Rolls-Royce will seek to raise £2bn by selling assets including a division that makes Eurofighter Typhoon parts, after the coronavirus crisis dragged the UK’s best-known engineering group into heavy half-year losses.
The FTSE 100 company has taken a big financial hit from the grounding of flights during the pandemic. It is paid according to the hours flown by aircraft that are fitted with its engines.
Its shares dropped 7 per cent on Thursday morning to 235.3p after it announced its latest results and that its finance director Stephen Daintith would be leaving to join online retailer Ocado after only three years. Rolls-Royce stock has lost two-thirds of its value so far this year.
Warren East, chief executive, said the company was examining options to strengthen its balance sheet. It is hoping to raise at least £2bn over the next 18 months through a number of potential disposals, including its engines and turbines subsidiary ITP Aero.
“The impact of the pandemic on our civil aerospace business has been dramatic and that’s plain to see in the results we’ve published this morning,” Mr East said. “The actions we’re taking are absolutely vital to secure the future of our business.”
The company sank to a £5.4bn pre-tax loss during the six months ending June 30. This included impairment charges and write-offs, restructuring costs and a £2.6bn non-cash revaluation of currency hedging contracts.
Revenues dropped a quarter to £5.8bn and, at an underlying level, the operating loss was £1.7bn, compared with a profit of £203m in the same period last year.
In May, it announced a major restructuring with 9,000 job losses — almost one in five of its workforce. It has abandoned targets on profits, cash and deliveries, and suspended its dividend for the first time since privatisation in 1987.
This has already delivered £350m of cost savings — against a £1bn target for the year — and 4,000 people have left, said Mr East.
While Rolls-Royce has available liquidity of £8.1bn in cash and credit facilities, the company said it might need to raise additional debt and equity financing in the event of a “downside scenario”.
While Rolls-Royce said it had sufficient liquidity — £8.1bn in cash and credit facilities — for the next 12 months in the event of a downside scenario, additional funding could be required in the form of debt, equity and proceeds from divestments.
However, Mr East brushed off the possibility of government support beyond the furlough scheme and a guarantee it recently secured for a £2bn loan.
“Probably the most important thing government can do is help get people flying again, as the biggest lever for recovery in our business is the return of those engine flying hours,” he said. “We’re a long way from terms like bailout”.
The International Air Transport Association has predicted it will take five years for passenger demand to return to pre-pandemic levels.
Analysts believe short-haul domestic and regional flights that use smaller narrow body aircraft will recover first. Rolls-Royce is mostly exposed to the market for wide-body jets that fly long-haul intercontinental services.
The company burnt through £2.8bn of cash in the six months to the end of June, with large engine flying hours almost cut in half. It expects a further outflow of £1bn in the second half of 2020.
Free cash flow — the money left over for discretionary investments, paying off debt and returns to shareholders — is a keenly watched metric for Rolls-Royce investors. The company said it hoped to reach positive territory in the second half of next year.
“We see no reason to be discouraged. Rolls-Royce will do whatever it takes to guard shareholder value, in our view,” wrote analysts at Jefferies.
A bright spot for Rolls-Royce was its defence business, which had been unaffected by the pandemic.
https://news.google.com/__i/rss/rd/articles/CBMiP2h0dHBzOi8vd3d3LmZ0LmNvbS9jb250ZW50L2NkY2VhNjE5LWZkNjctNDg5OS05MTNmLWE4YjJmNDk2YTQxMtIBP2h0dHBzOi8vYW1wLmZ0LmNvbS9jb250ZW50L2NkY2VhNjE5LWZkNjctNDg5OS05MTNmLWE4YjJmNDk2YTQxMg?oc=5
2020-08-27 09:51:00Z
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