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Russian sanctions could hit Rolls Royce revenue

Article By: ,  Financial Analyst
October 17, 2014 11:45 AM

Rolls-Royce has warned that sanctions imposed on Russia could potentially affect its revenue.

Releasing its latest trading update, ahead of its Marine Capital Markets Day in Norway, the company noted that a number of customers in its Nuclear & Energy and Power Systems businesses have delayed or cancelled orders in the wake of the sanctions. As a result it has revised its profit guidance for the sector to a drop of between five and ten per cent, a significant change on the previous estimate of +5 per cent and +10 per cent.

It is not just the Nuclear & Energy division that could suffer if Rolls-Royce continues to lose customers as the company said its group underlying revenue for 2014 would be 3.5 per cent to four per cent lower than previously expected. However, it said that it has been making good progress on cost which has limited the impact of some tough trading conditions felt across its operations.

Looking ahead it noted that the economic outlook for 2015 has become more challenging due to "external factors". It said that it will be combating these issues by accelerating progress on its "4Cs" – customer, concentration, cost and cash. It will be focusing on its cost section with headcount, footprint and sourcing identified as priorities.

John Rishton, chief executive of Rolls-Royce, 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 European Union and US issued new sanctions against Russia in September, in response to the country backing separatists in eastern Ukraine. Russia responded by imposing an import ban on food from the nations that had levied these restrictions.

BP was one major company that noted concern over the latest sanctions as it held a 20 per cent stake in Russian energy giant Rosneft.

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