Rolls-Royce chief hopeful of concluding energy sale to Siemens

By Sarah Young

LONDON (Reuters) - Rolls-Royce is hopeful of concluding an estimated 1 billion euro (821.36 million pounds) disposal, talks on which it announced earlier this week as it looks to exit an energy-related business it sees as too small to effectively compete globally.

Rolls, the world's second-largest maker of aircraft engines behind General Electric, had on Tuesday announced talks on the possible sale to Germany's Siemens of its unit which makes equipment for the oil and gas industry, as well as power-generation gear for utilities.

Questioned on the deal after Rolls had warned that a one-off charge in its marine unit would impact its first-half results, Chief Executive John Rishton said he was reasonably optimistic of concluding the sale.

"It's a subscale business and in that business you need scale," Rishton told reporters on the sidelines of the company's annual shareholders' meeting on Thursday, adding that the unit had been under review for some time. "Hopefully we will conclude it."

He declined to comment on the value or timeline of any deal, but said Rolls was otherwise happy with the shape of the business and did not envisage any further selloffs.

"I think that we have addressed what I would call the disposal element as we looked at the portfolio (so) we can focus on the areas that we are really strong at," Rishton said, noting that the planned buy-out of Daimler's stake in jointly owned engine maker Tognum remained "the most important thing on our agenda at the moment."Rishton told investors at the meeting that by the end of the next decade he expected Rolls to return to making engines for medium-sized aircraft. Its focus in recent years had been on engines for large aircraft.

"We are committed to finding a way back into that very important market," he said, adding that there was no rush and the company would likely seek a partner to do so.

Earlier the group had said in a statement a 30 million pound charge in its marine unit to rectify a product quality issue meant profits in 2014 would be weighted to the second half of the year, though for the full year it remained on track to meet previous guidance of flat profits if currency headwinds were excluded.

FLAT PROFITS

The group had disappointed the market in February when it said U.S. and European spending cuts would result in flat profits in 2014, bringing a decade of profit growth to an end. It reiterated on Thursday it expected growth to resume next year.

In the short term, however, currency headwinds could bite into profits. At current rates, it estimated foreign exchange translation effects could lower profits this year by 40 million pounds.

The latest consensus among analysts is for Rolls to report a pre-tax profit of 1.8 billion pounds, Thomson Reuters data showed.

Some analysts said the foreign exchange impact and the marine provision amounted to a reduction in guidance.

"I'm slightly surprised at the size of the potential hit because they do have hedging ... the 40 million seemed a bit on the high side," Societe General analyst Zafar Khan said.

Shares in the company were down 1.8 percent at 1,031 pence by 1351 BST.

Sterling has risen about 4 percent against the dollar over the past six months and a raft of companies have warned of the impact, including luxury goods brand Burberry and engineering company GKN.

Other analysts said the currency headwinds were expected and shrugged off the one-off provision.

"We have a rather grubby first half and then we have a rather excellent second half. Is the second half the best pointer to the future? Because if it is, this company looks to be in very fine shape," analyst Sandy Morris at brokerage Jefferies said.

Rolls said its second half would benefit from cost savings as well as improved trading, as it begins deliveries of the Trent XWB engine to be used on Airbus's new A350 airliner.

Analysts said proceeds from the potential energy disposal could be used to fund the company's planned Tognum acquisition.

Rolls said on Thursday the purchase, announced in March, would cost 2.43 billion euros.

(Editing by Jason Neely and David Holmes)