Rolls Royce Holdings PLC (LON:RR.) plunged into a loss of £5.4bn in the first half of 2020 as impairments and one-off charges added to the problems over air travel due to coronavirus restrictions.
The aero-engine maker added it is looking at disposals worth a least £2bn to bolster its financial position, but did not announce a right issue as had been mooted.
Reports earlier this year had suggested investors were baulking at putting in more money until there was better visibility on cashflow.
For the rest of the year, Rolls-Royce expects a cash outflow of approximately £1bn and £400mln further cash costs related to its ongoing restructuring programme but said it also still expects to see a cash outflow in 2021.
ITP Aero is one asset up for sale, Rolls–Royce confirmed today, though improving its financial position will seemingly be made harder by the resignation today of chief financial officer Stephen Daintith, who is off to online grocery giant Ocado.
Revenues in the six months to June fell by 26% to £5.8bn, while the £5,4bn deficit included a £2.6bn foreign exchange loss, £1.1bn from impairments and £366mln of restructuring charges.
In May, Rolls-Royce announced 9,000 jobs cuts as part of an overhaul of its civil aerospace arm at a cost of £700mln.
Underlying operating losses were £1.75bn with improvements by Power, Defence and ITP Aero offset by a £1.83bn loss in civil aerospace.
Warren East, Rolls’ chief executive, said the COVID-19 pandemic had significantly affected its 2020 performance.
“We have responded rapidly to increase our liquidity, with £6.1bn at the end of H1 and a further £2.0bn term loan agreed in H2, to help weather the continued uncertainty.”
Why no rights issue ponder analysts?
Coronavirus has predictably taken a heavy toll on Rolls-Royce’s finances, said analysts, but perhaps more surprising is why it has yet to take advantage of the stock market to shore them up.
That Rolls is struggling is hardly a surprise given that the airline customers that generate around a third of revenues have been grounded by for the best part of six months.
But other companies that have faced similar Covid-19 issues have been backed by shareholders, says AJ Bell’s Russ Mould.
The company said it is considering £2bn of asset sales, but Mould suggests the company would be better off making some hard decisions now with regards to issuing new shares, particularly while investors still seem happy to back companies needing more cash during the pandemic.
“Approximately £20bn has been raised by London-listed companies since March, of which nearly half is from 10 stocks in the FTSE 100.”
Crucial to the future will be how quickly air travel recovers. Rolls-Royce is assuming flights return to 55% of pre-COVID-19 levels this year but has tested scenarios going forward that might put its future into question.
Broker UBS said that cash flow should turn positive in the second half of 2021 assuming flying hours return to 70% of 2019 levels.
The troublesome Trent1000 programme now looks to be under control, said the broker, while the cost reduction programme is progressing ahead of plan.
Sophie Lund-Yates, at Hargreaves Lansdown, suggests that given the magnitude of the cash flow exodus, further funds are also likely to be needed as well as asset sales.
“That means dilutive equity raises can’t be ruled out. Shareholders might not love the idea of Rolls coming to them cap in hand, but this could be the right move for the long-term.”
Shares dropped 7% to 234.2p.
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