Industryweek 6152 Rolls Royce Shares Plunge Profit Warning

Rolls-Royce Shares Plunge on Profit Warning

Feb. 13, 2014
Chief executive John Rishton said 2014 would represent "a pause ... not a change in direction, and growth will resume in 2015."

LONDON -- Profit and revenue will flatten for Rolls-Royce (IW 1000/234) this year, the engine maker warned today, as government cutbacks on defense spending end the company's decade of rampant growth.

The announcement, alongside news of a 41% slump in annual profits, sent Rolls-Royce shares diving 15.2% to 1,027 pence on London's benchmark FTSE 100 index, which was down by 0.52% heading into the close.

"For the full year 2014, we expect underlying group revenue and profit to be flat," Rolls said in an earnings statement. "This reflects a 15-20% decline in defense revenue, the consequence of well-publicized cuts in defense spending among major customers, and completion of the delivery phase of two major export programs."

Chief executive John Rishton said 2014 would represent "a pause ... not a change in direction, and growth will resume in 2015."

The firm noted that the outlook was hit partly by the completion of major export programs to India and the Middle East.

Rolls-Royce also forecast lower revenues from its marine division, offset by modest growth in civil aerospace.

Group profit after tax tumbled to £1.37 billion ($2.27 billion) in 2013, from £2.32 billion in the previous year, but the fall also reflected an accounting gain booked in 2012.

Underlying profit excluding exceptional items jumped 23%, as revenues grew 27% to £15.5 billion.

The group's total order book expanded by 19% last year to stand at £71.6 billion.

"2013 was a year of progress, in which our order book, underlying revenue and underlying profit all grew," said Rishton.

The company in December revealed that it was facing a formal investigation by Britain's Serious Fraud Office into alleged bribery linked to its overseas operations.

Rolls-Royce has warned that it might be prosecuted over alleged "malpractice" in Indonesia and China after passing on information related to bribery concerns to the office.

Also last year, the company agreed with U.S. group United Technologies Corp. to abandon their joint project to power midsize planes, citing regulatory issues.

But Rolls in 2013 won a $4.0 billion deal to supply and service its Trent 1000 engines that will power Boeing 787 Dreamliner planes flown by Singapore Airlines.

Copyright Agence France-Presse, 2014

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