Rolls-Royce Holdings Shares Tumble After Warning of Prolonged Downturn -- Update
09 July 2020 - 8:41PM
Dow Jones News
--Rolls-Royce Holdings warned that its medium-term outlook has
deteriorated due to the pandemic
--The British aircraft-engine maker expects a cash outflow of
GBP4 billion this year
--Shares in Rolls-Royce fell sharply on the back of the news
By Anthony O. Goriainoff and Adria Calatayud
Shares in Rolls-Royce Holdings PLC took a hit Thursday after the
company warned of the deterioration of its medium-term outlook due
to the coronavirus pandemic and said it expects to bleed 4 billion
pounds ($5.04 billion) in cash this year.
The U.K. jet-engine maker, which has been hurt by a collapse in
demand for its civil-aerospace business due to the pandemic, said
it forecasts a shortfall of dollar-denominated cash receipts over
the next seven years compared to its hedged position. As a result,
the company will reduce its hedge book by $10 billion to $27
billion to realign it with expected midterm demand. The move will
come at a cost of GBP1.45 billion, Rolls-Royce said.
Shares at 0951 GMT were down 8.4% at 263.50 pence, making
Rolls-Royce the top FTSE 100 faller.
"The Covid-19 pandemic has created a historic shock in civil
aviation which will take several years to recover," Chief Executive
Warren East said.
Rolls-Royce, which had struggled with problems in its Trent 1000
engines before the pandemic struck, has in recent weeks said it
would cut 9,000 jobs, out of a global workforce of 52,000, and that
it was reviewing options to strengthen its balance sheet.
Russ Mould, investment director at brokerage AJ Bell, said
Rolls-Royce might need to issue shares or even offload a part of
the group to generate cash.
For the first half, the company forecasts a free cash outflow of
GBP3 billion, which reflects a GBP1.1 billion reduction in receipts
from engine flying hours and engine deliveries. The rate of cash
consumption is expected to slow in the coming months to end the
year with an outflow of GBP4 billion, it said.
Widebody engine flying hours were down approximately 75% in the
second quarter and 50% for the first half as a whole, Rolls-Royce
said.
"We currently forecast widebody engine flying hours to be down
in the region of 55% this year, with more long-haul routes opening
up in the fourth quarter. We continue to plan for about 250
widebody engine deliveries in 2020, based on announced build rates
from our airframer customers," the company said.
Rolls-Royce said its plan to reduce costs by GBP1.0 billion this
year is on track, with savings of around GBP300 million achieved in
the first half. It added that its restructuring is underway,
supporting a recovery in its cash flow to generate at least GBP750
million in 2022.
The company said it has made good progress on Trent 1000 fixes,
and that its defense business has remained resilient, thanks to
continued demand from key government customers.
Rolls-Royce said it anticipates a gradual recovery of its end
markets as travel restrictions ease in the coming months, while
acknowledging the elevated level of uncertainty in the industry
outlook.
Write to Anthony O. Goriainoff at
anthony.orunagoriainoff@dowjones.com and to Adria Calatayud at
adria.calatayud@dowjones.com
(END) Dow Jones Newswires
July 09, 2020 06:26 ET (10:26 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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