Rolls-Royce Holdings

For national security Rolls-Royce is the sole UK designer, supplier and in-service support authority for Royal Navy submarine nuclear propulsion plants. The 24 January 2025 Unity contract with the Ministry of Defence (MoD), worth approximately £9bn over eight years, combines research, design, manufacture and support for the current and planned fleet, including Dreadnought and initial SSN-AUKUS work. The announced value is not the same as current funding or recognised backlog. Civil Aerospace generated £1.57bn of underlying operating profit in H1 2026, three times Defence's £522m, while Power Systems is expanding capacity for data-centre and governmental demand.

Rolls-Royce Holdings plc designs, builds and supports safety-critical power and propulsion systems. It is not the car company. BMW owns Rolls-Royce Motor Cars. The listed group supplies large civil turbofans, combat and transport engines, naval gas turbines, Royal Navy submarine reactor plants and mtu diesel and gas engines for data centres, ships and land vehicles.

The group reports three operating divisions. Civil Aerospace supplies original-equipment (OE) Trent and Pearl engines plus long-term service agreements (LTSAs) that generally earn revenue as airlines fly. Defence supplies and supports engines for Eurofighter Typhoon, the F-35B Lightning II LiftSystem, C-130J and B-52 re-engining, as well as UK naval nuclear propulsion. Power Systems, run through Rolls-Royce Power Systems AG in Friedrichshafen, supplies mtu engines for data-centre power, ships and land vehicles.

Civil Aerospace: Trent, Pearl and the aftermarket

The large-engine family, including Trent XWB, Trent 1000 and Trent 7000, and the Pearl business-aviation line sit under President Civil Aerospace Dr Rob Watson. In H1 2026 the division delivered 157 large engines and 122 business-aviation engines, for 279 OE units. Underlying revenue was £6.186bn, comprising £2.019bn OE and £4.167bn aftermarket. Underlying operating profit was £1.567bn at a 25.3% margin. Large-engine flying hours grew 4%. Large-engine maintenance, repair and overhaul (MRO) output rose 13% and refurbishments rose 35%. Full-year 2026 guidance is 550–600 OE deliveries and 1,480–1,550 shop visits, with large-engine flying hours toward the lower end of 115–120% of 2019 levels. H1 contract catch-ups contributed £497m to profit, comprising £372m of contract catch-ups and £125m of onerous provision releases. Management expects a lower H2 contribution.

Defence: combat, transport, naval and submarines

Adam Riddle runs Defence and is Chairman and CEO of Rolls-Royce North America. H1 2026 underlying revenue was £2.48 billion (OE £1.13 billion; aftermarket £1.36 billion). Underlying operating profit was £522 million at a 21.0% margin, up from 15.4% in H1 2025. Order intake was £2.4 billion (book-to-bill 1.0x). Order backlog was £17.5 billion at 30 June 2026, more than three years of revenue, with order cover approaching 90% for the rest of 2026. FY 2025 Defence revenue was £4.77 billion with £689 million of underlying operating profit (14.4% margin), £5.5 billion of order intake and a £17.4 billion year-end backlog.

The company's statutory backlog measure covers firm customer orders for future products and services where customers lack a unilateral right to cancel without compensation. It is not the same as government budget authority, cash funding or a contract ceiling. Rolls-Royce does not publish a separate funded-versus-unfunded Defence backlog split.

Combat and air: EJ200 for Eurofighter Typhoon (OE visibility into the 2030s after Italian, German, Spanish and Turkish orders); the LiftSystem for the F-35B, the only short take-off and vertical landing (STOVL) fighter-jet lift technology in production; F130 for the United States Air Force B-52 re-engine (more than 600 engines expected, with altitude and operating tests completed in H1 2026); AE 2100 for C-130J and related transports; Adour and legacy RB199/Pegasus support. Future combat work includes the Global Combat Air Programme (GCAP) and the US Army MV-75 / Future Long-Range Assault Aircraft (FLRAA) propulsion system. The UK Defence Investment Plan pledged £8.6 billion into GCAP this decade; that is a programme envelope, not a Rolls-Royce contract value.

Naval and nuclear: MT30 marine gas turbines (selected in H1 2026 to power up to 11 Royal Australian Navy Mogami-class general-purpose frigates); the Naval Nuclear Propulsion Plant for Vanguard, Astute and Dreadnought classes and the opening of SSN-AUKUS. Unity (January 2025) is the largest MoD contract in company history. Group President Chris Cholerton holds executive responsibility for submarines and for Rolls-Royce SMR.

Power Systems: mtu, data centres and governmental

Dr Jörg Stratmann runs Rolls-Royce Power Systems AG. H1 2026 underlying revenue was £2.60 billion (OE £1.82 billion; aftermarket £780 million) with £528 million of underlying operating profit at a 20.3% margin (H1 2025: 15.3%). FY 2025 revenue was £4.89 billion with £852 million of underlying operating profit (17.4%). Growth is concentrated in power-generation OE for data-centre prime power and in governmental vehicle engines: 350 upgraded mtu Series 199 engines for Boxer, 200 compact mtu PowerPacks for Puma infantry fighting vehicles, a December 2025 order for more than 300 Leopard 2 engines and a memorandum of understanding with Polska Grupa Zbrojeniowa. Management now guides 25% power-generation OE revenue growth to 2030 and 20% governmental OE revenue growth to 2030.

Nuclear commercial: Rolls-Royce SMR

Rolls-Royce SMR Limited designs a 470 megawatt pressurised-water small modular reactor. ČEZ Group's March 2025 investment deconsolidated the business. After further equity transactions, Rolls-Royce Holdings owned 57.8% at 31 December 2025. The investment is equity accounted, so SMR revenue is not consolidated into group revenue. Great British Energy – Nuclear signed a contract in April 2026 for three units at Wylfa, Anglesey. Commercial terms with ČEZ for the first of up to six Czech units also entered execution. In June 2026 Videberg Kraft selected three units for Sweden's Värö peninsula. The Swedish programme was described by the UK government as multibillion-pound, but no attributable Holdings value, final investment decision or construction notice to proceed was disclosed by 23 August 2026.

Charles Rolls and Henry Royce incorporated Rolls-Royce Limited in 1906. Aero engines became the company's strategically important business. The 1971 RB211 crisis led to nationalisation and the aerospace business returned to public ownership in 1987. The car marque was separated through the 1998–2003 BMW and Volkswagen settlement. BMW now owns Rolls-Royce Motor Cars, which is not part of Rolls-Royce Holdings plc.

Allison Engine Company in Indianapolis was acquired in 1995 and remains a US manufacturing base for AE-series military engines and F130. Rolls-Royce Holdings plc, Companies House number 07524813, became the listed parent in 2011. A 2017 deferred-prosecution settlement over bribery and a 2020 pandemic downturn that forced a rights issue and restructuring remain relevant governance and resilience history.

Portfolio changes require separate treatment. Rolls-Royce completed the sale of its Naval Propulsors business to Fairbanks Morse Defense on 1 July 2025 for £172m net cash consideration, producing a £165m net cash inflow. It completed the separate Naval Handling sale to the same buyer on 6 July 2026. Rolls-Royce retained Naval Gas Turbines and Generator Sets. Rolls-Royce SMR became an equity-accounted associate in March 2025 and the Holdings interest stood at 57.8% at 31 December 2025.

Tufan Erginbilgic arrived as Chief Executive on 1 January 2023 and ran a three-year transformation: commercial reset of LTSAs, shop-visit productivity, a simpler organisation and a capital framework that restored the dividend in 2025 after more than five years and launched the first buyback in a decade. Underlying operating profit rose from £2.46 billion in 2024 to £3.46 billion in 2025 (17.3% margin) and to £2.53 billion in H1 2026 alone (22.5% margin). Net cash was £2.14 billion at 30 June 2026. Moody’s and Fitch upgraded the credit rating to A3 and A- during H1 2026; S&P Global affirmed BBB+ and moved the outlook to positive.

The 2025–2026 national-security portfolio includes Unity, SSN-AUKUS industrialisation, Global Combat Air Programme (GCAP) engine work, B-52 F130 testing and SMR execution-stage contracts. Civil aftermarket cash and data-centre mtu demand fund much of the group's capacity expansion and capital returns.

H1 2026 underlying revenue was £11.279bn versus £9.057bn in H1 2025, a reported increase of 24.5% and 26% on the company's organic basis. Underlying operating profit was £2.534bn versus £1.733bn. Free cash flow was £1.964bn versus £1.582bn. Statutory revenue was £11.448bn, statutory operating profit was £2.418bn and statutory profit for the period was £1.615bn. FY 2025 underlying revenue was £20.059bn with £3.462bn of underlying operating profit and £3.270bn of free cash flow. The FY 2025 group order backlog was £88.1bn, up from £82.1bn.

Where the pounds came from in H1 2026:

• Civil Aerospace: 55% of underlying revenue at £6.186bn and £1.567bn of underlying operating profit. Aftermarket was 67% of Civil revenue. Contract catch-ups contributed £497m to H1 profit and management expects a lower H2 contribution.
• Defence: 22% of revenue at £2.484bn and £522m of underlying operating profit. Margin rose to 21.0%. Aftermarket was 55% of Defence revenue. Order intake was £2.4bn, book-to-bill was 1.0x and backlog was £17.5bn.
• Power Systems: 23% of revenue at £2.604bn and £528m of underlying operating profit. OE was 70% of Power Systems revenue. Order intake was £4.6bn, book-to-bill was 1.8x and OE order cover was approximately 100% for 2026 and more than 50% for 2027.

Raised FY 2026 guidance (30 July 2026): underlying operating profit £4.7–£4.9 billion (from £4.0–£4.2 billion) and free cash flow £3.8–£4.0 billion (from £3.6–£3.8 billion). The free-cash-flow number includes a £150–200 million aerospace supply-chain cash headwind that management expects to fade by the mid-term. Mid-term (2028) targets set with FY 2025 results: underlying operating profit £4.9–£5.2 billion, operating margin 18–20%, free cash flow £5.0–£5.3 billion, return on capital 23–26%. H1 2026 return on capital was already 22.0%.

Capital returns: 2025 total dividend 9.5p (32% of underlying profit after tax). H1 2026 interim dividend 6.0p, payable September 2026. Multi-year buyback £7–£9 billion across 2026–2028, of which £2.5 billion is the 2026 tranche; £1.4 billion of that tranche was complete by the 30 July 2026 results date (£1.1 billion by 30 June). Called-up share capital fell from £1,689 million at year-end 2025 to £1,671 million at 30 June 2026 as shares were cancelled.

Capacity and execution: the company said it invested about $1bn in Indianapolis over the decade to support US defence programmes including F130 and MV-75. Power Systems is expanding capacity in Germany and at Aiken, South Carolina and Mankato, Minnesota for power-generation demand. In Civil Aerospace, H1 2026 large-engine MRO output rose 13% and factory productivity improved 9% over two years. These investments face a £150m–£200m aerospace supply-chain cash headwind in 2026 guidance.

Values below are as disclosed by the awarding body or the issuer. Ceiling, option and company-share splits are stated only where the primary source states them. Several US and classified-adjacent awards are “Undisclosed” at the contract-price level.

Open-market purchases and plan purchases are distinguished from vestings and sell-to-cover. Long-Term Incentive Plan grants are not market purchases. Source notices: 10 August 2026 PDMR RNS, 30 July 2026 purchase and May vestings.

The table reports the last-notified interests disclosed in the FY 2025 annual report. It is not a real-time beneficial-ownership register. The company reported no new substantial-shareholder notifications between 1 January 2026 and the annual report approval date. Later TR-1 notices, if any, supersede these figures. The UK Special Share remains a control constraint tied to the national interest.

Four measures warrant attention through FY 2026 and 2027. First, H1 gross contractual margin improvements of £574m will not recur automatically. Second, management guides large-engine flying hours toward the lower end of 115–120% of 2019 levels. Third, the 21.0% H1 Defence margin must be tested against the 14.4% FY 2025 outcome. Fourth, the UK and Czech contracts generate revenue and profit at Rolls-Royce SMR, but Holdings does not consolidate those amounts.

National-security implication: Rolls-Royce is the sole UK supplier for naval nuclear propulsion plants, making Derby and Raynesway capacity critical to Dreadnought and SSN-AUKUS schedules. Capital implication: Civil Aerospace produced 62% of the three divisions' H1 2026 underlying operating profit. Unity and SMR are strategically important, but they do not replace the Civil aftermarket as the main source of group earnings and cash.

Competition is lane-specific. Rolls-Royce does not fight a single peer across the whole portfolio.

Three moats, different durability.

Naval nuclear propulsion is a sovereign sole-source position. Rolls-Royce designs, supplies and supports the nuclear propulsion plants for the Royal Navy's submarine fleet. Unity has an announced value of approximately £9bn over eight years and includes initial SSN-AUKUS work. The company has not disclosed how much of Unity is funded backlog at a given date. Switching would require long lead times, nuclear licensing and specialised skills. The same advantages create concentration in Derby, Raynesway and the Office for Nuclear Regulation (ONR) approval path.

Civil aftermarket is an installed-base advantage. Once a Trent is in service, long-term agreements, shop visits and spare parts can generate revenue for decades. The commercial reset improved contract economics. Time-on-wing improvements, with management targeting more than 100% durability improvement by end-2027, can reduce maintenance cost per flying hour and improve LTSA margins. The same concentration exposes cash flow to widebody traffic and fleet-utilisation shocks.

F-35B LiftSystem and EJ200 are franchise positions, not monopolies. The LiftSystem has no production competitor on STOVL fighters. EJ200 lives and dies with Typhoon export. F130 on B-52 is a large but finite re-engine. GCAP is the next combat-air bet and is still a programme envelope. Defence’s £17.5 billion backlog is the measurable version of these franchises. It is more than three years of Defence revenue. It is not a Civil-style flying-hour machine.

Power Systems has strong application positions through mtu in data centres, marine power and European land systems, but it faces several engine and generator competitors. SMR remains an execution-stage growth option rather than a proven construction franchise. Holdings' 57.8% associate interest means development risk and potential returns are shared with other shareholders, while SMR revenue is not consolidated.

• Civil LTSA accounting versus cash. Gross contractual margin improvements were £574m. The profit contribution from contract catch-ups was £497m, comprising £372m of catch-ups and £125m of onerous provision releases. Net LTSA balance growth was £86m versus £472m in H1 2025. H2 performance must absorb a lower catch-up contribution.
• Aerospace supply chain. Guidance embeds a £150m–£200m free-cash-flow headwind. Martin Thomsen became procurement and supply-chain chief only in March 2026. Parts availability, shop-visit labour and capacity remain execution risks.
• Widebody cycle. Large-engine flying hours +4% in H1 2026, with full-year hours guided to the lower end of the 115–120% of 2019 band. A China/long-haul stall hits Trent cash first.
• Unity and AUKUS execution. The eight-year contract creates delivery exposure as well as revenue visibility. ONR licensing, nuclear-grade skills and Raynesway capacity are constraints. Delays would affect UK Continuous at Sea Deterrent and SSN-AUKUS industrialisation.
• SMR is not group backlog. UK and Czech contracts are in execution and Sweden is a selection. None can be treated as a fully funded, licensed fleet under construction. The 57.8% holding is equity accounted, so SMR revenue is not consolidated.
• Customer concentration. Civil is airline-and-lessor concentrated. Defence is MoD-and-DoD concentrated. Power Systems governmental is European army-programme concentrated. None of those customers are optional.
• Conduct and export control. The 2017 deferred-prosecution history is not current news, but it is a permanent compliance overlay on a company that sells into the Middle East, Asia and NATO. Export licensing on Typhoon, MT30 and nuclear technology is a political variable.
• Valuation and capital returns. At the 21 August close, approximate market capitalisation was £125.2bn and underlying TTM P/E was about 41.8x. That multiple increases sensitivity to guidance, margin or cash-flow misses. The £7bn–£9bn buyback also reduces cash available for other capital needs. This is not an investment recommendation.

Defense Briefing is an independent intelligence desk. This profile is not investment advice, not a research report under FCA or SEC rules and not a recommendation to buy, sell or hold any security. Figures are traced to primary issuer and government documents listed below. Where a value is estimated it is labelled. Where a value is not disclosed it is stated as such.