Rolls warns of falling revenues as customers delay orders

Trading update reveals revenue for 2014 will be 3.5%-to-4% lower than expected

Rolls-Royce has dashed hopes for a return to growth next year after seeing customers delay or cancel orders due to worsening economic conditions.

The company warned that revenues for this year are expected to be between 3.5% and 4% lower than expected, but control of costs mean it will continue to meet its previous target for flat profits. However, it warned that its profits in 2015 will be up to 3% lower. 

The company said: "In the last few months economic conditions have deteriorated and Russian trade sanctions have tightened, leading a number of customers to delay or cancel orders particularly in our nuclear and energy and power systems businesses."

Rolls-Royce remains hopeful that civil aerospace markets will strengthen over the medium term due to increasing demand for travel in emerging economies and the need to replace older aircraft with new fuel efficient models.

Chief executive John Rishton said: "While the short term is clearly challenging, reflecting the economic environment, the prospects for the group remain strong, driven by the growing global requirement for cleaner, better power.

"The operational efficiencies already achieved and the cost programmes we will now accelerate will put us in a better position to benefit from these growth drivers."

Rolls-Royce said the worsening market conditions being experienced by a number of its customers had caused an impact on the timing of investment decisions, particularly in its Power Systems and Marine divisions.

The Power Systems division is based in Germany and delivers high-speed engines and propulsion systems for ships, rail and defence vehicles and for the oil and gas industry.

It has been hit by the impact of trade sanctions against Russia, meaning its profits this year are now likely to fall by between 5% and 10%, rather than the increase of up to 10% previously forecast.

Rolls-Royce shares slumped 7% following the updated guidance, which was issued less than three months after a 20% drop in half-year profit.

The company employs more 55,000 people in 45 countries, including 17,000 engineers. Rolls-Royce has customers in more than 120 countries, including more than 380 airlines and leasing firms, 160 armed forces, 4,000 marine customers including 70 navies, and 1,600 energy and nuclear customers.