Recasts with CEO comments, share price

By Sarah Young

LONDON, Feb 26 (Reuters) - Rolls-Royce RR.L promised further strong growth after its profit jumped 40% last year driven by a robust performance in airline engines and new data centre business, enabling it to lift returns and send its stock to record highs.

Shares in the British company, whose engines power Airbus A350 widebody jets and Boeing 787s, climbed 6% to 1,383 pence, extending their rally since CEO Tufan Erginbilgic joined in 2023.

It announced a share buyback of between 7 billion and 9 billion pounds ($9.5-12.2 billion) for 2026 to 2028, on top of its dividend, and upgraded both this year's forecasts and its mid-term targets.

Erginbilgic launched a fundamental overhaul of the group when he arrived, driving a sharp turnaround despite supply chain pressures across aerospace and lingering tariff uncertainty.

NUCLEAR AND NARROW-BODIES

The company said its power systems business benefited from the rapid build-out of data centres and higher military spending on naval power systems, while its aero-engines business grew as airlines flew its engines more and Rolls improved durability.

Erginbilgic said there was more growth to come, highlighting a potential return to supplying engines for narrow-body planes and progress in nuclear, where Rolls is developing small modular reactors favoured by governments seeking to decarbonise grids.

The company guided to mid-term targets for underlying operating profit of between 4.9 billion and 5.2 billion pounds and an operating margin of 18% to 20%, bringing it into line with GE Aerospace, its main competitor in the widebody market.

Interactive Investor's Richard Hunter called the results "sparkling".

"The group clearly has unfulfilled ambitions to maintain the momentum," he said of Rolls, whose share price more than doubled last year and has risen over 1,000% in the last three years.

GOVERNMENT SUPPORT

Asked about prospects for a British subsidy to help fund further development of the UltraFan engine, which could enable a move into the larger narrow-body jet market, Erginbilgic sounded confident.

"It is natural that government will look to support that," he told reporters, adding that talks with potential partners on the narrow-body plan were underway.

For 2025, the company reported underlying operating profit of 3.46 billion pounds, well ahead of consensus, while its guidance for 2026 of between 4 billion and 4.2 billion pounds is at least 8% ahead of analyst forecasts.

($1 = 0.7378 pounds)

(Reporting by Sarah Young. Editing by Kate Holton and Mark Potter)

((sarah.young@thomsonreuters.com; +44 20 7542 1109; Reuters Messaging: sarah.young.thomsonreuters@reuters.net))