Rolls-Royce has suffered a dip in interim profits despite securing a record order book.
The aero, marine and industrial gas turbines group says it expects flat earnings for 2001 and warns of challenging market conditions.
Underlying profit before tax for the six months to June 30th was £190 million sterling, compared with £195 million in the same period last year.
However, the fall in profits was not as big as many analysts were predicting, as some had anticipated pre-tax profits of only £166 million.
The company had a record order book of £14.9 billion. Sales were up 15 per cent at £3.04 billion, and average net debt was reduced by 25 per cent to £940 million.
Rolls-Royce says a strong performance by its civil aerospace operations offset extra costs in the energy business.
Sir Ralph Robins, the company's chairman, says the results demonstrate the importance of the strategic changes made by management over recent years.
He adds: "We have secured significant market success with our growing range of products and innovative through-life services and all of our businesses have good prospects."
Sir Ralph says the market is challenging, but stresses that Rolls-Royce is a robust company with a balanced portfolio of businesses and a very strong order book. "We continue to expect flat underlying earnings in 2001 and target increased underlying earnings in 2002."
The board is recommending an interim dividend of 3.18p per share.