Rolls-Royce First Half Profit Declines on Higher R&D Spend

Rolls-Royce Holdings Plc (RR/), the second-biggest maker of jetliner engines, reported a 20 percent drop in first-half profit amid increased development spending and restructuring costs related to severance payments.

Underlying profit before tax fell to 644 million pounds ($1.09 billion) from 804 million pounds, the London-based company said today in a statement. Earnings matched the 643.1 million-pound average estimate of seven analysts surveyed by Bloomberg. Underlying sales fell 7 percent to 6.8 billion euros.

Rolls-Royce, which has focused on powering long-range planes built by Airbus Group NV (AIR) and Boeing Co. (BA), said in May that its financial performance would be weighted to the second half, with two-thirds of the full year profit coming then. Growth will resume in 2015, Rolls-Royce said today, after previously predicting stagnant revenue for this year.

“We expect significant improvement in profit for the second half, driven by higher revenue and cost reduction,” Chief Executive Officer John Rishton said. “While there are challenges, we maintain our full-year guidance for the group.”

The stock dropped as much as 18 pence, or 1.7 percent, to 1,037 pence in London, and traded at 1,039 pence as of 8:07 a.m. in London giving the company a market value of 19.67 billion pounds, down 18 percent since the start of the year.

The company in June announced a 1 billion-pound share buyback, and Rishton told investors at the time that he preferred to reward shareholders rather than chasing major acquisitions, following the sale of energy assets to Siemens AG.

The company said today it cut its headcount by 11 percent last year and will reduce the workforce by a similar number in 2014. Restructuring charges in the fist half almost doubled to 67 million pounds, mainly related to severance pay.

To contact the reporter on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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