(Corrects to clarify pretax profit beat forecasts in seventh
* H1 pretax profit down 20 pct, beats forecasts
* Firm keeps guidance for flat 2014, return to growth next
* Shares fall 1.7 pct
By Sarah Young
LONDON, July 31 Aero-engine maker Rolls-Royce
said it was on track to return to growth next year, after
profits fell as expected in the first half due to shrinking
defence spending, a strong pound and a struggling marine
The company kept its guidance for profit excluding foreign
exchange movements to be flat this year, reassuring investors
who were fearing an unpleasant surprise.
Rolls-Royce alarmed markets in February by announcing there
would be a pause in profit growth in 2014, ending a decade of
continuous rises as the company absorbed the impact of declining
U.S. and European military budgets.
Shares in the company lost 1.7 percent to trade at 1,037
pence at 0956 GMT, lagging Britain's blue chip index
which was flat, despite a first-half performance which analysts
said was better than expected.
"There is still a hill to climb in the second half and the
sceptics out there aren't going to get completely comfortable
until the third quarter management statement. We're caught in a
holding pattern until we get more medium-term guidance," Liberum
analyst Ben Bourne said.
Rolls-Royce, which has said that this year's profits would
be two-thirds weighted to the second half, is scheduled to
provide its next update to the market in October.
The world's second-largest maker of aircraft engines behind
U.S. group General Electric on Thursday posted underlying
pretax profit of 644 million pounds ($1.09 billion) in the six
months to June, beating a consensus forecast of 607 million.
Rolls-Royce, which made 1.76 billion pounds in pretax profit
in 2013, also reiterated guidance for flat profit this year.
But that failed to fully convince analysts, whose consensus
forecast stands slightly below that at 1.65 billion pounds,
according to Thomson Reuters data.
"While there are challenges, we maintain our full-year
guidance for the group," Chief Executive John Rishton said in a
They include difficulties in its marine business, which
supplies power systems to ships, where profit was seen down 15
percent to 25 percent this year, worse than the 10 percent
decline forecast in May.
The company said improvements in other parts of the business
would compensate for the shortfall in marine profits.
Espirito Santo analyst Edward Stacey said the nuclear and
energy division's strong profit growth - estimated by the
company at around 30 to 40 percent - would help compensate for
marine's poor performance, but noted that under a deal struck
earlier this year, Rolls-Royce had already agreed to sell part
of this division.
"So actually the ongoing Rolls-Royce businesses are a bit
weaker than previous guidance," he said, when asked about the
share price weakness.
Rolls-Royce agreed in May to sell part of its energy and
nuclear division - specifically its energy gas turbine and
compressor business - to Siemens in a 785 million
pound disposal, a deal it expects to complete at the end of the
Guidance for flat profits was excluding currency headwinds,
Rolls-Royce said, repeating what it said in May. It added that
it expects foreign exchange moves to shave about 70 million
pounds off profit this year given current rates.
The pound has gained over 3 percent over the past six months
against a trade-weighted basket of currencies, making
foreign exchange drag a common theme for British companies
reporting first-half earnings.
($1 = 0.5911 British Pounds)
(Reporting by Sarah Young; Editing by Keith Weir and John