Rolls-Royce to return 1 billion pound, no acquisitions planned

LONDON (Reuters) - Britain's Rolls-Royce plans to launch a 1 billion pound ($1.7 billion) share buyback, saying that with no major acquisitions on the horizon, it would return to investors the proceeds from a recent disposal.

The company, which said on Thursday it was on track to meet guidance for this year and next, also said it would reduce group capital expenditure to 4 percent of underlying revenue over the next three to five years from the 4.9 percent level at the end of 2013.

The update should reassure investors after a shock warning in February when it said that U.S. and European spending cuts would halt profit growth this year. Since then it has also suffered a cancellation of an engine order which hurt its shares.

"As no material acquisitions are planned, and reflecting the strength of our balance sheet, we will return theproceeds of the Energy sale to our shareholders," Chief Executive John Rishton said in a statement on Thursday.

Rolls-Royce had last year considered a bid for Finnish ship and power plant engine maker Wartsila and analysts had asked whether such a deal could re-emerge.

A 1 billion pound share buy-back is equivalent to about 5 percent of Rolls-Royce's current 19 billion pound market capitalization.

Rolls-Royce, whose primary business is making engines for aircraft, in May agreed to sell its gas turbine unit to German conglomerate Siemens AG for 785 million pounds. The deal is expected to complete by the end of 2014.

Analysts expect Rolls-Royce to post flat pretax profit of 1.7 billion pounds for 2014. Before February's warning, they had expected pretax profits to grow 8 percent this year.

Over the previous 11 years, the company had enjoyed strong profits and revenue growth thanks to its civil aerospace unit, which generates about half of its sales, as demand for more fuel-efficient engines for planes made by Europe's Airbus and U.S. Boeing has soared.

Shares in Rolls-Royce have fallen 17 percent over the last six months..

(Reporting by Sarah Young; editing by James Davey)