Rolls-Royce cuts forecasts on Russian sanctions

[London] Rolls-Royce, the British maker of engines, announced on Friday that it was slashing its earnings forecasts partly as result of Western trade sanctions against Russia, causing a share price collapse.

Rolls said underlying profit in 2015 would be flat at best compared with 2014 but could come in three percent lower. The company had previously expected earnings to grow next year.

"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 & Energy and Power Systems businesses," said Rolls.

"At the same time we have made good progress on cost which has limited the impact of these adverse trading conditions on the group," it added in a trading update.

The Russia-Ukraine crisis has caused the West to impose a series of sanctions, cutting Russia's access to Western money markets and forced its biggest state companies to appeal for massive financial assistance.

Rolls meanwhile said that next year would be worse than expected for the group after it was forced to change its guidance on underlying revenues for 2014. It now sees revenue at 3.5-4.5 per cent lower compared with 2013. It had previously forecast flat growth.

In reaction to the changed outlook, Rolls slumped to the bottom of London's benchmark FTSE 100 index, as its share price dived 7.81 per cent to 867 pence. The FTSE was down 0.10 per cent at 6,189.89 points in early trading.

"Rolls Royce is very much at the foot of the index ... after news that it doesn't expect to see a return to growth next year despite earlier claims to the contrary," said Tony Cross, market analyst at traders Trustnet Direct.

The group had already shocked investors earlier this year when it issued a profits warning at its marine division, which has been beset by production problems, causing the company to forecast flat earnings for 2014.

Rolls said on Friday that it was maintaining that forecast as it keeps a control on costs.

"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," said chief executive John Rishton.

On the upside, Rolls is benefiting from demand for its fuel-effecient Trent aircraft engines.

Earlier this year, Rolls outlined plans to return £1.0 billion (US$1.6 billion, 1.26 billion euros) to investors via a share buyback after the sale of its energy production arm to Germany's Siemens. AFP

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