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(Alliance News) - Rolls-Royce revealed on Thursday it burned through GBP4.2 billion in cash in 2020, a year which grounded its airline customers, and swung to a deeper-than-expected loss. It expects another GBP2 billion in cash outflow in 2021.
The jet engine maker reported revenue of GBP11.82 billion for 2020, down 29% from GBP16.59 billion the year before. Its reported pretax loss deepened to GBP2.91 billion from GBP891 million, while it swung to an underlying pretax loss of GBP3.96 billion from profit of GBP583 million. The underlying pretax loss had been seen by consensus coming in at GBP3.14 billion.
"Our financial performance in 2020 was significantly affected by the Covid-19 pandemic. The global spread of the virus from March resulted in a sudden deterioration of some of our end markets. A positive albeit reduced contribution from Power Systems and growth in Defence were important to the group's overall performance, partly offsetting the severe impact to our Civil Aerospace business," said Rolls-Royce.
Rolls-Royce said its cash outflow for the year was a staggering GBP4.19 billion, versus an inflow of GBP873 million in 2019, though this was in line with analyst expectations. It reflected a deterioration in its underlying performance due to the pandemic and the hit to Civil Aerospace in particularly.
The FTSE 100 constituent expects a cash outflow of around GBP2.0 billion in 2021. It expects to become cash flow positive "at some point" during the second half of this year. Engine flying hours for 2021 are forecast at around 55% of 2019 levels, but the company said things could be worse.
"Our severe but plausible downside scenario assumes approximately 45% EFH in 2021 and 70% in 2022, both compared to the 2019 level," said Rolls-Royce.
Rolls-Royce shares were up 3.4% in early trade Thursday.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: up 0.2% at 6,740.52
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Hang Seng: up 1.6% at 29,354.93
Nikkei 225: closed up 0.6% at 29,211.64
DJIA: closed up 464.28 points, or 1.5%, at 32,297.02
S&P 500: closed up 23.37 points, or 0.6%, at 3,898.81
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EUR: up at USD1.1939 (USD1.1900)
GBP: up at USD1.3937 (USD1.3902)
USD: firm at JPY108.72 (JPY108.65)
Gold: up at USD1,736.47 per ounce (USD1,719.15)
Oil (Brent): up at USD68.02 a barrel (USD67.85)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Thursday's Key Economic Events still to come
1430 GMT UK Treasury committee quizzes Chancellor Rishi Sunak on budget
1100 GMT Ireland consumer price index
1345 CET EU ECB interest rate decision
1430 CET EU press conference with ECB President Christine Lagarde
0830 EST US jobless claims
1030 EST US EIA weekly natural gas storage report
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UK Chancellor Rishi Sunak is to be grilled by members of Parliament over his government budget, as he faces questions over National Health Service spending and the widely criticised 1% pay rise for health workers. Sunak will give evidence to the Commons Treasury Committee on Thursday afternoon, a little over a week after he detailed his second budget. He is likely to be quizzed on his move to raise corporation tax from 19% to 23% from 2023 and freezing income tax thresholds as he seeks to rebuild the public finances following the coronavirus pandemic. Committee Chair Mel Stride has been urged to press the chancellor on a series of "key questions" affecting the health system. Chris Hopson, the chief executive of NHS Providers, which represents health trusts, said Sunak must "make good on his promise to meet all Covid costs" and agree the NHS's 2021/22 budget this week. He also called on the chancellor to "honour at least a 2.1% pay rise for deserving NHS staff" in England.
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The annual plenary session of the National People's Congress concludes on Thursday in Beijing with the approval of the new five-year plan and budget. The focus is on robust growth, strengthening domestic demand and massive investment in innovation so that the China can become less economically and technologically dependent on foreign countries. In view of tensions with the US and neighbouring countries, the military budget is to increase sharply by 6.8%. The almost 3,000 delegates of China's rubber-stamp parliament also want to approve a controversial electoral reform for Hong Kong to ensure that the previously semi-autonomous Special Administrative Region can only be administered by what it terms "patriots". The reform will further curtail the city's already limited level of democracy and the influence of opposition forces in the former British colony.
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BROKER RATING CHANGES
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JEFFERIES CUTS AVIVA TO 'HOLD' ('BUY') - TARGET 425 (400) PENCE
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BERENBERG CUTS IWG TO 'HOLD' ('BUY') - TARGET 370 (425) PENCE
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GOLDMAN SACHS INITIATES DR MARTENS WITH 'NEUTRAL' - TARGET 480 PENCE
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BARCLAYS INITIATES DR MARTENS WITH 'EQUAL WEIGHT' - TARGET 480 PENCE
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COMPANIES - FTSE 100
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Oil major Shell appointed Andrew Mackenzie as it next chair, succeeding Chad Holliday at the annual general meeting on May 18. Mackenzie joined the Shell board back in October, having been chief executive officer of miner BHP Group until 2019.
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Wm Morrison Supermarkets reported strong like-for-like growth in its recently-ended financial year, boosted by the closure of restaurants and pubs during virus lockdowns, though profit slipped as it repaid business rates relief. Total revenue for the financial year to January 31 rose 0.4% to GBP17.6 billion, with like-for-like sales, excluding fuel and VAT, up 8.6% compared to a fall of 0.8% the year before. Pretax profit fell 62% to GBP165 million. Profit before tax and exceptional items fell 51% to GBP201 million, including GBP290 million in direct Covid-19 costs. Profit would have been up 5.6% to GBP431 million before the payment of GBP230 million waived government business rates relief, Morrisons noted, and it expects to achieve that same figure in financial 2022. "This target assumes a gradual return to more normal trading conditions, no significant increases in expected direct Covid-19 costs such as elevated colleague absence, and no further restrictions such as another period of prolonged cafe closures. However, we enter 2021-22 with strong trading and operational gearing momentum, and further productivity and cost efficiency opportunities supported by our very robust underlying cash flow and balance sheet," said Morrisons. Morrisons declared a final dividend of 5.11p, taking the full-year ordinary dividend to 7.15p, up 5.6% on the year before, and the total payout for the year to 11.15p, up 27%.
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Advertising and marketing firm WPP said its performance was resilient in 2020, even as revenue fell and it swung to loss. Revenue for 2020 fell 9.3% to GBP12.00 billion, with revenue less pass-through costs down 10% at GBP9.76 billion. The firm swung to a pretax loss of GBP2.79 billion from a GBP1.21 billion profit in 2019 due to impairments of GBP3.1 billion. WPP noted that full-year like-for-like revenue less pass-through costs fell 8.2%, with a sequential recovery from initial lockdowns as the second quarter saw a 15% fall, the third quarter a 7.6% decline and the fourth quarter a 6.5% slip. "While revenue was significantly impacted as clients reduced spending, our performance exceeded our own expectations and those of the market throughout the year. There is no doubt that the actions we took during the previous two years to transform and simplify the business and reduce debt - to a 16-year low at the end of 2020 - played a crucial role in the strength of our response," said Chief Executive Mark Read. WPP proposed a final dividend of 14.0p for 2020, bringing the total for the year to 24p versus 22.7p in 2019. The firm added that it is recommencing its share buyback, funded by the proceeds of the Kantar transaction, immediately, planning to purchase up to GBP300 million by June. WPP sold a 60% stake in brand and marketing research firm Kantar to private equity firm Bain Capital in 2019 for USD3.1 billion. For 2021, WPP reiterated its guidance of organic growth in mid-single-digits percent and a headline operating margin around 13.5% to 14.0%.
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COMPANIES - FTSE 250
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IG Group Holdings said it continued to see "exceptional" levels of trading activity in the third quarter. The online trading platform delivered revenue of GBP230.3 million for the three months to the end of February, up 65% year-on-year and up 11% on the second quarter. This was driven by sustained elevated levels of trading from existing clients and high levels of client acquisition. "With the sustained higher levels of volatility in the financial markets in FY21, IG's active client base is now at record levels and is materially larger than in the prior year period, with trading behaviours and levels of retention comparable to historical averages," said IG.
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COMPANIES - MAIN MARKET AND AIM
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Funeral services provider Dignity said its largest shareholder, Phoenix UK Fund, has requisition a general meeting. Phoenix, which owns 29.9% of Dignity, wants to remove Executive Chair Clive Whiley and appoint Gary Channon as an executive director. Channon is the founder and chief investment officer of Phoenix Asset Management Partners, which manages Phoenix UK Fund. Dignity said it will respond to the requisition and asked shareholders to give no commitments to Phoenix.
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COMPANIES - OTHER
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Retailer John Lewis said no partnership bonus will be paid for the financial year that ended January 30, compared to GBP31 million last year. The department store and grocery chain swung to a pretax loss in financial 2021 of GBP517 million from a profit of GBP146 million the year before. Trading sales rose 5% to GBP12.32 billion, but John Lewis booked GBP648 million in write-downs and restructuring costs.
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Thursday's Shareholder Meetings
Titon Holdings PLC - AGM
Union Jack Oil PLC - GM re share consolidation
Vela Technologies PLC - GM re fundraising
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By Tom Waite; thomaslwaite@alliancenews.com
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