sales of military aero engines,
naval engines, submarine nuclear power plants and aftermarket services
Power Systems - development, manufacture, marketing and sales of integrated solutions for
onsite power and propulsors
On 4 March 2025, an investment was received by Rolls-Royce SMR Limited from
ČEZ Group (CEZ), as a result the Group relinquished control of Rolls-Royce
SMR Limited and the subsidiary was deconsolidated (see note 25 for further
details).
Following the decision in 2024 to exit the Group's advanced air mobility
activities and the deconsolidation of Rolls-Royce SMR Limited on 4 March 2025
(see note 25) the New Markets operating segment that was reported at 31
December 2024 is no longer regularly reviewed by the Board as a basis for
making decisions about the allocation of resources to the business or to
assess its performance. In line with IFRS 8 Operating Segments, New Markets is
no longer considered to meet the definition of an operating segment.
Revenue and expenses from new electrical power solutions and the Group's share
of the financial results of Rolls-Royce SMR Limited have been included in 'All
Other Businesses', which also includes the trading results of the UK Civil
Nuclear business. The segmental analysis for 2024 has been restated to reflect
the 2025 assessment of operating segments.
Underlying results
The Group presents the financial performance of the divisions in accordance
with IFRS 8 Operating Segments and consistently with the basis on which
performance is communicated to the Board each month.
Underlying results are presented by recording all relevant revenue and cost of
sales transactions at the average exchange rate achieved on effective settled
derivative contracts for the Company and its subsidiaries in the period that
the cash flow occurs. The impact of the revaluation of monetary assets and
liabilities (other than lease liabilities) using the exchange rate that is
expected to be achieved by the use of the effective hedge book is recorded
within underlying cost of sales. Underlying financing excludes the impact of
revaluing monetary assets and liabilities to period end exchange rates. Lease
liabilities are not revalued to reflect the expected exchange rates due to
their multi-year remaining term, the Directors believe that doing so would not
be the most appropriate basis to measure the in-year performance. Transactions
between segments are presented on the same basis as underlying results and
eliminated on consolidation. Unrealised fair value gains/(losses) on foreign
exchange contracts, which are recognised as they arise in the statutory
results, are excluded from underlying results. To the extent that the
previously forecast transactions are no longer expected to occur, an
appropriate portion of the unrealised fair value gain/(loss) on foreign
exchange contracts is recorded immediately in the underlying results.
Amounts receivable/(payable) on interest rate swaps which are not designated
as hedge relationships for accounting purposes are reclassified from fair
value movement on a statutory basis to interest receivable/(payable) on an
underlying basis, as if they were in an effective hedge relationship.
In the year to 31 December 2025, the Group was a net seller of USD at an
achieved exchange rate of GBP:USD 1.44 (2024: 1.48) based on the USD hedge
book.
In 2020, the Group experienced a significant decline in its medium-term
outlook and consequently a significant deterioration to its forecast net USD
cash inflows. The Group took action to reduce the size of the USD hedge book
by $11.8bn across 2020-2026 to reflect the fact that, at that time, future
operating cash flows were no longer forecast to materialise. An underlying
charge of £1.7bn was recognised within the underlying finance costs in 2020
and the associated cash settlement costs occur over the period 2020-2026. The
derivatives relating to this underlying charge have been subsequently excluded
from the hedge book, and therefore are also excluded from the calculation of
the average exchange rate achieved in the current and future periods.
Underlying performance also excludes the following:
- the effect of acquisition accounting and business disposals;
- impairment of goodwill, other non-current and current assets where
the reasons for the impairment are outside of normal operating activities;
- exceptional items; and
- certain other items which are market driven and outside of the
control of management.
Subsequent changes in items excluded from underlying performance recognised in
a prior period will also be excluded from underlying performance. All other
changes will be recognised within underlying performance.
Acquisition accounting, business disposals and impairment
The Group exclude these from underlying results so that the current year and
comparative results are directly comparable.
Exceptional items
Items are classified as exceptional where the Directors believe that
presentation of the results in this way is useful in providing an
understanding of the Group's financial performance. Exceptional items are
identified by virtue of their size, nature or incidence.
In determining whether an event or transaction is exceptional, the Directors
consider quantitative as well as qualitative factors such as the frequency or
predictability of occurrence. Examples of exceptional items include one-time
costs and charges in respect of aerospace programmes, costs of exceptional
restructuring and transformation programmes and one-time past service charges
and credits on post-retirement schemes.
Exceptional items are not allocated to segments and may not be comparable to
similarly titled measures used by other companies.
2 Segmental analysis continued
Other items
The financing component of the defined benefit pension scheme cost is
determined by market conditions and has therefore been excluded from
underlying performance.
The tax effects of adjustments above are excluded from the underlying tax
charge. Changes in tax rates are excluded from the underlying tax charge. In
addition, changes in the amount of recoverable deferred tax recognised are
excluded from the underlying results to the extent that their recognition or
derecognition was not originally recorded within the underlying results.
The following analysis sets out the results of the Group's divisions on the
basis described above and also includes a reconciliation of the underlying
results to those reported in the condensed consolidated income statement.
- Civil Aerospace Defence Power Systems All Other Businesses (1) Corporate and Inter-segment (2) Total Underlying
£m £m £m £m £m £m
Year ended 31 December 2025
Underlying revenue from sale of original equipment 3,217 2,228 3,433 13 - 8,891
Underlying revenue from aftermarket services 7,165 2,544 1,459 - - 11,168
Total underlying revenue 10,382 4,772 4,892 13 - 20,059
Gross profit/(loss) 2,675 933 1,522 (2) (2) 5,126
Commercial and administrative costs (432) (201) (518) (5) (67) (1,223)
Research and development costs (267) (45) (164) (21) - (497)
Share of results of joint ventures and associates 154 2 12 (112) - 56
Underlying operating profit/(loss) 2,130 689 852 (140) (69) 3,462
Year ended 31 December 2024
Underlying revenue from sale of original equipment 3,105 1,943 2,942 15 - 8,005
Underlying revenue from aftermarket services 5,935 2,579 1,329 - - 9,843
Total underlying revenue 9,040 4,522 4,271 15 - 17,848
Gross profit/(loss) 1,990 908 1,199 (3) (3) 4,091
Commercial and administrative costs (396) (212) (483) (41) (65) (1,197)
Research and development costs (252) (55) (165) (133) - (605)
Share of results of joint ventures and associates 163 3 9 - - 175
Underlying operating profit/(loss) 1,505 644 560 (177) (68) 2,464
(1) Following the decision to exit the Group's advanced air mobility
activities in 2024 and the relinquishment of control of Rolls-Royce SMR
Limited on 4 March 2025 (see note 25) the results of those activities in both
2024 and 2025 have been reported within All Other Businesses. The Group's
income statement for 2025 includes two months of the results of Rolls-Royce
SMR Limited as a subsidiary and ten months of the Group's share of the results
of the equity-accounted investment
(2) Corporate and Inter-segment consists of costs that are not attributable
to a specific segment and consolidation adjustments
2 Segmental analysis continued
Reconciliation to statutory results
Total underlying Underlying adjustments and adjustments to Group statutory results
foreign exchange
£m £m £m
Year ended 31 December 2025
Revenue from sale of original equipment 8,891 212 9,103
Revenue from aftermarket services 11,168 936 12,104
Total revenue 20,059 1,148 21,207
Gross profit 5,126 1,049 6,175
Commercial and administrative costs (1,223) (45) (1,268)
Research and development costs (497) 2 (495)
Share of results of joint ventures and associates 56 - 56
Operating profit 3,462 1,006 4,468
Gain arising on the disposal of businesses - 809 809
Profit before financing and taxation 3,462 1,815 5,277
Net financing (110) 1,768 1,658
Profit before taxation 3,352 3,583 6,935
Taxation (593) (506) (1,099)
Profit for the year 2,759 3,077 5,836
Attributable to:
Ordinary shareholders 2,764 3,077 5,841
NCI (5) - (5)
Year ended 31 December 2024
Revenue from sale of original equipment 8,005 384 8,389
Revenue from aftermarket services 9,843 677 10,520
Total revenue 17,848 1,061 18,909
Gross profit 4,091 130 4,221
Commercial and administrative costs (1,197) (87) (1,284)
Research and development costs (605) 402 (203)
Share of results of joint ventures and associates 175 (3) 172
Operating profit 2,464 442 2,906
Gain arising on the disposal of business - 16 16
Profit before financing and taxation 2,464 458 2,922
Net financing (171) (517) (688)
Profit before taxation 2,293 (59) 2,234
Taxation (282) 532 250
Profit for the year 2,011 473 2,484
Attributable to:
Ordinary shareholders 2,048 473 2,521
NCI (37) - (37)
2 Segmental analysis continued
Disaggregation of revenue from contracts with customers
Analysis by type and basis of recognition Civil Aerospace Defence Power Systems All Other Businesses Corporate and Inter-segment Total underlying
£m £m £m £m £m £m
Year ended 31 December 2025
Original equipment recognised at a point in time 3,217 409 3,368 - - 6,994
Original equipment recognised over time - 1,819 65 13 - 1,897
Aftermarket services recognised at a point in time 1,617 735 1,348 - - 3,700
Aftermarket services recognised over time 5,469 1,809 111 - - 7,389
Total underlying customer contract revenue 10,303 4,772 4,892 13 - 19,980
Other underlying revenue (1) 79 - - - - 79
Total underlying revenue (2) 10,382 4,772 4,892 13 - 20,059
Year ended 31 December 2024
Original equipment recognised at a point in time 3,105 562 2,871 3 - 6,541
Original equipment recognised over time - 1,381 71 12 - 1,464
Aftermarket services recognised at a point in time 1,258 918 1,231 - - 3,407
Aftermarket services recognised over time 4,594 1,661 98 - - 6,353
Total underlying customer contract revenue 8,957 4,522 4,271 15 - 17,765
Other underlying revenue (1) 83 - - - - 83
Total underlying revenue (2) 9,040 4,522 4,271 15 - 17,848
(1 ) Includes leasing revenue
(2) Includes £259m of revenue recognised in the year relating to
performance obligations satisfied in previous years, of which £253m related
to Civil Aerospace long term contracts (2024: £317m, of which £311m relates
to Civil Aerospace long term contracts)
Total underlying Underlying adjustments and adjustments to foreign exchange Group statutory results (1)
£m £m £m
Year ended 31 December 2025
Original equipment recognised at a point in time 6,994 211 7,205
Original equipment recognised over time 1,897 1 1,898
Aftermarket services recognised at a point in time 3,700 123 3,823
Aftermarket services recognised over time 7,389 806 8,195
Total customer contract revenue 19,980 1,141 21,121
Other revenue 79 7 86
Total revenue 20,059 1,148 21,207
Year ended 31 December 2024
Original equipment recognised at a point in time 6,541 384 6,925
Original equipment recognised over time 1,464 - 1,464
Aftermarket services recognised at a point in time 3,407 163 3,570
Aftermarket services recognised over time 6,353 501 6,854
Total customer contract revenue 17,765 1,048 18,813
Other revenue 83 13 96
Total revenue 17,848 1,061 18,909
(1 ) During the year to 31 December 2025, revenue recognised within Civil
Aerospace, Defence and Power Systems of £2,034m (2024: £1,915m) was received
from a single customer
2 Segmental analysis continued
Underlying adjustments 2024
2025
Revenue Profit before financing Net financing Revenue Profit before financing Net financing
£m £m £m £m £m £m
Taxation Taxation
£m £m
Underlying performance 20,059 3,462 (110) (593) 17,848 2,464 (171) (282)
Impact of foreign exchange differences as a result of hedging activities on A 1,148 797 499 (328) 1,061 197 190 (97)
trading transactions (1)
Unrealised fair value changes on derivative contracts held for trading (2) A - - 1,328 (333) - (6) (649) 164
Unrealised fair value change to derivative contracts held for financing (3) A - - (4) 1 - - 40 (10)
Exceptional programme credits (4) B - 83 - (21) - - - -
Exceptional transformation and restructuring charges (5) B - (44) - 4 - (234) (11) 65
Impairment reversals (6) C - 179 - (44) - 547 - (157)
Effect of acquisition accounting (7) C - (16) - 3 - (45) - 11
Other (8) D - 7 (55) 12 - (17) (87) 27
Gains arising on the disposals of C - 809 - (28) - 16 - (6)
businesses (9)
Impact of tax rate change (10) D - - - (58) - - - 10
Recognition of deferred tax assets (11) D - - - 286 - - - 525
Total underlying adjustments 1,148 1,815 1,768 (506) 1,061 458 (517) 532
Statutory performance per condensed consolidated income statement 21,207 5,277 1,658 (1,099) 18,909 2,922 (688) 250
A - FX, B - Exceptional, C - M&A and impairment, D - Other
(1)( ) The impact of measuring revenues and costs at the average exchange
rate during the year and the impact of valuation of assets and liabilities
using the year end exchange rate rather than the achieved rate or the exchange
rate that is expected to be achieved by the use of the hedge book increased
statutory revenues by £1,148m (2024: £1,061m) and increased profit before
financing and taxation by £797m (2024: £197m). Underlying financing excludes
the impact of revaluing monetary assets and liabilities at the year-end
exchange rate
(2) The underlying results exclude the fair value changes on derivative
contracts held for trading. These fair value changes are subsequently
recognised in the underlying results when the contracts are settled
(3) Includes net fair value loss of £4m (2024: gain of £40m) on any
interest rate swaps not designated into hedging relationships for accounting
purposes
(4) During 2025, contract loss provisions have reduced by £83m (2024: £nil)
as a result of amounts released following contractual renegotiations where the
original charge was treated as non-underlying
(5) In 2023, the Group announced a major multi-year transformation programme
(set out in the 2022 Annual Report). During 2025, the Group incurred charges
of £44m related to this programme (2024: £234m). The charges comprise of
advisory fees and transformation office costs £52m (2024: £37m) and
severance costs £3m (2024: £68m). These were partly offset by an £11m
reversal of previously recognised costs for impairments, write-offs and
closure costs related to the exit of the Group's advanced air mobility
activities (2024: £129m)
(6)( ) The Group has assessed the carrying value of its assets and
reviewed for potential impairment and impairment reversal triggers. During
2025, there was an impairment reversal of intangible assets of £10m (2024
£413m), property, plant and equipment assets of £46m (2024: £nil), right of
use assets of £129m (2024: £nil) and contract assets of £nil (2024:
£132m). See note 9, 10 and 11 for further details. Of the £185m reversed,
£179m (2024: £132m) was included within cost of sales, and £6m has been
included with research and development costs, see note 3 for further details
(7) The effect of acquisition accounting includes the amortisation of
intangible assets arising on previous acquisitions
(8) Includes interest received of £52m (2024: £78m) on interest rate swaps
which are not designated into hedge relationships for statutory purposes from
interest payable on an underlying basis to fair value movement and £6m (2024:
charge of £13m) past-service credit on defined benefit schemes
(9) An exceptional gain on disposal was recognised as a result of the
deconsolidation of Rolls-Royce SMR Limited and the sale of the naval
propulsors business during the year. Further details can be found in note 25
(10) Represents the impact to the income statement of the gradual
reduction in the German Federal Corporate Income tax rate from 15% to 10% in
2024 this represented the reduction in the tax rate on authorised surplus
pension charges from 35% to 25% in 2024
(11) During 2025, the Group recognised deferred tax assets of £563m
(2024: £1,033m) relating to UK tax losses of which £277m (2024: £508m) is
included in underlying performance and £286m (2024: £525m) in non-underlying
2 Segmental analysis continued
Balance sheet analysis
( ) Civil Aerospace Defence Power Systems Total reportable segments
£m £m £m £m
At 31 December 2025
Segment assets 20,754 3,582 4,691 29,027
Interests in joint ventures and associates 570 9 34 613
Segment liabilities (25,932) (3,523) (2,404) (31,859)
Net (liabilities)/assets (4,608) 68 2,321 (2,219)
At 31 December 2024
Segment assets 19,303 3,495 3,998 26,796
Interests in joint ventures and associates 550 9 33 592
Segment liabilities (26,621) (3,322) (1,969) (31,912)
Net (liabilities)/assets (6,768) 182 2,062 (4,524)
Reconciliation to the balance sheet
2025 2024
£m £m
Segment assets (excluding held for sale) 29,027 26,796
Interests in joint ventures and associates 613 592
All Other Businesses 681 122
Corporate and Inter-segment (2,286) (2,227)
Assets held for sale 15 153
Cash and cash equivalents and short-term investments 6,244 5,575
Fair value of swaps hedging fixed rate borrowings - 154
Deferred and income tax assets 3,535 3,731
Post-retirement scheme surpluses 286 790
Total assets 38,115 35,686
Segment liabilities (excluding held for sale) (31,859) (31,912)
All Other Businesses (62) (200)
Corporate and Inter-segment 2,286 2,227
Liabilities associated with assets held for sale (19) (100)
Borrowings and lease liabilities (4,272) (5,132)
Fair value of swaps hedging fixed rate borrowings (77) (121)
Deferred and income tax liabilities (467) (348)
Post-retirement scheme deficits (892) (981)
Total liabilities (35,362) (36,567)
Net assets/(liabilities) 2,753 (881)
3 Research and development
2025 2024
£m £m
Gross research and development costs (1,417) (1,475)
Contributions and fees (1) 814 700
Net expenditure (603) (775)
Capitalised as intangible assets (2) 211 263
Amortisation and impairment of capitalised costs (3, 4) (103) 309
Net amount recognised in the income statement (495) (203)
Underlying adjustments (4) (2) (402)
Net underlying cost recognised in the income statement (497) (605)
(1 ) Includes £795m (2024: £667m) of government funding
(2) R&D capitalised as intangibles is presented net of £11m (2024:
£nil) Government funding received
(3) See note 9 for analysis of amortisation and impairment
(4) Underlying adjustments include impact of acquisition accounting, foreign
exchange and an impairment reversal of £6m (2024: £413m). Further details
can be found in notes 2 and 9
4 Net financing
2025 2024
Statutory Underlying (1) Statutory Underlying (1)
£m £m £m £m
Interest receivable and similar income (2) 271 265 269 266
Net fair value gains on foreign currency contracts 1,335 - - -
Net fair value gains on non-hedge accounted interest rate swaps (3) - - 40 -
Financing on post-retirement scheme surpluses 32 - 37 -
Net foreign exchange gains 499 - 190 -
Financing income 2,137 265 536 266
Interest payable (302) (240) (362) (273)
Net fair value losses on foreign currency contracts - - (631) -
Net fair value losses on non-hedge accounted interest rate swaps (3) (4) - - -
Net fair value losses on revaluation of other investments accounted for at - - (24) (24)
FVTPL (4)
Foreign exchange differences and changes in forecast payments relating to (4) -
financial RRSAs
- -
Net fair value losses on commodity contracts (7) - (18) -
Financing on post-retirement scheme deficits (38) - (39) -
Cost of undrawn facilities (9) (9) (17) (17)
Other financing charges (115) (126) (133) (123)
Financing costs (479) (375) (1,224) (437)
Net financing income/(costs) 1,658 (110) (688) (171)
Analysed as:
Net interest receivable/(payable) (31) 25 (93) (7)
Net fair value gains/(losses) on derivative contracts 1,324 - (609) -
Net post-retirement scheme financing (6) - (2) -
Net foreign exchange gains 499 - 190 -
Net other financing (128) (135) (174) (164)
Net financing income/(costs) 1,658 (110) (688) (171)
(1) See note 2 for definition of underlying results
(2 ) Includes interest income on cash balances and short-term deposits of
£149m (2024: £188m) and similar income of £122m (2024: £81m) on money
market funds
(3)( ) The condensed consolidated income statement shows the net fair
value loss on any interest rate swaps not designated into hedging
relationships for accounting purposes. Underlying financing reclassifies the
realised fair value movements on these interest rate swaps to net interest
payable
(4 ) Included in the 2024 financing costs is a £24m charge in relation to
the fair value write down of an unlisted investment recorded at fair value
through profit or loss (FVTPL)
5 Taxation
UK Overseas Total
2025 2024 2025 2024 2025 2024
£m £m £m £m £m £m
Current tax charge for the year 39 30 730 379 769 409
Current tax charge in respect of Pillar Two income taxes 2 2 - - 2 2
Adjustments in respect of prior years (9) - 79 (18) 70 (18)
Current tax 32 32 809 361 841 393
Deferred tax charge for the year 726 265 50 3 776 268
Adjustments in respect of prior years 12 17 (25) (47) (13) (30)
Recognition of deferred tax (563) (1,033) - - (563) (1,033)
Derecognition of advance corporation tax - 162 - - - 162
Deferred tax charge resulting from a decrease in the overseas tax rate - - 58 - 58 -
Deferred tax credit resulting from a decrease in the UK tax rate - (10) - - - (10)
Deferred tax 175 (599) 83 (44) 258 (643)
Charged/(credited) in the income statement 207 (567) 892 317 1,099 (250)
Deferred taxation assets and liabilities
2025 2024
£m £m
At 1 January 3,429 2,668
Amount (charged)/credited to income statement (258) 643
Amount credited to OCI 117 59
Amount credited/(charged) to hedging reserves 3 (1)
Amount credited to equity 76 71
Exchange differences (8) (11)
At 31 December 3,359 3,429
Deferred tax assets 3,460 3,660
Deferred tax liabilities (101) (231)
3,359 3,429
Of the total deferred tax asset of £3,460m, £2,835m (2024: £3,099m) relates
to the UK and is made up as follows:
- £2,954m (2024: £2,472m) relating to tax losses;
- £(40)m (2024: £425m) arising on unrealised losses on derivative
contracts; and
- £(79)m (2024: £202m) relating to other deductible temporary
differences, in particular tax depreciation and relief for interest expenses.
The UK deferred tax assets primarily arise in Rolls-Royce plc and have been
recognised based on the expectation that the business will generate taxable
profits and tax liabilities in the future against which the losses and
deductible temporary differences can be utilised.
Most of the UK tax losses relate to the Civil Aerospace large engine business
which makes initial losses through the investment period of a programme and
then makes a profit through its contracts for services. The programme
lifecycles are typically in excess of 30 years.
Deferred tax assets are recognised only to the extent it is probable that
future taxable profits will be available against which the assets can be
utilised. Where necessary, this is based on management's assumptions and
probability assessments relating to the amounts and timing of future taxable
profits. The Directors continually reassess the appropriateness of recovering
deferred tax assets, which includes a consideration of the level of future
profits and the time period over which they are recovered. A recoverability
assessment has been undertaken, taking account of deferred tax liabilities
against which the reversal can be offset and using latest UK forecasts, which
are mainly driven by the Civil Aerospace large engine business, to assess the
level of future taxable profits.
The recoverability of deferred tax assets has been assessed on the following
basis:
- using the most recent UK profit forecasts, covering the next five
years which are consistent with external sources on market conditions;
- the long-term forecast profit profile of existing large engine
programmes which are typically in excess of 30 years from initial investment
to retirement of the fleet, including the aftermarket revenues earned from
airline customers;
- the long-term forecast is adjusted to exclude engine programmes
which are in the development stage with no confirmed orders;
- taking into account the risk that regulatory changes could
materially impact demand for our products;
5 Taxation continued
- consideration that although all Civil Aerospace large engines are
now compatible with sustainable fuels, there is a risk that in the longer-term
demand will shift towards more sustainable products and solutions;
- the long-term forecast profit and cost profile of the other parts
of the UK business;
- taking into consideration past performance and experience,
including the fact that the UK business returned to profitability in 2023; and
- reflecting the sustained profitability and continued growing
financial resilience of the Group, modelling is based on 100% probability of a
base case forecast (2024: 75% base case and 25% downside forecast). It also
reflects the fact that the Group's multi-year transformation continues to
deliver despite the current volatility in macro-economic variables and an
external environment that remains challenging, including geopolitical
tensions, the uncertainty introduced by tariffs and supply chain challenges.
Delivery against the Group's strategic initiatives continues to expand the
earnings potential of the business.
The assessment takes into account UK tax laws that, in broad terms, restrict
the offset of carried forward tax losses to 50% of current year profits. In
addition, the amounts and timing of future taxable profits incorporate:
- the impact of significant Civil Aerospace large engine orders in
2025 and improvements in large engine LTSA business plans;
- latest assessment of the time period over which future probable
profits are expected to arise or Civil Aerospace large engine programmes;
- the outcomes of strategic initiatives, including contractual margin
improvements and cost reduction;
- the continued growth in Civil Aerospace engine flying hours; and
- management's assumptions on the impact of macro-economic factors
and climate change on the UK business.
The climate change scenarios previously prepared to assess the viability of
our business strategy, decarbonisation plans and approach to managing
climate-related risks remain consistent with those at 31 December 2024. The
scale up of sustainable aviation fuel is expected to play a crucial role in
reaching net zero carbon emissions by 2050 and the Group has demonstrated that
all the commercial aero engines it produces are compatible for use with
sustainable fuels. The impact that this could have on our costs and customer
pricing is factored into the deferred tax assessment. However, benefits that
may arise in the future from the development of breakthrough new technologies
are not taken into account.
Based on the assessment, the Group has recognised a total UK deferred tax
asset of £2,954m (2024: £2,472m), which includes the recognition of a
further £563m (2024: £1,033m) of previously unrecognised deferred tax asset
relating to UK tax losses (of which £286m is non-underlying and £277m is
underlying). This reflects the conclusions that:
- based on current financial results and an improved outlook it is
probable that the UK business will generate taxable income and tax liabilities
in the future against which these losses can be utilised; and
- using current forecasts and various scenarios these losses will be
used in full within eight-15 years, which is within the expected programme
lifecycles.
The advance corporation tax (ACT) balance of £181m was fully de-recognised
from the balance sheet in 2024 following the Group's announcement to
reinstatement shareholder distributions via cash dividends, which prevents
utilisation of the surplus advance corporation tax balance within an
appropriate timeframe to deem it reasonable that the balance would be
recovered. The balance remains unrecognised at the year end 2025. The Group is
closely monitoring developments following the announcement in the 2025 Autum
Budget that the shadow ACT regime will be repealed, effective from 1 April
2026. The statutory instrument is not yet published so the legislation is not
substantially enacted at the balance sheet date. This will be considered for
future accounting periods.
Any future changes in tax law or the structure of the Group could have a
significant effect on the use of losses and other deductible temporary
differences, including the period over which they can be used. In view of this
and the significant judgement involved, the Board continuously reassesses this
area.
The Group is within the scope of the OECD Pillar Two (Global Minimum Tax)
model rules, which came into effect from 1 January 2024. For the period to 31
December 2025, the Group has continued to apply the mandatory exception to
recognising and disclosing information about deferred tax assets and
liabilities related to Pillar Two income taxes.
The temporary differences associated with investments in subsidiaries, joint
ventures and associates, for which a deferred tax liability has not been
recognised, aggregate to £2,825m (2024: £1,558m). No deferred tax liability
has been recognised on the potential withholding tax due on the remittance of
undistributed profits as the Group is able to control the timing of such
remittances and it is probable that consent will not be given in the
foreseeable future.
Impact of recognition of deferred tax asset on UK tax losses on underlying
profit after tax
As outlined above, during the year the Group recognised a further £563m
(2024: £1,033m) of previously unrecognised deferred tax asset relating to UK
tax losses (of which £286m (2024: £525m) is non-underlying and £277m (2024:
£508m) is underlying). During 2024 the Group fully derecognised £162m
advance corporation tax balance (as an underlying charge). The £277m (2024:
net £346m) credit to underlying profit after tax has been adjusted in the
calculation of earnings per share, the proposed dividend payout ratio, and
return on capital. This one-off non-cash adjustment has been made as it would
otherwise cause a disproportionate impact on these metrics.
6 Earnings per ordinary share
Basic earnings per share (EPS) is calculated by dividing the profit/(loss)
attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the year, excluding ordinary shares held under
trust, which have been treated as if they had been cancelled.
2025 2024
Basic Potentially dilutive share options Diluted Basic Potentially dilutive share options Diluted
Profit attributable to ordinary shareholders (£m): 5,841 5,841 2,521 2,521
Weighted average number of ordinary shares (millions) 8,415 33 8,448 8,388 51 8,439
EPS (pence): 69.41 (0.27) 69.14 30.05 (0.18) 29.87
The reconciliation between underlying EPS and basic EPS is as follows:
2025 2024
Pence £m Pence £m
EPS/Profit attributable to ordinary shareholders 69.41 5,841 30.05 2,521
Total underlying adjustments to (loss)/profit before tax (note 2) (42.58) (3,583) 0.70 59
Related tax effects 6.01 506 (6.34) (532)
Adjustment for recognition of deferred tax assets (1) (3.29) (277) (4.12) (346)
Underlying EPS/Underlying profit attributable to ordinary shareholders 29.55 2,487 20.29 1,702
Diluted underlying EPS attributable to ordinary shareholders 29.44 20.17
(1) Underlying profit attributable to ordinary shareholders has been adjusted
for the one-off non-cash impact of £277m (2024: £346m) related to the
recognition of deferred tax assets on UK losses, see note 5 for further
details
7 Dividends
2025 2024
£m £m
Dividends provided for or paid during the year 885 -
Ordinary dividends declared and paid in the year ended 31 December 2025
comprised of a final dividend for 2024 of 6p per ordinary share and an interim
cash dividend in respect of the first half of 2025 of 4.5p per ordinary share.
The Employee Benefit Trust has currently waived the right to receive dividends
on Rolls-Royce Holdings plc shares. This waiver has been applied to dividends
paid in 2025.
The Directors have proposed a final dividend for 2025 of 5p per share (2024:
6p), giving a total for the year of 9.5p (2024: 6p) including the interim
dividend paid during the year of 4.5p (2024: nil). The expected cost of
servicing this final dividend is £419m, for which no liability has been
recognised at the balance sheet date. The final dividend will be paid on 3
June 2026 to shareholders on the register on 24 April 2026. The election
deadline for ordinary shareholders wishing to participate in the Dividend
Reinvestment Programme (DRIP) is 15 May 2026, further details can be obtained
from the Company's Registrar, Equiniti Limited.
8 Goodwill
Rolls-Royce Power Systems AG Rolls-Royce Deutschland Ltd & Co KG Other (1) Total
£m £m £m £m
Cost:
At 1 January 2025 779 229 37 1,045
Transferred from assets held for sale (2) - - 2 2
Disposal of business - - (2) (2)
Disposals - - (10) (10)
Exchange differences 8 11 - 19
At 31 December 2025 787 240 27 1,054
Accumulated amortisation and impairment:
At 1 January 2025 - 3 33 36
Transferred from assets held for sale (2) - - 2 2
Disposal of business - - (2) (2)
Disposals - - (10) (10)
At 31 December 2025 - 3 23 26
Net book value at:
31 December 2025 787 237 4 1,028
1 January 2025 779 226 4 1,009
(1)( ) Goodwill balances that are not considered to be individually
significant were also tested for impairment
(2)( ) At 31 December 2024 the Group held for sale the goodwill allocated
to the naval propulsors & handling business. During the year goodwill with
a net book value of £nil was transferred into and out of assets held for sale
relating to the naval propulsors business and naval handling business
respectively. The assets and liabilities of the naval propulsors business were
disposed of on 1 July 2025 and the assets of the naval handling business are
held for sale at 31 December 2025, see note 25 for further details
The Directors have reviewed the presentation of the Balance Sheet during the
year and believe that presenting goodwill separately from the remaining
intangible assets is relevant to an understanding of the entity's financial
position and provides more useful information to the users of the Annual
Report and Financial Statements. The comparative balance at 31 December 2024
has also been represented for comparability.
The carrying amount of goodwill allocated across multiple CGUs is not
significant in comparison with the Group's total carrying amount of goodwill.
Goodwill has been tested for impairment during 2025 on the following basis:
- the carrying values of goodwill have been assessed by reference to
the value in use;
- these have been estimated using cash flows from the most recent
forecasts prepared by the Directors, which are consistent with past experience
and external sources of information on market conditions. These forecasts
generally cover the next five years. Growth rates for the period not covered
by the forecasts are based on growth rates of 2% which reflects the products,
industries and countries in which the relevant CGU or group of CGUs operate.
Inflation has been included based on contractual commitments where relevant.
Where general inflation assumptions have been required, these have been
estimated based on externally sourced data. General inflation assumptions of
2% to 3% have been included in the forecasts, depending on the nature and
geography of the flows;
- the key forecast assumptions for the impairment tests are the
discount rate and the cash flow projections, in particular the programme
assumptions (such as sales volumes and product costs), the impact of foreign
exchange rates on the relationship between selling prices and costs, and
growth rates. Impairment tests are performed using prevailing exchange rates;
and
- the Group believes there are significant business growth
opportunities to come from Rolls-Royce playing a leading role in the
transition to net zero as we develop and deliver the products that will
support our customers through the energy transition across multiple markets.
At the same time climate change poses potentially significant risks. The
assumptions used by the Directors are based on past experience and external
sources of information. Based on the climate scenarios prepared, the forecasts
do not assume a significant deterioration of demand for Civil Aerospace
(including Rolls-Royce Deutschland) programmes given that all commercial aero
engines are compatible with sustainable fuels. Similarly, the majority of the
portfolio in Power Systems is now compatible with alternative and more
sustainable fuels. The investment required to ensure our new products will be
compatible with net zero operation, and to achieve net zero Scope 1 + 2 GHG
emission commitments is reflected in the forecasts used.
A 1.5°C scenario has been prepared using key data points from external
sources, including Oxford Economic Global Climate Service and Databank. This
scenario has been used as the basis of a sensitivity. It is assumed that
governments adopt stricter product and behavioural standards and measures that
result in higher carbon pricing. Under these conditions, it is assumed that
markets are willing to pay for low carbon solutions and that there is an
economic return from strategic investments in low carbon alternatives. The
sensitivity has considered the likelihood of demand changes for our products
based on their relative fuel efficiency in the marketplace and the probability
of alternatives being introduced earlier than currently expected. The
sensitivity also reflects the impact of a broad range of potential costs
imposed by policy or regulatory interventions (through carbon pricing). This
sensitivity does not indicate the need for an impairment charge.
8 Goodwill continued
The principal assumptions for the impairment testing of goodwill balances that
are considered to be individually significant are:
Cash-generating unit (CGU) or group of CGUs
Primary operating segment Key trading assumptions (1) Nominal pre-tax discount rate Growth rate (2) Downside scenario weighting (3)
2025 2024 2025 2024 2025 2024
Rolls-Royce Power Systems AG Power Systems e.g. volume of equipment deliveries; pricing achieved; cost escalation 10.7% 10.2% 2% 2% 25% 25%
Rolls-Royce Deutschland Ltd & Co KG Civil Aerospace e.g. volume of engine deliveries, flying hours of installed fleet, cost 11.7% 12.6% 2% 2% 25% 25%
escalation
(1 ) Trading assumptions are based on current and known future programmes,
estimates of market share and long-term economic forecasts
(2) Growth rate at which cash flows beyond the five-year forecasts are
assumed to grow
(3 ) Weighting of the plausible downside scenario in relation to
macro-economic factors
The Directors do not consider that any reasonably possible changes in the key
assumptions (including taking consideration of the climate-related risks
above) would cause the value in use of the goodwill to fall below its carrying
value.
9 Intangible assets
Certification costs Development expenditure Customer relationships Software (1) Other (2) Total
£m £m £m £m £m £m
Cost:
At 1 January 2025 929 3,956 469 1,018 688 7,060
Additions 31 222 - 105 6 364
Transferred from assets held for sale (3) - 3 4 - (4) 3
Disposals (4) - (422) (415) (26) (122) (985)
Exchange differences 2 62 2 - 16 82
At 31 December 2025 962 3,821 60 1,097 584 6,524
Accumulated amortisation and impairment:
At 1 January 2025 493 1,626 441 723 384 3,667
Charge for the year (5) 31 107 7 68 22 235
Impairment (6) (3) (4) - - 13 6
Transferred from assets held for sale (3) - 3 4 - (4) 3
Disposals (4) - (422) (415) (23) (122) (982)
Exchange differences 1 18 - - 6 25
At 31 December 2025 522 1,328 37 768 299 2,954
Net book value at:
31 December 2025 440 2,493 23 329 285 3,570
1 January 2025 436 2,330 28 295 304 3,393
(1)( ) Includes £160m (2024: £100m) of software under course of
construction which is not amortised
(2 ) Other intangible assets includes trademarks, brands and the costs
incurred testing and analysing engines with the longest time in service (fleet
leader engines) to gather technical knowledge on engine endurance which will
improve reliability and enable us to reduce the costs of meeting our LTSA
obligations
(3 ) At 31 December 2024 the Group held for sale the assets and liabilities
of the naval propulsors & handling business. During the year intangible
assets with a net book value of £nil was transferred into and out of assets
held for sale relating to the naval propulsors business and naval handling
business respectively. The assets and liabilities of the naval propulsors
business were disposed of on 1 July 2025 and the assets of the naval handling
business are held for sale at 31 December 2025, see note 25 for further
details
(4 ) During 2025 the majority of the disposals relate to the derecognition
of assets that are fully amortised and where no future economic benefits are
expected from their use or disposal
(5 ) Charged to cost of sales and commercial and administrative costs except
development costs, which are charged to research and development costs
(6) The 2025 impairment charge includes a partial impairment reversal of a
Civil Aerospace - Trent programme asset that had been fully impaired by 30
June 2020. A reversal of £10m has been credited, with £4m recognised in cost
of sales and £6m in research and development within the non-underlying income
statement. See further details below
9 Intangible assets continued
At 31 December 2025, the Group had expenditure commitments for software of
£24m (2024: £28m).
The carrying amount of intangible assets allocated across multiple CGUs is not
significant in comparison with the Group's total carrying amount of intangible
assets with indefinite useful lives.
Material intangible assets
The carrying amount and the residual life of the material intangible assets
(excluding goodwill) for the Group are as follows:
Residual life (1) 2025 2024
£m £m
Trent programme intangible assets (2) 1-15 years 1,993 2,001
Business aviation programme intangible assets (3) 9-15 years 814 674
Intangible assets related to Power Systems (4) 323 309
3,130 2,984
(1 ) Residual life reflects the remaining amortisation period of those
assets where amortisation has commenced. The amortisation period of 15 years
will commence on those assets which are not being amortised as the units are
delivered
(2) Included within the Trent programmes are the Trent 1000, Trent 7000 and
Trent XWB
(3 ) Included within business aviation are the Pearl 700, Pearl 15 and Pearl
10X
(4 ) Includes £112m (2024: £107m) in respect of a brand intangible asset
which is not amortised. Remaining assets are amortised over a range of three
to 15 years
Intangible assets (including programme intangible assets) have been reviewed
for impairment in accordance with IAS 36 Impairment of Assets. Assessments
have considered potential triggers of impairment such as external factors
including climate change, significant changes with an adverse effect on a
programme and by analysing latest management forecasts against those prepared
in 2024 to identify any change in performance. Where a trigger event has been
identified, an impairment test has been carried out. Where an impairment was
required the test was performed on the following basis:
- the carrying values have been assessed by reference to value in
use. These have been estimated using cash flows from the most recent forecasts
prepared by the Directors, which are consistent with past experience and
external sources of information on market conditions over the lives of the
respective programmes; and
- the key assumptions underpinning cash flow projections are based on
estimates of product performance related estimates, future market share and
pricing and cost for uncontracted business. Climate-related risks are
considered when making these estimates consistent with the assumptions above.
An intangible asset impairment reversal of £10m was recognised together with
a property, plant and equipment impairment reversal of £46m (see note 10) and
a lease right-of-use asset impairment reversal of £129m (see note 11) being
recognised in cost of sales (£179m) and research and development (£6m) in
the year as follows:
Impairment reversal
Intangible assets Property, plant and equipment Right-of-use Total Pre-tax nominal discount rate at 30 June 2025 (1)
£m £m assets £m
£m
Civil Aerospace - Trent programme assets 10 46 129 185 12.0%
(1 ) The equivalent pre-tax nominal discount rate in 2020 when the
impairment was recognised was 11.0%
The recoverable amount calculated includes passage of time benefits in
addition to those from the impairment reversal trigger drivers described above
and has resulted in a partial impairment reversal. In making this assessment,
the Directors have considered a range of sensitivities in relation to the
aftermarket returns, cost increases and discount rates.
There have been no other individually material impairment charges or reversals
recognised during the year (2024: reversal of £413m).
10 Property, plant and equipment
Land and buildings Plant and equipment Aircraft and engines In course of construction Total
£m £m £m £m £m
Cost:
At 1 January 2025 1,882 4,910 1,099 535 8,426
Additions 56 178 163 273 670
Disposal of business/businesses - (5) - - (5)
Disposals/write-offs (19) (284) (5) (8) (316)
Reclassifications within PPE (1) 42 104 1 (147) -
Exchange differences - 1 (8) (17) (24)
At 31 December 2025 1,961 4,904 1,250 636 8,751
Accumulated depreciation and impairment:
At 1 January 2025 768 3,454 472 8 4,702
Charge for the year (2) 71 239 70 - 380
Impairment (3) - 2 (44) - (42)
Disposal of business/businesses - (2) - - (2)
Disposals/write-offs (14) (278) (4) - (296)
Exchange differences (3) 2 (3) - (4)
At 31 December 2025 822 3,417 491 8 4,738
Net book value at:
31 December 2025 1,139 1,487 759 628 4,013
1 January 2025 1,114 1,456 627 527 3,724
(1 ) Includes reclassifications from assets under construction into the
other categories of property, plant and equipment when the assets become
available for use
(2 ) Depreciation is charged to cost of sales and commercial and
administrative costs or included in the cost of inventory as appropriate
(3 ) The carrying values of property, plant and equipment have been assessed
during the year in line with IAS 36 Impairment of Assets. Material items of
plant and equipment and aircraft and engines are assessed for impairment
together with other assets used in individual programmes - see potential
triggers considered in note 9. Land and buildings are generally used across
multiple programmes and are considered based on future expectations of the use
of the site, which includes any implications from climate-related risks.
During the year, a partial impairment reversal of £46m has been recognised
within cost of sales (2024: £nil), as outlined within notes 2 and 9
11 Right-of-use assets
Land and buildings Plant and equipment Aircraft and engines Total
£m £m £m £m
Cost:
At 1 January 2025 517 246 1,897 2,660
Additions/modification of leases 79 50 49 178
Disposals of businesses (2) - - (2)
Disposals (11) (49) (54) (114)
Exchange differences (14) 1 3 (10)
At 31 December 2025 569 248 1,895 2,712
Accumulated depreciation and impairment:
At 1 January 2025 294 135 1,470 1,899
Charge for the year (1) 47 47 193 287
Impairment (2) - - (129) (129)
Disposal of businesses (1) - - (1)
Disposals (11) (36) (54) (101)
Exchange differences (6) 2 2 (2)
At 31 December 2025 323 148 1,482 1,953
Net book value at:
31 December 2025 246 100 413 759
1 January 2025 223 111 427 761
(1)( ) Depreciation is charged to cost of sales and commercial and
administrative costs as appropriate
(2)( ) The carrying values of right-of-use assets have been assessed
during the year in line with IAS 36 Impairment of Assets. Material items of
plant and equipment and aircraft and engines are assessed for impairment
together with other assets used in individual programmes - see potential
triggers considered in note 9. Land and buildings are generally used across
multiple programmes and are considered based on future expectations of the use
of the site (which includes any implications from climate-related risks).
During the year, a partial impairment reversal of £129m has been recognised
within cost of sales (2024: charge of £8m) as outlined within notes 2 and 9
12 Investments
Equity accounted and other investments
Equity accounted Other (1) Total
£m
Joint ventures £m
£m
At 1 January 2025 592 5 597
Transfer from subsidiary to joint venture (2) 732 - 732
Additions (3) 56 - 56
Share of retained loss (4) (32) - (32)
Reclassification of deferred profit to deferred income (5) 2 - 2
Revaluation of other investments accounted for as FVOCI - (1) (1)
Exchange differences (66) - (66)
Share of OCI 1 - 1
At 31 December 2025 1,285 4 1,289
(1) Other investments includes unlisted investments of £nil (2024: £nil) and
listed investments of £4m (2024: £5m)
(2 ) In March 2025, an equity-accounted investment of £732m was recognised
at fair value as a result of the deconsolidation of Rolls-Royce SMR Limited.
See note 25 for further information
(3) Additions relates to investments of £52m (2024: £nil) related to
Rolls-Royce SMR Limited following its deconsolidation earlier in the year. Of
this, £15m was recognised in July 2025 due to a change in shareholding
resulting from an additional equity investment made by ČEZ Group (ČEZ), a
further £37m was recognised in December 2025 due to the purchase of shares by
Rolls-Royce Plc from an existing investor. Further details can be found in
note 25. The remaining £4m (2024: £17m) of additions relates to the joint
venture, Beijing Aero Engine Services Company Limited
(4) See table below
(5) The Group's share of unrealised profit on sales to joint ventures is
eliminated against the carrying value of the investment in the entity. Any
excess amount, once the carrying value is reduced to £nil, is recorded as
deferred income
Reconciliation of share of retained (loss)/profit to the income statement and
cash flow statement:
2025 2024
£m £m
Share of results of joint ventures and associates (1) 71 137
Adjustments for intercompany trading (2) (15) 35
Share of results of joint venture and associates to the Group 56 172
Dividends paid by joint ventures and associates to the Group (cash flow (88) (77)
statement)
Share of retained (loss)/profit (above) (32) 95
(1 ) The results to 31 December 2025 include ten months of the Group's share
of the results of Rolls-Royce SMR Limited
(2 ) During the year, the Group sold spare engines to Rolls-Royce &
Partners Finance, a joint venture and subsidiary of Alpha Partners Leasing
Limited. The Group's share of the profit on these sales is deferred and
released to match the depreciation of the engines in the joint venture's
financial statements. In 2025 profit deferred on the sale of engines was
higher than (2024: lower than) the release of that deferred in prior years
13 Inventories
2025 2024
£m £m
Raw materials 699 544
Work in progress 1,932 1,715
Finished goods 3,097 2,833
5,728 5,092
14 Trade receivables and other assets
Current Non-current (1) Total
2025 2024 2025 2024 2025 2024
£m £m £m £m £m £m
Trade receivables 3,046 2,917 78 138 3,124 3,055
Prepayments 1,083 829 78 89 1,161 918
RRSA prepayment for parts (2) 570 486 1,201 1,182 1,771 1,668
Receivables due on RRSAs 1,114 1,118 91 119 1,205 1,237
Amounts owed by joint ventures and associates 706 894 7 2 713 896
Other taxation and social security receivable 184 215 2 2 186 217
Costs to obtain contracts with customers (3) 2 11 176 124 178 135
Other receivables and similar assets (4) 532 529 76 58 608 587
7,237 6,999 1,709 1,714 8,946 8,713
(1) Trade receivables and other assets have been presented on the face of
the balance sheet in line with the operating cycle of the business. Further
disclosure is included in the table above and relates to amounts not expected
to be received in the next 12 months, in line with specific customer payment
arrangements, including customers on payment plans
(2 ) These amounts reflect the contractual share of EFH flows and original
equipment deposits from customers paid to RRSA partners in return for the
supply of parts in future periods under long-term supply contracts. During the
year £597m (2024: £262m) has been charged to cost of sales in relation to
parts supplied and used in the year
(3 ) These are amortised over the term of the related contract in line with
engine deliveries, resulting in amortisation of £10m (2024: £8m) in the
year. There were no impairment losses
(4) Other receivables includes unbilled recoveries relating to completed
overhaul activity where the right to consideration is unconditional
The Group has adopted the simplified approach to provide for expected credit
losses (ECLs), measuring the loss allowance at a probability weighted amount
incorporated by using credit ratings which are publicly available, or through
internal risk assessments derived using the customer's latest available
financial information.
The ECLs for trade receivables and other financial assets has decreased by
£7m to £232m (2024: decreased by £3m to £239m).
The movements of the Group's ECLs provision are as follows:
2025 2024
£m £m
At 1 January (239) (242)
Increases in loss allowance recognised in the income statement during the year (83) (130)
Loss allowance utilised 18 11
Releases of loss allowance previously provided 55 116
Transferred to assets held for sale - 1
Exchange differences 17 5
At 31 December (232) (239)
15 Contract assets and liabilities
Current Non-current (1) Total (2)
2025 2024 2025 2024 2025 2024
£m £m £m £m £m £m
Contract assets
Contract assets with customers 561 886 1,019 598 1,580 1,484
Participation fee contract assets 31 38 286 291 317 329
592 924 1,305 889 1,897 1,813
(1) Contract assets have been presented on the face of the balance sheet in
line with the operating cycle of the business. Further disclosure of contract
assets is provided in the table above, which shows within current the element
of consideration that will become unconditional in the next year
(2 ) Contract assets are classified as non-financial instruments
The balance includes £973m (2024: £955m) of Civil Aerospace LTSA assets and
£477m (2024: £381m) Defence LTSA assets.
The increase in the Civil Aerospace balance is driven by revenue recognised
(when performance obligations have been completed during the year) being
greater than the amount invoiced on those contracts that have a contract asset
balance. Revenue recognised relating to performance obligations satisfied in
previous years was £36m which reduced the contract asset (2024: reduction of
£42m) in Civil Aerospace.
No impairment losses in relation to these contract assets (2024: none) have
arisen during the year.
Participation fee contract assets have decreased by £12m (2024: increased by
£102m) primarily due to amortisation of £(20)m (2024: £(23)m) and the Civil
Aerospace programme asset impairment reversal of £nil (2024: £132m), offset
by foreign exchange on consolidation of £8m (2024: £(7)m).
The absolute value of ECLs for contract assets has increased by £1m to £12m
(2024: increased by £5m to £11m).
Current Non-current (1) Total
2025 2024 2025 2024 2025 2024
£m £m £m £m £m £m
Contract liabilities 7,832 6,309 8,762 9,447 16,594 15,756
(1) Contract liabilities have been presented on the face of the balance
sheet in line with the operating cycle of the business. Contract liabilities
are further split according to when the related performance obligation is
expected to be satisfied and, therefore, when revenue is estimated to be
recognised in the income statement
During the year, £5,652m (2024: £5,048m) of the opening contract liability
was recognised as revenue.
Contract liabilities have increased by £838m. The movement in the Group
balance is primarily as a result of an increase in Civil Aerospace of £576m.
This is mainly as a result of growth in LTSA liabilities of £231m (2025:
£11,370m, 2024: £11,139m) driven almost wholly by large engines, with
customer invoicing in 2025 (based on EFH) being in advance of revenue
recognised (based on costs incurred completing performance obligations). The
contract liability movement includes a decrease of £289m (2024: decrease of
£354m) as a result of revenue being recognised in relation to performance
obligations satisfied in previous years. Contract liability increases in
Defence of £180m and Power Systems of £90m is from the receipt of deposits
in advance of performance obligations being completed.
16 Cash and cash equivalents
2025 2024
£m £m
Cash at bank and in hand 889 714
Money market funds 2,424 1,900
Short-term deposits 2,931 2,961
Cash and cash equivalents per the balance sheet 6,244 5,575
Overdrafts (note 17) (3) (2)
Cash and cash equivalents per cash flow statement (page 16) 6,241 5,573
Cash and cash equivalents at 31 December 2025 includes £210m (2024: £245m)
that is not available for general use by the Group. This balance includes
£47m (2024: £40m) which is held in an account that is exclusively for the
general use of Rolls-Royce Submarines Limited and £128m (2024: £160m) which
is held exclusively for the use of Rolls-Royce Saudi Arabia Limited. This cash
is not available for use by other entities within the Group. The remaining
balance relates to cash held in non-wholly owned subsidiaries and joint
arrangements.
Balances are presented on a net basis when the Group has both a legal right of
offset and the intention to either settle on a net basis or realise the asset
and settle the liability simultaneously. There is no offsetting of
financial instruments in the Group's statement of financial position as at 31
December 2025 and 2024.
17 Borrowings and lease liabilities
Current Non-current Total
2025 2024 2025 2024 2025 2024
£m £m £m £m £m £m
Unsecured
Overdrafts 3 2 - - 3 2
Bank loans 5 4 4 3 9 7
Loan notes 1,026 795 1,754 2,764 2,780 3,559
Other loans - - 10 9 10 9
Total unsecured 1,034 801 1,768 2,776 2,802 3,577
Lease liabilities 392 296 1,078 1,259 1,470 1,555
Total borrowings and lease liabilities 1,426 1,097 2,846 4,035 4,272 5,132
All outstanding items described as loan notes above are listed on the London
Stock Exchange
During the year to 31 December 2025, the Group repaid a loan note of $1bn in
October 2025 in line with its maturity date.
The Group has access to the following undrawn committed borrowing facilities
at the end of the year:
2025 2024
£m £m
Expiring within one year - -
Expiring after one year 2,500 2,500
Total undrawn facilities 2,500 2,500
Further details can be found in the going concern statement on page 21
In December 2025 the Group signed a new £2.5bn Revolving Credit Facility
maturing December 2030 and cancelled the existing facility. These facilities
have not been drawn during the year and remain undrawn at 31 December 2025.
18 Leases
Leases as lessee
The net book value of right-of-use assets at 31 December 2025 was £759m
(2024: £761m), with a lease liability of £1,470m (2024: £1,555m), per notes
11 and 17, respectively. Leases that have not yet commenced to which the Group
is committed have a future liability of £293m (2024: £2m) and consist of
mainly plant and equipment and properties. The condensed consolidated income
statement shows the following amounts relating to leases:
2025 2024
£m £m
Land and buildings depreciation and impairment (1) (47) (45)
Plant and equipment depreciation and impairment (2) (47) (45)
Aircraft and engines depreciation and impairment (3) (64) (175)
Total depreciation and impairment charge for right-of-use assets (158) (265)
Adjustment of amounts payable under residual value guarantees within lease - 6
liabilities (3, 4)
Expense relating to short-term leases of 12 months or less recognised as an (31) (38)
expense on a straight-line basis (2)
Expense relating to variable lease payments not included in lease liabilities (8) (8)
(3, 5)
Total operating costs (197) (305)
Interest expense (6) (74) (83)
Total lease expense (271) (388)
Income from sub-leasing right-of-use assets 30 29
Total amount recognised in income statement (241) (359)
(1) Included in cost of sales and commercial and administration costs
depending on the nature and use of the right-of-use asset
(2) Included in cost of sales, commercial and administration costs, or
research and development depending on the nature and use of the right-of-use
asset
(3) Included in cost of sales
(4) Where the cost of meeting residual value guarantees is less than that
previously estimated, as costs have been mitigated or liabilities waived by
the lessor, the lease liability has been remeasured. Where the value of this
remeasurement exceeds the value of the right-of use asset, the reduction in
the lease liability is credited to cost of sales
(5) Variable lease payments primarily arise on a small number of contracts
where engine lease payments are dependent upon utilisation rather than a
periodic charge
(6) Included in financing costs
18 Leases continued
The total cash outflow for leases in 2025 was £354m (2024: £421m). Of this,
£306m related to leases reflected in the lease liability, £31m to short-term
leases where lease payments are expensed on a straight-line basis and £8m for
variable lease payments where obligations are only due when the assets are
used. The timing difference between income statement charge and cash flow
relates to costs incurred at the end of leases for residual value guarantees
and restoration costs that are recognised within depreciation over the term of
the lease, the most significant amounts relate to engine leases.
Engine leases in the Civil Aerospace business often include clauses that
require the engines to be returned to the lessor with specific levels of
usable life remaining or cash payments to the lessor. The costs of meeting
these requirements are included in the lease payments. The amounts payable are
calculated based upon an estimate of the utilisation of the engines over the
lease term, whether the engine is restored to the required condition by
performing an overhaul at our own cost or through the payments of amounts
specified in the contract and any new contractual arrangements arising when
the current lease contracts end. Amounts due can vary depending on the level
of utilisation of the engines, overhaul activity prior to the end of the
contract, and decisions taken on whether ongoing access to the assets is
required at the end of the lease term. The lease liability at 31 December 2025
included £292m relating to the cost of meeting these residual value
guarantees in the Civil Aerospace business. Up to £127m is payable in the
next 12 months and £165m is due over the following five years.
19 Trade payables and other liabilities
Current Non-current Total
2025 2024 2025 2024 2025 2024
£m £m £m £m £m £m
Trade payables 2,167 1,526 40 - 2,207 1,526
Accruals 2,242 2,552 113 109 2,355 2,661
Customer discounts (1) 1,113 1,035 631 866 1,744 1,901
Payables due on RRSAs 1,800 1,529 14 11 1,814 1,540
Deferred receipts from RRSA workshare partners 35 55 747 757 782 812
Amounts owed to joint ventures and associates 564 492 - - 564 492
Government grants (2) 42 26 33 24 75 50
Other taxation and social security 116 54 - - 116 54
Other payables (3) 784 740 200 198 984 938
8,863 8,009 1,778 1,965 10,641 9,974
(1)( ) Customer discounts include customer concession credits. Revenue
recognised comprises sales to the Group's customers after such items. Customer
concession credits are discounts given to a customer upon the sale of goods or
services. A liability is recognised to correspond with the recognition of
revenue when the performance obligation is met. The largest element of the
balance, approximately £1.2bn (2024: £1.4bn) arises when the Civil business
delivers its engines to an airframer. A concession is often payable to the end
customer (e.g. an airline) on delivery of the aircraft from the airframer. The
concession amounts are known and the payment date is reasonably certain, hence
there is no significant judgement or uncertainty associated with the timing of
these amounts
(2 ) During the year, £5m (2024: £102m) of government grants were released
to the income statement
(3)( ) Other payables includes payroll liabilities and HM Government UK
levies
The Group's payment terms with suppliers vary based on the products and
services being sourced, the competitive global markets the Group operates in
and other commercial aspects of suppliers' relationships. Industry average
payment terms vary between 90 to 120 days. The Group offers reduced payment
terms to its smaller suppliers, who are typically on 75-day payment terms, so
that they are paid in 30 days.
In line with civil aviation industry practice, the Group offers a supply chain
financing (SCF) programme in partnership with banks to enable suppliers
(including joint ventures who are on 90-day standard payment terms) to receive
their payments sooner. This SCF programme is available to suppliers at their
discretion and does not change the Group's rights and obligations with the
suppliers or the timing of payment by the Group to settle its liabilities
arising from transactions with these suppliers.
At 31 December 2025, £646m (2024: £594m) of trade payables and other
liabilities were within the scope of SCF arrangements of which suppliers had
drawn £536m (2024: £506m), with £227m (2024: £243m) drawn by joint
ventures. In some cases the Group settles the costs incurred by joint ventures
as a result of them utilising SCF arrangements and, during the year to 31
December 2025, the Group incurred costs of £9m (2024: £9m). These costs were
included within cost of sales.
20 Financial assets and liabilities
Carrying value of other financial assets and liabilities
Derivatives
Foreign exchange contracts Commodity contracts Interest rate contracts (1) Total Financial RRSAs Other C Shares Total
£m £m £m derivatives £m £m £m £m
£m
At 31 December 2025
Non-current assets 467 6 32 505 - 18 - 523
Current assets 257 6 5 268 - 14 - 282
Assets 724 12 37 773 - 32 - 805
Current liabilities (193) (19) (24) (236) (1) (35) (21) (293)
Non-current liabilities (382) (17) (45) (444) (4) (179) - (627)
Liabilities (575) (36) (69) (680) (5) (214) (21) (920)
149 (24) (32) 93 (5) (182) (21) (115)
At 31 December 2024
Non-current assets 10 1 110 121 - 5 - 126
Current assets 25 4 148 177 - 32 - 209
Assets 35 5 258 298 - 37 - 335
Current liabilities (539) (18) - (557) - (62) (23) (642)
Non-current liabilities (1,364) (22) (111) (1,497) (7) (136) - (1,640)
Liabilities (1,903) (40) (111) (2,054) (7) (198) (23) (2,282)
(1,868) (35) 147 (1,756) (7) (161) (23) (1,947)
(1)( ) Includes the foreign exchange impact of cross-currency interest rate
swaps
Derivative financial instruments
Movements in fair value of derivative financial assets and liabilities were as
follows:
Year ended 31 December 2025 Year ended
£m 31 December 2024
£m
Foreign exchange instruments Commodity instruments Interest rate instruments - hedge accounted (1) Interest rate instruments Total Total
£m £m £m - non-hedge accounted
£m
At 1 January (1,868) (35) 54 93 (1,756) (1,878)
Movements in fair value hedges - - (33) - (33) (32)
Movements in cash flow hedges - - (40) - (40) (23)
Movements in other derivative contracts (2) 1,335 (7) - (4) 1,324 (609)
Contracts settled 682 18 (50) (52) 598 786
At 31 December 149 (24) (69) 37 93 (1,756)
(1) Includes the foreign exchange impact of cross-currency interest rate
swaps
(2) Included in net financing
Financial risk and revenue sharing arrangements (RRSAs) and other financial
assets and liabilities
Movements in the carrying values were as follows:
Financial RRSAs Other - assets Other - liabilities
2025 2024 2025 2024 2025 2024
£m £m £m £m £m £m
At 1 January (7) (17) 14 25 (198) (163)
Exchange adjustments included in OCI 6 1 (3) - 3 (5)
Additions - - - - (29) (34)
Financing charge (1) - - - (11) (16) (9)
Excluded from underlying profit/(loss):
Changes in forecast payments (1) (4) - - - - -
Cash paid - 9 - - 17 12
Other - - - - 9 1
At 31 December (5) (7) 11 14 (214) (198)
(1 ) Included in net financing
20 Financial assets and liabilities continued
Fair values of financial instruments equate to book values with the following
exceptions:
2025 2024
Book value Fair value Book value Fair value
£m £m £m £m
Other assets - Level 2 14 15 16 16
Borrowings - Level 1 (2,780) (2,778) (3,559) (3,540)
Borrowings - Level 2 (22) (23) (18) (21)
Financial RRSAs - Level 3 (5) (5) (7) (7)
The fair value of a financial instrument is the price at which an asset could
be exchanged, or a liability settled, between knowledgeable, willing parties
in an arm's-length transaction. There have been no transfers during the year
from or to Level 3 valuation. Fair values have been determined with reference
to available market information at the balance sheet date, using the
methodologies described below:
- non-current asset investments primarily comprise unconsolidated
companies where fair value approximates to the book value. Listed investments
are valued using Level 1 methodology;
- money market funds, included within cash and cash equivalents,
are valued using Level 1 methodology. Fair values are assumed to approximately
equal cost either due to the short-term maturity of the instruments or because
the interest rate of the investments is reset after periods not exceeding six
months;
- the fair values of held to collect trade receivables and similar
items, trade payables and other similar items, other
non-derivative financial assets and liabilities, short-term investments and
cash and cash equivalents are assumed to approximate to cost either due to the
short-term maturity of the instruments or because the interest rate of the
investments is reset after periods not exceeding six months;
- fair values of derivative financial assets and liabilities and
trade receivable held to collect or sell are estimated by discounting expected
future contractual cash flows using prevailing interest rate curves or cost of
borrowing, as appropriate. Amounts denominated in foreign currencies are
valued at the exchange rate prevailing at the balance sheet date. These
financial instruments are included on the balance sheet at fair value, derived
from observable market prices (Level 2 as defined by IFRS 13 Fair Value
Measurement);
- borrowings are carried at amortised cost. Amounts denominated in
foreign currencies are valued at the exchange rate prevailing at the balance
sheet date. The fair value of borrowings is estimated using quoted prices
(Level 1 as defined by IFRS 13 Fair Value Measurement) or by discounting
contractual future cash flows (Level 2 as defined by IFRS 13 Fair Value
Measurement);
- the fair values of RRSAs and other liabilities, which primarily
includes royalties to be paid to airframers, are estimated by discounting
expected future cash flows. The contractual cash flows are based on future
trading activity, which is estimated based on latest forecasts (Level 3 as
defined by IFRS 13 Fair Value Measurement);
- other assets and borrowings are carried at amortised cost.
Amounts denominated in foreign currencies are valued at the exchange rate
prevailing at the balance sheet date. The fair value of borrowings is
estimated by discounting contractual future cash flows (Level 2);
- in addition, other assets can be included on the balance sheet at
fair value, derived from observable market prices or latest forecast (Level
2/3 as defined by IFRS 13 Fair Value Measurement). At 31 December 2025, Level
3 assets totalled £11m (2024: £14m); and
- the fair value of lease liabilities are estimated by discounting
future contractual cash flows using either the interest rate implicit in the
lease or the Group's incremental cost of borrowing (Level 2 as defined by IFRS
13 Fair Value Measurement).
21 Provisions for liabilities and charges
At Charged to income statement (1) Reversed Utilised Exchange differences At 31 December 2025
1 January 2025
£m £m £m £m £m £m
Onerous contracts 1,433 433 (694) (187) 1 986
Warranty and guarantees 354 179 (25) (93) 7 422
Trent 1000 wastage costs 36 - - (35) (1) -
Employer liability claims 25 1 (4) (2) - 20
Transformation and restructuring 62 10 (16) (35) 1 22
Tax related interest and penalties 16 2 (1) - - 17
Claims and litigation 25 30 (12) (7) - 36
Other 43 22 (3) (7) (1) 54
1,994 677 (755) (366) 7 1,557
Current liabilities 589 507
Non-current liabilities 1,405 1,050
(1)( ) The charge to the income statement within net financing includes £27m
(2024: £47m) as a result of the unwinding of the discounting of provisions
previously recognised and £16m (2024: £36m) as a result of changes in
discount rates during the year
21 Provisions for liabilities and charges continued
Onerous contracts
Onerous contract provisions are recorded when the direct costs to fulfil a
contract are assessed as being greater than the expected recoverable amount.
Onerous contract provisions are measured on a fully costed basis. During the
year, additional contract losses for the Group of £433m (2024: £558m) have
been recognised. These are mainly a result of increases in the estimate of
future LTSA costs due to prolonged supply chain challenges and inflationary
cost increases. Contract losses of £694m (2024: £374m) previously recognised
have been reversed following improvements to the forecast revenue, cost
estimates and time on wing across various engine programmes as a result of
operational improvements, contractual renegotiations and extensions. During
the year £187m (2024: £218m) of the provisions has been utilised. The Group
continues to monitor onerous contract provisions for changes in the market and
revises the provision as required. The value of the remaining onerous contract
provisions reflect, in each case, the single most likely outcome. The
provisions are expected to be utilised over the term of the customer
contracts, typically within eight to 15 years.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires a
company to recognise any impairment loss that has occurred on assets used in
fulfilling the contract before recognising a separate provision for an onerous
contract. No impairments were required for any of the assets solely used in
the fulfilment of onerous contracts.
Warranty and guarantees
Provisions for warranty and guarantees relate to products sold and are
calculated based on an assessment of the remediation costs related to future
claims based on past experience. The provision generally covers a period of up
to three years.
Trent 1000 wastage costs
During the year, the Group has utilised the remaining £35m (2024: £82m) of
the Trent 1000 wastage costs provision. This represents customer disruption
costs and remediation shop visit costs.
Employer liability claims
The provision relating to employer healthcare liability claims is as a result
of an historical insolvency of the previous provider and is expected to be
utilised over the next 30 years.
Transformation and restructuring
The Group announced a major multi-year transformation programme in 2023.
During the year £35m (2024: £35m) was utilised and £16m reversed (2024:
£12m). As part of these plans a further £3m (2024: £2m) has been charged
directly to the income statement that had not been provided for. The remaining
provision is expected to be utilised by 31 December 2027.
Tax related interest and penalties
Provisions for tax related interest and penalties relate to uncertain tax
positions in some of the jurisdictions in which the Group operates.
Utilisation of the provisions will depend on the timing of resolution of these
matters with the relevant tax authorities.
Claims and litigation
Provisions for claims and litigation represent ongoing matters where the
outcome for the Group may be unfavourable.
The balance also includes the best estimate of any retained exposure by the
Group's captive insurance company for any claims that have been incurred but
not yet reported to the Group, as that entity retains a portion of the
exposures it insures on behalf of the remainder of the Group. Such exposures
include policies for aviation claims, employer liabilities and healthcare
claims. Significant delays can occur in the notification and settlement of
claims, and judgement is involved in assessing outstanding liabilities, the
ultimate cost and timing of which cannot be known with certainty at the
balance sheet date. The insurance provisions are based on information
currently available, however, it is inherent in the nature of the business
that ultimate liabilities may vary if the frequency or severity of claims
differs from estimated.
Other
Other items are individually immaterial. The value of any remaining provisions
reflects the single most likely outcome in each case.
There were no provisions held for customer financing at 31 December 2025
(2024: £nil). Provisions are held to cover potential calls on guarantees
provided over asset values and/or financing when it is considered probable by
management that the exposure will crystallise. The Group discloses contingent
liabilities for customer financing arrangements where the payment is not
probable. See note 23.
22 Post-retirement benefits
The net post-retirement deficit as at 31 December 2025 is calculated on a year
to date basis, using the latest funding valuation as at 31 March 2023 for the
UK scheme, updated to 31 December 2025 for the principal schemes.
Amounts recognised in the balance sheet in respect of defined benefit schemes
UK schemes Overseas schemes Total
£m £m £m
At 1 January 2025 779 (970) (191)
Exchange adjustments - (7) (7)
Current service cost and administrative expenses (6) (42) (48)
Past service (cost)/credit (4) 10 6
Financing recognised in the income statement 32 (38) (6)
Contributions by employer - 84 84
Actuarial (losses)/gains recognised in OCI (1) (33) 64 31
(Loss)/return on plan assets excluding financing recognised in OCI (2) (484) 9 (475)
At 31 December 2025 284 (890) (606)
Post-retirement scheme surpluses - included in non-current assets (3) 284 2 286
Post-retirement scheme deficits - included in non-current liabilities - (892) (892)
(1 ) The actuarial loss of £(33)m relating to the UK scheme (Rolls-Royce UK
Pension Fund - RRUKPF) includes a charge of around £(100)m in respect of the
Buy-in of the UK scheme detailed below
(2 ) Includes an asset remeasurement net loss estimated at £350m recognised
in respect of the Buy-in of the UK Scheme that took place in the year
(3 ) The surplus in the UK scheme is recognised as, on an ultimate wind-up
when there are no longer any remaining members, the Group would be entitled to
receive any surplus and, has the power to determine how any remaining surplus
is used
Virgin Media
A UK High Court legal ruling that took place in June 2023 between Virgin Media
Limited and NTL Pension Trustees II Limited, found that certain historic rule
amendments were invalid if they were not accompanied by actuarial
certifications. The ruling was subject to an appeal with a judgement delivered
on 25 July 2024. The Court of Appeal unanimously upheld the decision of the
High Court and concluded that the pre-April 2013 conditions applied to
amendments to both future and past service. Whilst this ruling was in respect
of another scheme, its relevance and hence the potential impact of this to the
RRUKPF scheme, and other UK schemes was unclear.
On 5 June 2025 the Government announced that in light of this uncertainty, it
would introduce legislation to give potentially affected pension schemes the
ability to retrospectively obtain written actuarial confirmation that historic
rule amendments met the necessary standards. As a result of this Government
intervention the Group does not anticipate any scheme amendments or additional
liabilities.
Buy-in of Rolls-Royce UK Pension Fund
In August 2025, the Trustee of the Rolls-Royce UK Pension Fund entered into a
Buy-in transaction with Pension Insurance Corporation plc (PIC), whereby the
Fund purchased a bulk purchase annuity policy in exchange for consideration of
£4.3bn. This was paid from the Fund's existing assets, with no additional
funding required by the Group. This transaction resulted in substantially all
the benefits and liabilities under the Fund being insured. The Buy-in was
undertaken in anticipation of entering into a Buy-out during 2026, upon which
the liabilities and management of bought out benefits will be transferred to
PIC. A charge of £517m has been recognised within the line 'Actuarial
gains/(losses) recognised in OCI' in the Condensed Consolidated Statement of
Comprehensive Income for the year ended 31 December 2025 comprising around
£450m relating to the impact of the Buy-in.
Following the transaction, the bulk purchase annuity policy has been treated
as an asset of the Fund and has been valued on the same basis as the
liabilities to which it relates, as until a Buy-out takes place, the legal
responsibility to pay benefits remains with the Trustee.
The Company and the Trustee of the UK pension scheme agreed on 2 February 2026
to terminate and wind up the UK scheme. See further details in Note 1.
Overseas Schemes
During the year, Rolls-Royce Deutschland replaced a number of their existing
defined benefit schemes with a new company pension scheme to offer payment
options at the time of retirement. The new system, which is similar in
structure to the UK defined contribution scheme but with a guarantee from the
Company regarding investment returns in accordance with German legislation,
significantly reduces interest risks and longevity risks for the employer for
future commitments. A past service credit of £10m has been recognised within
non-underlying operating profit in respect of these changes.
Future Contributions
The Group expects to contribute approximately £81m to its overseas defined
benefit schemes in 2026 (2025: £84m).
In the UK, any cash funding of RRUKPF is based on a statutory triennial
funding valuation process. The Group and the Trustee negotiate and agree the
actuarial assumptions used to value the liabilities (Technical Provisions);
assumptions which may differ from those used for accounting set out above.
Once each valuation is signed, a Schedule of Contributions (SoC) must be
agreed which sets out the cash contributions to be paid. The most recent
valuation, as at 31 March 2023, agreed by the Trustee in October 2023, showed
that the RRUKPF was estimated to be 115% funded on the Technical Provisions
basis. All cash due has been paid in full and the current SoC does not require
any cash contributions to be made by the Group. Following the Buy-in of the
scheme in August 2025 substantially all the scheme liabilities have been
insured and it is expected that no further funding will be required by the
Group: any further liabilities arising are expected to be funded from the
scheme's existing assets.
23 Contingent liabilities
In January 2017, after full cooperation, the Company concluded deferred
prosecution agreements (DPA) with the Serious Fraud Office and the US
Department of Justice and a leniency agreement with the Ministério Público
Federal, the Brazilian federal prosecutor. The terms of both DPAs have now
expired. The Company has also met all its obligations under a two-year
leniency agreement with Brazil's Comptroller General (CGU), signed in October
2021, relating to the same historical matters. In April 2024, the CGU
confirmed that the Company would no longer be subject to compliance
monitorship. Certain authorities are investigating members of the Group for
matters relating to misconduct in relation to historical matters. The Group is
responding appropriately. Action may be taken by further authorities against
the Group or individuals. In addition, the Group could still be affected by
actions from other parties, including customers, customers' financiers and the
Company's current and former investors, including certain potential claims in
respect of the Group's historical ethics and compliance disclosures which have
been notified to the Group. The Directors are not currently aware of any
matters that are likely to lead to a material financial loss over and above
the penalties imposed to date, but cannot anticipate all the possible actions
that may be taken or their potential consequences.
The Group has, in the normal course of business, entered into arrangements in
respect of export finance, performance bonds, grant funding, countertrade
obligations and minor miscellaneous items, which could result in potential
outflows if the requirements related to those arrangements are not met.
Various Group undertakings are party to legal actions and claims (including
with tax authorities) which arise in the ordinary course of business, some of
which are for substantial amounts.
In connection with the sale of its products the Group will, on some occasions,
provide financing support for its customers, generally in respect of civil
aircraft. The Group's commitments relating to these financing arrangements are
spread over many years, they relate to a number of customers, a broad product
portfolio and are generally secured on the asset subject to the financing.
These include commitments of $339m (2024: $405m) (on a discounted basis) to
provide facilities to enable customers to purchase aircraft (of which
approximately $67m could be called during 2026). These facilities may only be
used if the customer is unable to obtain financing elsewhere and are priced at
a premium to the market rate. Significant events impacting the international
aircraft financing market, the failure by customers to meet their obligations
under such financing agreements, or inadequate provisions for customer
financing liabilities may adversely affect the Group's financial position.
Customer financing provisions would be made to cover guarantees provided for
asset value and/or financing were it probable that a payment would be made.
These would be measured on a discounted basis at the Group's borrowing rate to
reflect the time span over which these exposures could arise. The values of
aircraft providing security are based on advice from a specialist aircraft
appraiser. There were no provisions for customer financing provisions at 31
December 2025 or 31 December 2024.
The Group has responded appropriately to the Russia-Ukraine conflict to comply
with international sanctions and export control regime, and to continue to
implement the business decision to exit from Russia. The Group could be
subject to action by impacted customers, suppliers and other contract parties.
While the outcome of the above matters cannot precisely be foreseen, the
Directors do not expect any of these arrangements, legal actions or claims,
after allowing for provisions already made, to result in significant loss to
the Group.
24 Related party transactions
2025 2024
£m £m
Sale of goods and services (1) 8,679 7,702
Purchases of goods and services (1) (9,141) (8,725)
Lease payments to joint ventures and associates (157) (241)
Guarantees of non-wholly owned subsidiaries' borrowings 3 4
Dividends received from joint ventures and associates 88 77
Other income received from joint ventures and associates 38 7
(1) Sales of goods and services to related parties and purchases of goods and
services from related parties, including joint ventures and associates, are
included at the average exchange rate, consistent with the statutory income
statement
Included in sales of goods and services to related parties are sales of spare
engines amounting to £153m (2024: £48m). Profit recognised in the year on
such sales amounted to £60m (2024: £62m), including profit on current year
sales and recognition of profit deferred on similar sales in previous years.
Cash receipts relating to the sale of spare engines amounted to £134m (2024:
£48m).
Included in cost of sales in the income statement are interest costs of £9m
(2024: £9m) incurred during the year which have been settled by the Group on
behalf of joint ventures.
25 Business disposals and businesses held for sale
Disposals
Rolls-Royce SMR Limited
An investment from ČEZ Group (ČEZ) was received by Rolls-Royce SMR Limited
on 4 March 2025 and Rolls-Royce Holdings plc's indirect shareholding in
Rolls-Royce SMR Limited was diluted from 70.5% at 31 December 2024 to 61.7%.
When the new investment was received the Group relinquished control of
Rolls-Royce SMR Limited, as a result of changes in shareholder matters, and
the subsidiary was deconsolidated. This followed detailed consideration of the
criteria within IFRS 10 Consolidated Financial Statements in relation to the
Group's ability to take decisions that affect the returns of the business
without the support of other shareholders. The Group's investment in
Rolls-Royce SMR Limited was recognised at its fair value of £732m on 4 March
2025 and a profit on disposal of £679m was recognised in the Group's income
statement.
In July 2025, Rolls-Royce Holdings plc's indirect shareholding in Rolls-Royce
SMR Limited was further diluted to 55.3%. This was due to a second equity
investment being made by ČEZ into Rolls-Royce SMR Limited which resulted in
an additional £15m profit on disposal being recognised in the year. In
December 2025 the Group made a further investment into Rolls-Royce SMR Limited
increasing Rolls-Royce Holdings plc's indirect shareholding to 57.8%.
Naval propulsors and handling business
On 18 September 2024, the Group signed a sale and disposal agreement for its
naval propulsors & handling business with Fairbanks Morse Defense. On 1
July 2025 the sale of the naval propulsors business completed with the sale of
the naval handling business anticipated in 2026.
2025 2025 2025
£m £m £m
Naval Propulsors Business Rolls-Royce SMR Limited Total
Proceeds
Net cash consideration at prevailing exchange rate and at effective hedged 172 - 172
rate
Cash and cash equivalents disposed - (81) (81)
Net cash consideration 172 (81) 91
Disposal costs paid (7) (4) (11)
Net cash inflow/(outflow) on disposal per cash flow statement 165 (85) 80
Goodwill 12 - 12
Property, plant and equipment 45 3 48
Right-of-use assets 1 1 2
Inventories 19 - 19
Trade receivables and other assets 62 47 109
Trade payables and other liabilities (67) (56) (123)
Provisions for liabilities and charges (3) - (3)
Borrowings and lease liabilities (1) - (1)
Net assets/(liabilities) disposed 68 (5) 63
Profit/(loss) on disposal before disposal costs and accounting adjustments 104 (76) 28
Disposal costs (7) - (7)
Derecognition of NCI - 23 23
Accounting adjustment - recognition of Rolls-Royce SMR Limited at fair value - 732 732
Accounting adjustment - dilution of Group's share of Rolls-Royce SMR Limited - 15 15
Cumulative currency translation gain 18 - 18
Profit on disposal of businesses per income statement 115 694 809
Taxation on disposal (1) (28) - (28)
(1) The deconsolidation of Rolls-Royce SMR Limited from the Group during 2025
is treated as non-taxable, following the tax de-grouping charge recognised in
2024 when the Group's shareholding fell below 75%. Taxation on disposal is
included within taxation in the condensed consolidated income statement
25 Business disposals and businesses held for sale continued
Businesses held for sale
At 31 December 2024, the Group had classified the assets and liabilities
related to its naval propulsors & handling business as held for sale as,
in line with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations, the business was available for sale in its current condition and
the sale was considered highly probable. On 18 September 2024, the Group and
Fairbank Morse Defense signed a sale and disposal agreement. On 1 July 2025
the sale of the naval propulsors business to Fairbanks Morse Defense took
place.
At 31 December 2025 the assets and liabilities of the naval handling business
continued to be disclosed as held for sale. They were measured at the lower of
their carrying value or fair value less costs to sell as summarised below. The
completion of the naval handling business disposal is anticipated in 2026.
The table below summarises the categories of assets and liabilities of the
naval handling business classified as held for sale at 31 December 2025.
2025 2024
£m £m
Goodwill - 13
Property, plant and equipment 3 51
Right-of-use assets - 1
Inventories 1 24
Trade receivables and other assets 11 64
Assets held for sale 15 153
Trade payables and other liabilities (19) (96)
Provisions for liabilities and charges - (3)
Borrowings and lease liabilities - (1)
Liabilities associated with assets held for sale (19) (100)
Net (liabilities)/assets held for sale (4) 53
26 Derivation of summary funds flow statement
2025 2024
Cash flow Impact of hedge book Impact of acquisition accounting Impact of other non-underlying items Funds flow Funds flow
£m £m £m £m £m £m
Operating profit/(loss) 4,468 (797) 16 (225) 3,462 2,464
Loss on disposal of property, plant and equipment (1) 18 - - - 18 32
(Profit)/loss on disposal of intangible assets (1) (2) - - - (2) 6
Joint venture trading (1) 32 - - - 32 (95)
Depreciation, amortisation and impairment 737 - (16) 179 900 853
Movement in provisions (486) 78 - 118 (290) (167)
Increase in inventories (2) (685) - - - (685) (323)
Movement in prepayments to RRSAs for LTSA parts 90 (19) - - 71 (219)
Movement in cost to obtain contracts (44) - - - (44) (18)
Movement in trade receivables/payables and other assets/liabilities (2) (29) (166) - 3 (192) 166
Revaluation of trading assets (2) 214 (18) - - 196 (14)
Realised derivatives in financing 532 - - - 532 652
Movement in Civil LTSA balance 123 378 - - 501 910
Movement in contract assets/liabilities (excluding Civil LTSA) (2) 581 (11) - - 570 (201)
Settlement of excess derivatives (148) - - - (148) (146)
Interest received 270 - - - 270 269
Contributions to defined benefit schemes in excess of underlying operating (42) - - 5 (37) (31)
profit charge (1)
Cash flows on other financial assets and liabilities held for operating (578) 532 - - (46) (24)
purposes
Share-based payments (1) 104 - - - 104 136
Other (1) - - - - - (5)
Income tax (590) - - 35 (555) (381)
Cash from operating activities 4,565 (23) - 115 4,657 3,864
Capital element of lease payments (232) 23 - - (209) (275)
Capital expenditure (978) - - - (978) (876)
Cash received on maturity of share-based payment schemes 40 - - - 40 -
Investments (7) - - 37 30 16
Interest paid (262) - - - (262) (298)
Other (3) 144 - - (152) (8) (6)
Free cash flow 3,270 - - - 3,270 2,425
(1) Included in other operating cash flows in the summarised free cash flow
on page 54
(2) Included in working capital (excluding Civil LTSA balance) in the
summarised free cash flow on page 54
(3) Other includes M&A related costs, exceptional transformation and
restructuring costs
Free cash flow is a measure of the financial performance of the businesses'
cash flows which is consistent with the way in which performance is
communicated to the Board. Free cash flow is cash flows from operating
activities, adjusted to include capital expenditure and movements in
investments, capital elements of lease payments, interest paid, cash received
on maturity of share-based payment schemes and amounts paid relating to the
settlement of excess derivatives. It excludes amounts spent/received on
business acquisitions/disposals, and other material exceptional or one-off
cash flows. Cash flows from operating activities is our statutory equivalent.
The Board considers that free cash flow reflects cash generated from the
Group's underlying trading.
The reconciliation between free cash flow and cash flow from operating
activities can be found on page 54.
Reconciliation of Alternative Performance Measures (APMs) to their statutory
equivalent
Alternative Performance Measures (APMs)
Business performance is reviewed and managed on an underlying basis. These
alternative performance measures reflect the economic substance of trading in
the year. In addition, a number of other APMs are utilised to measure and
monitor the Group's performance.
Definitions and reconciliations to the relevant statutory measure are included
below. All comparative periods relate to 31 December 2024.
Underlying results
Underlying results are presented by recording all relevant revenue and cost of
sales transactions at the average exchange rate achieved on effective settled
derivative contracts in the period that the cash flow occurs. Underlying
results also exclude: the effect of acquisition accounting and business
disposals, impairment of goodwill and other non-current assets where the
reasons for the impairment are outside of normal operating activities,
exceptional items and certain other items which are market driven and outside
of management's control. Further detail can be found in note 2.
2025 2024
£m £m
Revenue
Statutory revenue 21,207 18,909
Derivative and FX adjustments (1,148) (1,061)
Underlying revenue 20,059 17,848
Gross profit
Statutory gross profit 6,175 4,221
Derivative and FX adjustments (799) (186)
Programme exceptional credits (83) -
Exceptional transformation and restructuring (credits)/charges (9) 147
Acquisition accounting and M&A 14 43
Impairment charge/(reversal) 6 (2)
Civil Aerospace programme asset impairment reversal (179) (132)
Other underlying adjustments 1 -
Underlying gross profit 5,126 4,091
Commercial and administrative costs
Statutory commercial and administrative (C&A) costs (1,268) (1,284)
Exceptional transformation and restructuring charges 53 70
Other underlying adjustments (8) 17
Underlying C&A costs (1,223) (1,197)
Research and development costs
Statutory research and development (R&D) costs (495) (203)
Derivative and FX adjustments 2 (8)
Exceptional transformation and restructuring charges - 17
Acquisition accounting 2 2
Civil Aerospace programme asset impairment reversal (6) (413)
Underlying R&D costs (497) (605)
Operating profit
Statutory operating profit 4,468 2,906
Derivative and FX adjustments (797) (191)
Programme exceptional credits (83) -
Exceptional transformation and restructuring charges 44 234
Acquisition accounting and M&A 16 45
Civil Aerospace programme asset impairment reversal (185) (545)
Impairment charge/(reversal) 6 (2)
Other underlying adjustments (7) 17
Underlying operating profit 3,462 2,464
Underlying operating margin 17.3% 13.8%
2025 2024
pence pence
Basic EPS
Statutory basic EPS 69.41 30.05
Effect of underlying adjustments to profit/(loss) before tax (42.58) 0.70
Related tax effects 6.01 (6.34)
Adjustment for recognition of deferred tax assets (1) (3.29) (4.12)
Basic underlying EPS 29.55 20.29
(1 ) Underlying profit attributable to ordinary shareholders has been
adjusted for the one-off non-cash impact of £277m (2024: £346m) related to
the recognition of deferred tax assets on UK tax losses, see note 5, page 33
for further details
Reconciliation of Alternative Performance Measures (APMs) to their statutory
equivalent continued
Organic change
Organic change is the measure of change at constant translational currency
applying full year 2024 average rates to 2025 and excludes M&A changes and
business disposals. The movement in underlying change to organic change is
reconciled below.
All amounts below are shown on an underlying basis and reconciled to the
nearest statutory measure above on page 52. All comparative periods relate to
the year ended 31 December 2024.
Total Group income statement 2025 2024 Change FX M&A (1) Organic Change Organic Change
£m £m £m £m £m £m %
Underlying revenue 20,059 17,848 2,211 (115) (164) 2,490 14%
Underlying gross profit 5,126 4,091 1,035 (16) (22) 1,073 26%
Underlying operating profit 3,462 2,464 998 (21) 14 1,005 38%
Net financing costs (110) (171) 61 2 - 59 (35%)
Underlying profit before taxation 3,352 2,293 1,059 (19) 14 1,064 44%
Taxation (593) (282) (311) (5) 24 (330) 128%
Underlying profit for the year 2,759 2,011 748 (24) 38 734 34%
(1 ) During 2025, the sale of the naval propulsors business completed and
the Group relinquished control of Rolls-Royce SMR Limited. As a result,
organic change excludes these results from 2025 and 2024. During 2024, the
sale of the lower power range engines business completed and the Group exited
the advanced air mobility activities. As a result, organic change excludes
these results from 2024
2025 2024 Change FX M&A Organic Change Organic Change
Civil Aerospace
£m £m £m £m £m £m %
Underlying revenue 10,382 9,040 1,342 16 - 1,326 15%
Underlying OE revenue 3,217 3,105 112 11 - 101 3%
Underlying services revenue 7,165 5,935 1,230 5 - 1,225 21%
Underlying gross profit 2,675 1,990 685 6 - 679 34%
Commercial and administrative costs (432) (396) (36) 1 - (37) 9%
Research and development costs (267) (252) (15) - - (15) 6%
Joint ventures and associates 154 163 (9) (3) - (6) (4%)
Underlying operating profit 2,130 1,505 625 4 - 621 41%
Defence 2025 2024 Change FX M&A (1) Organic Change Organic Change
£m £m £m £m £m £m %
Underlying revenue 4,772 4,522 250 (71) (48) 369 8%
Underlying OE revenue 2,228 1,943 285 (27) (24) 336 18%
Underlying services revenue 2,544 2,579 (35) (44) (24) 33 1%
Underlying gross profit 933 908 25 (12) (3) 40 4%
Commercial and administrative costs (201) (212) 11 2 (1) 10 (5%)
Research and development costs (45) (55) 10 1 - 9 (16%)
Joint ventures and associates 2 3 (1) - - (1) 33%
Underlying operating profit 689 644 45 (9) (4) 58 9%
(1 ) On 1 July 2025 the sale of the naval propulsors business completed. As
a result, organic change excludes the naval propulsors results from 2025 and
2024
Power Systems 2025 2024 Change FX M&A (1) Organic Change Organic Change
£m £m £m £m £m £m %
Underlying revenue 4,892 4,271 621 (60) (113) 794 19%
Underlying OE revenue 3,433 2,942 491 (46) (104) 641 23%
Underlying services revenue 1,459 1,329 130 (14) (9) 153 12%
Underlying gross profit 1,522 1,199 323 (10) (23) 356 30%
Commercial and administrative costs (518) (483) (35) - 3 (38) 8%
Research and development costs (164) (165) 1 (2) - 3 (2%)
Joint ventures and associates 12 9 3 (1) - 4 44%
Underlying operating profit 852 560 292 (13) (20) 325 60%
(1 ) On 31 July 2024 the sale of the lower power range engines business
completed. As a result, organic change excludes the lower power range engines
results from 2024
Reconciliation of Alternative Performance Measures (APMs) to their statutory
equivalent continued
Trading cash flow
Trading cash flow is defined as free cash flow (as defined below) before the
deduction of recurring tax and post-employment benefit expenses. Trading cash
flow per segment is used as a measure of business performance for the relevant
segments.
2025 2024
£m £m
Civil Aerospace 2,512 2,030
Defence 745 591
Power Systems 658 452
Total reportable segments trading cash flow 3,915 3,073
All Other Businesses (1) 9 (176)
Corporate and Inter-segment (62) (60)
Trading cash flow 3,862 2,837
Underlying operating profit charge exceeded by contributions to defined (37) (31)
benefit schemes
Tax (2) (555) (381)
Free cash flow 3,270 2,425
(1 ) All Other Businesses include the financial results of small modular
reactors, electrical power solutions and the UK Civil Nuclear business (see
note 2 for further details)
(2 ) See page 51 for tax paid in the derivation of summary funds flow
statement
Free cash flow
Free cash flow is a measure of the financial performance of the businesses'
cash flows which is consistent with the way in which performance is
communicated to the Board. Free cash flow is cash flows from operating
activities, adjusted to include capital expenditure and movements in
investments, capital elements of lease payments, interest paid, cash received
on maturity of share-based payment schemes and amounts paid relating to the
settlement of excess derivatives. It excludes amounts spent/received on
business acquisitions/disposals, and other material exceptional or one-off
cash flows. Cash flows from operating activities is our statutory equivalent.
2025 2024
£m £m
Statutory cash flows from operating activities 4,565 3,782
Capital expenditure (978) (876)
Cash received on maturity of share-based payment schemes 40 -
Investment (including investment from NCI and movement in joint ventures, (7) 16
associates and other investments)
Capital element of lease payments (232) (299)
Interest paid (262) (298)
Exceptional transformation and restructuring costs 78 104
M&A costs 70 1
Other (4) (5)
Free cash flow 3,270 2,425
Gross R&D expenditure
In year gross cash expenditure on R&D excludes contributions and fees,
amortisation and impairment of capitalised costs and amounts capitalised
during the year. For further detail, see note 3.
Gross capital expenditure
Gross capital expenditure during the year. All proposed investments are
subject to rigorous review to ensure that they are consistent with forecast
activity and provide value for money. The Group measures annual capital
expenditure as the cash purchases of PPE acquired during the year.
2025 2024
£m £m
Purchases of PPE (cash flow statement) 621 519
Reconciliation of Alternative Performance Measures (APMs) to their statutory
equivalent continued
Key performance indicators
The following measures are key performance indicators and are calculated using
APMs or statutory results. See below for calculation of these amounts.
Order backlog
Total value of firm orders placed by customers for delivery of products and
services where there is no right to cancel. Further details are included in
note 2 of the Condensed Consolidated Financial Statements.
Adjusted return on capital (abbreviated to return on capital)
Return on capital is defined as net operating profit after tax (NOPAT) as a
percentage of average invested capital. NOPAT is defined as underlying net
profit excluding net finance costs and the tax shield on net finance costs.
Invested capital is defined as current and non-current assets less current
liabilities. It excludes pension assets, cash and cash equivalents, and
borrowings and lease liabilities. Return on capital assesses the efficiency in
allocating capital to profitable investments.
2025 2024
£m £m
Underlying operating profit 3,462 2,464
Less: taxation (1) (889) (649)
Underlying operating profit (post-taxation) 2,573 1,815
Total assets 38,115 35,686
Less: post-retirement scheme surpluses (286) (790)
Less: cash and cash equivalents (6,244) (5,575)
Current liabilities (19,287) (16,763)
Liabilities held for sale (19) (100)
Less: borrowings and lease liabilities 1,426 1,097
Invested capital (closing) 13,705 13,555
Invested capital (average) 13,630 13,116
Return on capital 18.9% 13.8%
(1 ) Excluding underlying taxation on underlying finance income of £19m
(2024: £21m) and adjusted for the one-off non-cash impact of £277m in the
year (2024: £346m) related to the recognition of deferred tax assets on UK
tax losses, see note 5, page 33 for further details
Total underlying cash costs as a proportion of underlying gross margin
(abbreviated to TCC/GM)
Total underlying cash costs during the year (represented by underlying
research and development (R&D) expenditure and underlying commercial and
administrative (C&A) costs) as a proportion of underlying gross profit.
This measure provides an indicator of total cash costs relative to gross
profit. A reduction in total cash costs relative to gross profit indicates how
effective the business is at managing and/or reducing its costs.
2025 2024
£m £m
Underlying R&D expenditure (1) 598 745
Underlying C&A 1,223 1,197
Total cash costs 1,821 1,942
Underlying gross profit 5,126 4,091
Total cash costs as a proportion of underlying gross profit 0.36 0.47
(1 ) Excludes £4m derivatives and FX (2024: £30m impact of acquisition
accounting, exceptional transformation costs, derivatives and FX)
Principal risks and uncertainties
Our risk management framework is described on pages 48 to 49 of our 2025
Annual Report. It sets out requirements for managing risk across the
organisation, in a continuous process where risk owners identify, quantify,
evaluate, control, assure and act to mitigate risks, including ongoing
monitoring and oversight.
Each principal risk is owned by one or more members of the Executive Team and
managed in relation to achieving target risk appetite or better. The actions
needed to achieve or maintain these target positions are also monitored. We
continued to monitor our principal risks portfolio to ensure that it remains
current and dynamic. All principal risks facing the Group are summarised below
and reported in detail on pages 51 to 56 of our 2025 Annual Report.
Safety
People and process: Failure to create a place to work which minimises the risk
of harm to our people, those who work with us, and the environment, would
adversely affect our reputation and long-term sustainability.
Product: Failure to meet the expectations of our customers to provide safe
products which also meet the relevant regulations.
Compliance
Failure to comply with legislation and/or other regulatory requirements in the
heavily regulated environment in which we operate (e.g. export controls; data
privacy; use of controlled chemicals and substances; anti-bribery and
corruption; human rights; and tax and customs legislation).
This could affect our ability to conduct business in certain jurisdictions and
would potentially expose us to: reputational damage; financial penalties;
debarment from government contracts for a period of time; and/or suspension of
export privileges (including export credit financing), each of which could
have a material adverse effect.
Strategy
Failure to develop an optimal strategy and continuously evolve it, investing
in key areas for performance improvement and growth (taking into account risk
- reward), making difficult decisions for competitive advantage and the
right portfolio and partnership choices, could result in us underperforming
against our competitors and significantly reduce our ability to build a
high-performing, competitive, resilient and growing business.
Execution
Failure to deliver as One Rolls-Royce on short to medium-term financial plans,
including efficient and effective delivery of quality products, services and
programmes, and/or falling significantly short of customer expectations.
Business interruption
Failure to prevent a major disruption of our operations and ability to deliver
our products, services and programmes could have an adverse impact on our
people, internal facilities and/or external supply chain, which could result
in failure to meet agreed customer commitments and damage our prospects of
winning future orders.
Disruption could be caused by a range of events, for example extreme weather
or natural hazards (such as earthquakes or floods) which could increase in
severity or frequency given the impact of climate change; political events;
financial insolvency of a critical supplier; scarcity of materials; loss of
data; fire; pandemic or other infectious disease.
Energy transition
Failure to reach net zero by 2050, and failure to leverage technology to
transition from carbon-intensive products and services at pace could impact
our ability to win future business; achieve operating results; attract and
retain talent; secure access to funding; realise future growth opportunities;
and/or force government intervention to limit emissions.
Information & data (including cyber-security)
Failure to protect the integrity, confidentiality and availability of data,
both physical and digital, systems, services or products from attempts to
cause us and/or our customers harm, which could hinder data-driven
decision-making, disrupt internal business operations and services for
customers, or result in a data breach or non-compliance to regulatory
requirements, all of which could damage our reputation, reduce resilience, and
cause financial loss.
Market & financial shock
Failure to minimise our exposure to market and financial risks, some of which
are of a macro-economic nature (e.g. economic growth rates, foreign currency,
oil price, interest rates) and some of which are more specific to us (e.g.
cyclical aviation industry, reduction in air travel or defence spending,
disruption to other customer operations, liquidity, and credit risks). This
could affect demand for our products and services.
Significant extraneous market events could also materially damage our
competitiveness and/or creditworthiness and our ability to access funding.
This would affect operational results or the outcomes of financial
transactions.
Political
Failure to respond strategically and tactically to geopolitical developments
and events, such as adverse changes in key political relationships, trade
protectionism and conflicts, deteriorating tax or regulatory regimes, and
armed conflict, would lead to an unfavourable business climate which could
impact our short and/or long-term execution commitments.
Talent & capability
Failure to attract, retain and develop the critical talent, skills and
capabilities required to deliver our strategic priorities could threaten our
ability to be a high performing, competitive, resilient and growing business.
Technology
Failure to ensure products and services are based on competitive technology,
leveraging substantial engineering and scientific challenges, adopting digital
tools (such as AI) and/or new ways of working, could hinder our ability to
accelerate product design and deliver a competitive offer that ensures
superior performance; enhances the customer experience; drives the transition
to lower carbon; improves productivity and reduces costs. This will negatively
impact our competitiveness and market share.
Payments to shareholders
Subject to shareholder approval at the AGM to be held on 30 April 2026, the
Board has recommended a final cash dividend of 5 pence per ordinary share for
the year ended 31 December 2025, to be paid on 3 June 2026 to shareholders on
the register on 24 April 2026. The election deadline for ordinary shareholders
wishing to participate in the Dividend Reinvestment Programme (DRIP) is 15 May
2026, further details can be obtained from the Company's Registrar, Equiniti
Limited.
The Company has previously made payments to shareholders by issuing redeemable
C shares of 0.1p each. No distributions in the form of C shares have been made
since 2019. Holders of C shares wishing to redeem their existing C shares must
lodge instructions with the Registrar to arrive no later than 5.00pm on 16
June 2026 (CREST holders must submit their election in CREST by 2.55pm). For
the avoidance of doubt, the C share reinvestment programme is no longer
available; C shares can only be redeemed for cash. The payment of C Share
redemption monies will be made on 16 July 2026. Any entitlement to interest
payments by holders of C shares will also be paid on 1 July 2026 in accordance
with the Company's articles of association.
Statement of Directors' responsibilities
The statements below have been prepared in connection with the Company's full
Annual Report for the year ended 31 December 2025. Certain parts are not
included in this announcement.
The Directors consider that the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Group and Company's position and performance,
business model and strategy.
Each of the Directors, whose names and functions are listed in the Directors'
Report, confirm that to the best of their knowledge:
- the Group Financial Statements, which have been prepared in accordance
with UK-adopted international accounting standards, give a true and fair view
of the assets, liabilities, financial position and loss of the Group;
- the Company Financial Statements, which have been prepared in
accordance with United Kingdom Accounting Standards, comprising FRS 101
Reduced Disclosure Framework, give a true and fair view of the assets,
liabilities, financial position of the Company;
- the Strategic Report includes a fair review of the development and
performance of the business and the position of the Group and Company,
together with a description of the principal risks and uncertainties that it
faces; and
In the case of each Director in office at the date the Directors' Report is
approved:
- so far as the Director is aware, there is no relevant audit
information of which the Group's and Company's auditors are unaware; and
- they have taken all steps that they ought to have taken as a Director
in order to make themselves aware of any relevant audit information and to
establish that the Group's or Company's auditor are aware of that information.
By order of the Board
Tufan Erginbilgic Helen McCabe
Chief Executive Chief Financial Officer
26 February 2026
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