Rolls-Royce plc Half Year 2020 Results


Rolls-Royce plc (Civil Aerospace, Defence and Power Systems) announced their half-year financial results for 2020.

The impact of the COVID-19 pandemic on the whole civil aerospace industry worldwide is unprecedented and a global issue. Rolls-Royce has taken swift action to deal with the sudden short-term impact of COVID-19, secure the immediate future and protect future jobs as well as innovation.
• Liquidity has been bolstered to £8.1bn
• £1bn cash savings have been implemented in 2020 including 10% salary deferral and 20% executive/senior management pay cut
• The final payment to shareholders has been stopped, no interim payment

Rolls-Royce is taking decisive immediate action to re-size the Civil Aerospace business to the new levels of medium-term demand in the civil aviation market:
• The most extensive reorganisation of Civil Aerospace in history, reducing by 1/3 to save £1.3bn
• At least 9,000 people have been impacted worldwide (which was announced in May) – about a fifth (17%) of the workforce and a third of Civil Aerospace (c,8,000 of 24,000)
• Progress in facility footprint review: proposing to consolidate 11 facilities to 6

Rolls-Royce is transforming the Aerospace business for the long-term and exploring future industrial partnerships.

There is uncertainty over the timing, pace and shape of recovery as a result of COVID-19, particularly around the easing of travel restrictions. Recovery assumptions are based on a gradual recovery in civil aviation activity commencing towards the end of H2 2020. The company has weathered the most challenging period (H1 outflow £2.8bn) £1bn outflow expected in H2, with expectations to return to positive cash flow during H2 2021.

The belief is that the worst is over in terms of widebody engine flying hours, there was an 80% drop in April (low point), were down 75% in Q2 and halved over H1; expect them to be down 55% for the year as a whole and improve in 2021 and 2022.

The expectation is that widebody aircraft engine deliveries will remain subdued at around 250 per annum for a few years.

Focus is on rebuilding the balance sheet for the longer term. £2bn can be raised through the proposed disposals of ITP Aero along with other assets also under active consideration.

Rolls-Royce has always highlighted the benefits of being a broad-based power company. The Defence business is resilient and accounts for almost 30% of H1 revenues; we saw a decline in Power Systems of 11%, but together these two divisions accounted for half H1 revenues.

The reorganisation of Civil Aerospace creates operational leverage for a positive rebound (+installed fleet represents great opportunity); The Defence business will benefit from opportunities in the US, and Power Systems is a shorter cycle business and is experiencing regional growth.

Looking ahead: the company has support from the UK Government and others focussed on low carbon transitions. Rolls-Royce is well-positioned with net-zero plans: electrification, hybrid work in Power Systems, Nuclear SMRs, Sustainable Aviation Fuels. There are substantial opportunities ahead, and Rolls-Royce will play an important role in the transition, no other company has the breadth of capabilities providing lower carbon power solutions.

Source: Rolls Royce