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Rolls-Royce shares plunge on profit warning

Profit and revenue will flatten for Rolls-Royce this year, as government cutbacks on defence spending ends the company's decade of rampant growth.

LONDON: Profit and revenue will flatten for Rolls-Royce this year, the engine maker warned on Thursday, as government cutbacks on defence spending ends the company's decade of rampant growth.

The announcement, alongside news of a 41-per cent slump in annual profits, sent Rolls-Royce shares diving 15.15 per cent to 1,027 pence on London's benchmark FTSE 100 index, which was down by 0.52 per cent heading into the close.

"For the full year 2014, we expect underlying group revenue and profit to be flat," Rolls said in an earnings statement.

"This reflects a 15-20-per cent decline in defence revenue, the consequence of well-publicised cuts in defence spending among major customers, and completion of the delivery phase of two major export programmes."

Chief executive John Rishton said 2014 would represent "a pause... not a change in direction, and growth will resume in 2015".

The firm noted that the outlook was hit partly by the completion of major export programmes to India and the Middle East.

Rolls-Royce forecast also lower revenues from its Marine division, offset by modest growth in civil aerospace.

Group profit after tax tumbled to £1.37 billion ($2.27 billion) in 2013, from £2.32 billion in the previous year, but the fall also reflected an accounting gain booked in 2012.

Underlying profit excluding exceptional items jumped 23 per cent, as revenues grew 27 per cent to £15.5 billion.

The group's total order book expanded by 19 per cent last year to stand at £71.6 billion.

"2013 was a year of progress, in which our order book, underlying revenue and underlying profit all grew," said Rishton.

The company in December revealed that it was facing a formal investigation by Britain's Serious Fraud Office into alleged bribery linked to its overseas operations.

Rolls-Royce has warned that it might be prosecuted over alleged "malpractice" in Indonesia and China after passing on information related to bribery concerns to the office.

Also last year, the company agreed with US group United Technologies Corp. to abandon their joint project to power mid-size planes, citing regulatory issues.

But Rolls in 2013 won a $4-billion deal to supply and service its Trent 1000 engines that will power Boeing 787 Dreamliner planes flown by Singapore Airlines.

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