Connect with us

Hi, what are you looking for?

Investing

Rolls-Royce reports £4bn loss as Covid crisis shakes jet-engine maker

Rolls Royce

Rolls-Royce has reported a loss of £4bn for 2020 as the jet-engine maker’s business was shaken by the coronavirus pandemic.

The FTSE 100 manufacturer revealed it burned through £4.2bn in cash during the year as revenues from servicing passenger aircraft collapsed.

It expects to burn through a further £2bn this year, but Warren East, Rolls-Royce’s chief executive, raised hopes that the company would generate cash once more in 2022 as flying recovers.

“The worst is behind us as far as Covid is concerned,” he said. “There is cause to be optimistic about a V-shaped recovery,” he added, citing “very encouraging” data on vaccines against the coronavirus.

Rolls-Royce’s revenues were among the most vulnerable to the pandemic because of its reliance on making and servicing jet engines for passenger aircraft. In the year before the pandemic its civil aerospace business brought in £8bn in revenues, compared with £5bn in 2020.

The underlying loss before tax of £4bn compared with a profit of £583m the year before. The underlying loss partly reflected charges related to financing foreign exchange as it adjusted to lower than expected dollar earnings.

Losses before tax for 2020 were £2.9bn, including £1.4bn in write-offs and nearly £500m in redundancy costs.

Rolls-Royce scrambled last year to cut costs and raise cash when the extent of the pandemic became clear. That included cutting 7,000 jobs out of 19,000 across its global civil aerospace division, in what it said was the largest restructuring in the company’s recent history. East described it as a “programme of self-help”, reducing the number of UK manufacturing sites from 11 to only five.

It has also negotiated two-week shutdowns of its engine factories this summer in an effort to save more cash.

The hours flown by planes with Rolls-Royce engines slumped to 43% of 2019 levels. In 2021, hours flown are expected to improve only gradually, to 55% of 2019 levels.

Rolls-Royce said it expected earnings to accelerate in the second half of this year, but even during 2022 it expected flying hours to be a fifth lower than 2019 as the slow recovery in international travel continues, in part because of new variants of the virus. It had previously expected 2022 flying hours to reach 90% of 2019 levels.

Deliveries of new engines are not expected to recover significantly for a “few years”.

However, even at 80% of 2019 flying hours Rolls-Royce would be able to generate £750m in cash during 2022, East said. A “reasonable worst case” scenario of 70% cash generation would be £300m lower, and it has £3.5bn of cash and £5.5bn of unused credit lines to see it through if conditions worsen.

“Unless something fairly catastrophic happens we will be cashflow-positive,” East said.

He revealed plans to gradually raise investment in lower-carbon technologies. By 2023, Rolls-Royce plans to devote 20% of its research and development budget to small modular reactors, hybrid, hydrogen and electric power technologies, as part of its efforts to reduce its carbon footprint. It currently invests about 7% in lower-carbon technology.

Rolls-Royce had planned to publish details of how it would decarbonise its business during 2020, but that was delayed until June at least while the company focused on making job cuts.

However, East said he believed that the pandemic had made spending on decarbonisation easier. “We’ll see that the pandemic has accelerated the journey because it has sensitised people to their relationship with the environment,” he said.

Rolls-Royce has not committed to making all of its products net zero. Instead it is relying the airline industry to dramatically increase the use of synthetic fuels made using carbon from the air. Those fuels would add net zero carbon to the atmosphere.

As to whether customers actually used net zero fuels, rather than oil-derived paraffin that adds to atmospheric carbon, East admitted that it was “out of our hands”.

Read more:
Rolls-Royce reports £4bn loss as Covid crisis shakes jet-engine maker

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest

Investing

Lowering VAT charges on fuel may be politically attractive but is not good news for those who will struggle the most, say leading tax...

Investing

An estimated 3 per cent of the workforce was signed off in late December and a fifth of businesses reported increased cancellations amid the...

Investing

Mark Zuckerberg could be forced to pay most British Facebook users about £50 each if a landmark legal action alleging that the site abused...

Investing

France has reopened its borders to British tourists after ministers in Paris eased restrictions on non-essential travel. From this morning, Britons travelling to the...

Investing

People struck down with the Omicron variant of the coronavirus are buying so much paracetamol that supplies are running low in many shops. Official...

Investing

Covid Passports are to be abandoned within days after Sajid Javid effectively killed off the policy. The health secretary has concluded that Covid-19 certification...

You May Also Like

Investing

Having a good Instagram marketing agency to back up your Instagram account is an absolute must going into the new year. With competition stronger...

Economy

Ivermectin, an existing drug against parasites including head lice, has had a checkered history when it comes to treating COVID-19. The bulk of studies...

Investing

Insomnia is the most common sleep disorder in the global population. Therefore, it is a problem that many people suffer or have suffered throughout...

Investing

As a traditionally rigid insurance industry becomes bogged down by antiquated processes and operations, a handful of industry leaders are seeking to shake things...

Disclaimer: SmartRetirementReport.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.