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(Correcting that Rolls Royce made an interim underlying profit of GBP93 million in 2019, not an underling loss as previously reported. Adding information about CFO Daintith's move to Ocado.)
(Alliance News) - Rolls-Royce Holdings PLC on Thursday reported a considerably widened loss for the first half of 2020 amid severe damage to the civil aviation sector by the Covid-19 pandemic.
Shares in Rolls-Royce were down 7.8% at 233.19 pence in London in morning trading. At the end of 2019, its shares were trading at 683.20p.
Passenger planes remain on the tarmac around the world as countries have introduced and reintroduced lockdowns and quarantines to contain the novel coronavirus.
For the half-year ended June 30, the jet engine maker's revenue fell 26% to GBP5.82 billion from GBP7.88 billion last year, and the company swung to a pretax loss of GBP3.24 billion from a GBP93 million profit on an underlying basis.
The reported pretax loss gaped to GBP5.37 billion from GBP791 million, including a GBP2.6 billion non-cash loss from revaluation of its foreign exchange hedge book.
The company reported free cash outflow of GBP2.8 billion, "deteriorated" from a GBP429 million outflow last year, "reflecting the reduction in engine flying hour receipts and a substantial working capital related outflow that included a cessation of invoice discounting".
It expects another GBP1 billion in cash outflow in the second half, meaning GBP4 billion for the year as a whole. Beyond 2020, it is targeting a return to positive free cash generation during the second half of 2021 and annual 2021 free cash outflow is expected at significantly reduced levels compared to 2020.
Rolls-Royce said underlying revenue in 2020 is expected to be 25% to 30% lower than the prior year.
"Uncertainty remains high as a result of Covid-19, particularly around the easing of travel restrictions and the pace of economic recovery. Our recovery assumptions are based on a gradual recovery in civil aviation activity commencing towards the end of H2 2020. Most Power Systems end markets are currently expected to recover by the end of 2021 and revenues are expected to be back to 2019 levels in 2022. Defence performance is expected to remain resilient throughout the period," the company said.
The London-headquartered company is undergoing a restructuring, including reorganising its Civil Aerospace business. On Thursday, it confirmed plans to shut its aerospace factory in Nottinghamshire and is looking to merge sites in Lancashire.
It also plans to close its site in Annesley by the end of 2022 in a move impacting around 120 staff, though the group is hoping most will transfer to its base in Derby.
Around 350 jobs are under threat as it revealed plans to stop making wide chord fan blades for new engines at its Bankfield site in Barnoldswick, Lancashire, by autumn 2023.
It will shift the work to its Singapore site.
Rolls Royce is also considering merging its Ghyll Brow base with the nearby Bankfield site as part of a group-wide restructure to save GBP1.3 billion in response to the coronavirus crisis.
The cuts are part of the mammoth 9,000 global job losses it announced in May as a response to the pandemic.
Chief Executive Warren East said: "We have made significant progress with our restructuring, which includes the largest reorganisation of our Civil Aerospace business in our history. This restructuring has caused us to take difficult decisions resulting in an unfortunate but necessary reduction in roles. These actions will significantly reduce our cost base, which combined with recovery in Power Systems and continued resilience in Defence, will help us to deliver significantly improved returns as the world recovers from the pandemic.
"While our actions have helped to secure the group's immediate future, we recognise the material uncertainties resulting from Covid-19 and the need to rebuild our balance sheet for the longer term. We have identified a number of potential disposals that are expected to generate proceeds of more than GBP2 billion, including ITP Aero and a number of other assets. Furthermore, in light of ongoing uncertainty in the civil aviation sector, we are continuing to assess additional options to strengthen our balance sheet to enable us to emerge from the pandemic well placed to capitalise on the long-term opportunities in all our markets."
Separately, Rolls-Royce announced that Chief Financial Officer Stephen Daintith has decided to leave the company. The search for his replacement is underway. Daintith was appointed in September 2016 and joined the company board in April 2017. He had been CFO of Daily Mail & General Trust PLC.
Ocado Group PLC said it had hired Daintith as its new CFO, replacing Duncan Tatton-Brown who is stepping down due to "family circumstances".
The FTSE 100-listed online grocer said Tatton-Brown will remain in the role until November 22, at which point he will continue as a non-executive director of Ocado subsidiaries Ocado Retail Ltd - which is the company's joint venture with Marks & Spencer Group PLC - as well as Jones Food Company Ltd and Karakuri Ltd.
Ocado said it will confirm a start date for Daintith when known.
"Duncan joined us in 2012 when Ocado was a very different business to what it is today. He has made a critical contribution to our growth as a company and the successful execution of our strategy," said Ocado Chief Executive Tim Steiner.
"Following a thorough search and selection process, I am delighted to be welcoming Stephen to Ocado Group. Stephen has a wealth of valuable experience and I am looking forward to working closely with him to drive Ocado forward and take full advantage of the opportunities that we see ahead," he added.
Shares in Ocado were up 0.2% at 2,539.00p in London on Thursday morning.
By Anna Farley; annafarley@alliancenews.com and Ife Taiwo; ifetaiwo@alliancenews.com
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