Rolls-Royce to return £1 billion to shareholders

Thursday 19 June 2014 08.29
Rolls-Royce on track to meet its guidance for this year and next
Rolls-Royce on track to meet its guidance for this year and next

Britain's Rolls-Royce plans to launch a £1 billion share buyback, saying that with no major acquisitions on the horizon, it would return to investors the proceeds from a recent disposal. 

The company said today it was on track to meet guidance for this year and next.

It also said it would reduce group capital expenditure to 4% of underlying revenue over the next three to five years from the 4.9% level at the end of 2013. 

The update should reassure investors after a shock warning in February when it said that US and European spending cuts would halt profit growth this year. 

Since then it has also suffered a cancellation of an engine order which hurt its shares. They are down about 17% in the last year. 

"As no material acquisitions are planned, and reflecting the strength of our balance sheet, we will return the proceeds of the Energy sale to our shareholders," chief executive John Rishton said today. 

Rolls-Royce had last year considered a bid for Finnish ship and power plant engine maker Wartsila and analysts had asked whether such a deal could re-emerge. 

Rolls-Royce, whose primary business is making engines for aircraft, in May agreed to sell its gas turbine unit to German conglomerate Siemens AG for £785m. The deal is expected to complete by the end of 2014. 

Analysts expect Rolls-Royce to post flat pre-tax profit of £1.7 billion for 2014. Before February's warning, they had expected pre-tax profits to grow 8% this year. 

Over the previous 11 years, the company had enjoyed strong profits and revenue growth thanks to its civil aerospace unit, which generates about half of its sales, as demand for more fuel-efficient engines for planes made by Europe's Airbus and America's Boeing has soared.