Rolls-Royce slashes 2014 sales guidance, profit forecasts unchanged - UPDATE

Power systems giant Rolls-Royce has said it now expects underlying sales to fall this year on the back of worsening trading conditions, while free cash flow (FCF) is forecast to be less than half of what was anticipated.

The engine maker now forecasts underlying revenues for 2014 to be 3.5-4% lower than the £15.5bn generated in 2013. It had earlier anticipated underlying revenues to be flat for the full year, excluding the £500m in adverse currency-exchange movements.

It also warned that growth might not return in 2015, as previously expected, with underlying revenue guidance for next year now at +/-3%.

The group explained that economic conditions have "deteriorated" in the last few months 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".

Nuclear & energy revenues in 2014 are now predicted to grow by 0-5%, compared with earlier guidance for 5-10% growth.

FCF for the full year is now expected to be just £350m due to the decline in revenue, lower deposits in energy and marine, and slower progress on inventory than planned. The firm had previous guided to flat FCF on 2013 (£780m).

Nevertheless, it said that good cost control has limited the impact on the bottom line and underlying profits should still be flat over the year, as previously expected. What's more, the adverse foreign exchange impact should now be just £60m, down from an earlier estimate of £70m.

2015 underlying profits are now expected to fall up to 3% on 2014, it estimated.

"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.