The Wall Street Journal
By Marietta Cauchi
Updated Feb. 13, 2014 4:43 a.m. ET
LONDON— Rolls-Royce Holdings PLC warned on Thursday that it expects no revenue growth this year for the first time in 10 years, with earnings also likely to stagnate, as the British engine-maker reported a 41% drop in net profit in 2013.
The fall in net profit reflected a retroactive accounting gain that Rolls-Royce has booked in its 2012 accounts. The company said underlying profit before tax rose 23% to £1.76 billion ($2.92 billion). Rolls-Royce declared a 13% higher dividend of 22 pence a share.
The profit warning took investors by surprise, knocking Rolls-Royce shares 12% lower in early trading. Analysts were expecting modest growth in revenue and earnings this year.
Britain's flagship engineering group said a combination of the impact of military budget cuts on its military business, deferred contracts for marine engines, and a hiatus in the timing of big defense export contracts in India and the Middle East explained the relatively gloomy outlook for the year despite its buoyant aerospace business.
Rolls-Royce said revenue and profit growth should pick up in 2015.
"In 2014, we expect a pause in our revenue and profit growth, reflecting offsetting trends across the business," Chief Executive John Rishton said.
"This is a pause, not a change in direction," Mr. Rishton said.
Rolls-Royce, which makes engines for commercial and military jets and ships, has four main business lines with around 43% of its revenue coming from civil aerospace, 17% each from its defense and marine divisions, 17% from power systems and 6% from energy.
The company said its underlying profit rose largely because of a 27% rise in underlying revenue to £15.5 billion as the group benefited from strong demand for its jet engines.
Excluding the additional revenue from Tognum AG, the marine-engine maker Rolls-Royce has bought in partnership with German auto maker Daimler AG and whose results were consolidated for the first time, underlying revenue rose 6%.
Underlying profit excludes lumpy one-off items and the company's hedge book and is used widely by analysts to give an accurate picture of what's going on in the business.
Rolls-Royce said it is paying a dividend of 22 pence a share.
Mr. Rishton declined to comment on a criminal investigation being carried out by the U.K.'s Serious Fraud Office into the company over allegations of bribery and corruption in Indonesia and China. Wednesday the SFO confirmed it had searched a number of premises and made two arrests in connection with the probe.
He said that an internal inquiry into compliance at the company was "going well." Rolls-Royce hired David Gold, the British peer and veteran lawyer, to carry out the review in January 2013.
Mr. Rishton also declined comment on future mergers and acquisitions following the recent collapse of preliminary talks about a possible multibillion-dollar takoever of smaller Finnish rival Wartsila Oyj. Last month, Wartsila, a specialist maker of diesel engines for midsize ships and Rolls-Royce confirmed that talks had ended.
Source: http://online.wsj.com
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