(Corrects paragraph 14 to show Rolls Royce sold its industrial
gas turbine unit to Siemens, not its overall gas turbine unit)
* Plans to return proceeds from gas turbine unit sale
* Says no plans for material acquisition
* Says on track to meet outlook for 2014, 2015
* Aims to reduce capital expenditure to 4 pct of revenue
* Shares highest risers on FTSE 100 index
By Sarah Young
LONDON, June 19 Rolls-Royce said it will
return 1 billion pounds ($1.7 billion) to shareholders instead
of buying another company, a moved aimed at restoring investors'
confidence in the British aero-engine maker.
The company's shares climbed 7.4 percent to 1,085 pence,
their highest in more than two months, after it made the
announcement on Thursday. The stock had lost 17 percent of its
value over the past six months.
Investors' confidence in Rolls-Royce has been shaken by an
acquisition attempt followed by a profits warning earlier this
year and an engine order cancellation last month.
"The buyback is good news because it shows the company is
committing itself to very tight capital discipline, prioritising
rewarding shareholders ahead of expanding the footprint. This is
exactly the message we were looking for after a challenging six
months," said Espirito Santo analyst Edward Stacey.
Rolls-Royce upset investors in January when it revealed it
had made an 8 billion euro takeover approach to Finnish ship and
power plant engine maker Wartsila.
Although unsuccessful, the move left some investors
wondering whether the company was spending indiscriminately in
the pursuit of growth.
Rolls-Royce was interested in Wartsila as a way to
strengthen its Marine engine business, where it has cut profit
forecasts twice in a year.
The share buyback "shows they get how much the Wartsila
story frightened investors", said Edison analyst Sash Tusa.
Shares in Wartsila, which analysts had thought could still
be in Rolls-Royce's sights, fell 5 percent.
Speaking to investors on Thursday, Rolls-Royce Chief
Executive John Rishton conceded that the company needed to
communicate better with them.
Starting in October, Rolls-Royce plans to switch to issuing
its outlooks in percentage and number terms, instead of its
historic references to "good" or "modest" growth, he said.
Rolls-Royce also said it would reduce group capital
expenditure to 4 percent of underlying revenue over the next
three to five years from 4.9 percent at the end of 2013.
The 1 billion pound payout to shareholders will take the
form of a share buyback, the company's first since it was
privatised in 1987.
It is equivalent to about 5 percent of Rolls-Royce's
19-billion-pound market capitalisation, and will be funded
partly by proceeds from the 785 million pound disposal of its
industrial gas turbine unit to German conglomerate Siemens AG
, agreed in May.
Rolls-Royce reiterated that it was on track for flat
earnings this year and to return to growth in 2015, when it is
due to ramp up aero engine production.
Until February, the company had enjoyed 11-years of strong
profit and revenue growth as soaring demand for more
fuel-efficient engines for passenger planes made by Airbus
and Boeing boosted its civil aerospace unit,
which generates about half of its sales.
"I'm confident that we have sustainable growth, but that
does not mean year-after-year consistent growth, it means long
term sustainable growth," Rishton said.
Analysts expect Rolls-Royce to post flat pretax profit of
1.7 billion pounds for 2014. Before February's warning, they had
expected growth of 8 percent.
($1 = 0.5904 British Pounds)
(Editing by Erica Billingham)