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(Alliance News) - Jet engines maker Rolls-Royce Holdings on Thursday said its free cash outflow was GBP3.0 billion in the first half.
This included GBP1.1 billion less in cash inflow due to lower receipts, with wide-body engine flying hours down 50% in the first half - and 75% lower in the second quarter - together with lower engine deliveries. A further GBP1.1 billion stemmed from a one-off adverse impact from the cessation of invoice factoring, and the firm also cited increased inventory and debtor balances.
"Our rate of cash outflow is expected to ease in the second half supported by increased benefits from cash mitigation actions, the timing of working capital movements and the anticipated ongoing recovery of commercial aviation from the trough reported in April," the company said.
Rolls-Royce anticipates a gradual recovery in its end markets as travel restrictions ease over the coming months. Wide-body engine flying hours are expected to be down around 55% this year, and it continues to plan for about 250 wide-body engine deliveries in 2020.
The FTSE 100 constituent is targeting GBP750 million free cash flow in 2022.
"These are exceptional times. The Covid-19 pandemic has created a historic shock in civil aviation which will take several years to recover. We started this year with positive momentum and strong liquidity and acted swiftly to conserve cash and cut costs to protect Rolls-Royce during the pandemic," said Chief Executive Warren East.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called up 0.4%, at 6,182.80
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Hang Seng: down 0.1% at 26,111.80
Nikkei 225: closed up 0.4% at 22,529.29
DJIA: closed up 177.10 points, 0.7%, at 26,067.28
S&P 500: closed up 0.8% at 3,169.94
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GBP: up at USD1.2640 (USD1.2575)
EUR: up at USD1.1357 (USD1.1322)
Gold: down at USD1,810.66 per ounce (USD1,811.86)
Oil (Brent): up at USD43.22 a barrel (USD42.86)
(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
1100 BST Ireland CPI
1300 SAT South Africa Manufacturing: Production & Sales
0830 EDT US Unemployment Insurance Weekly Claims Report - Initial Claims
0945 EDT US Bloomberg Consumer Comfort Index
1000 EDT US Monthly Wholesale Trade
1030 EDT US EIA Weekly Natural Gas Storage Report
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More parts of the UK's economy could be given the green light to reopen, a day after the chancellor announced an emergency support package to protect against the coronavirus recession. People in Scotland are awaiting news on Thursday about whether the country can move into the next phase of its lockdown easing, allowing drinkers to enjoy a pint inside pubs, diners to go to restaurants and customers to return to hairdressers. First Minister Nicola Sturgeon is expected to give a statement to the Scottish Parliament outlining when and how measures will be lifted, although she has suggested that not all restrictions will be eased at the same time. It comes after Chancellor Rishi Sunak announced a sweeping package of measures on Wednesday including giving firms which have furloughed staff a GBP1,000 bonus to keep workers in jobs.
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The number of house hunters rebounded in June, but property professionals were cautious about the year ahead, according to surveyors. A net balance of 61% of professionals saw new buyer inquiries increase rather than decrease over the month, the Royal Institution of Chartered Surveyors said. This was in stark contrast to readings of minus 7% and minus 94% posted in April and May respectively. The number of new properties being listed for sale also increased in June, with a net balance of 42% of survey participants noting an increase rather than decrease. Despite the increase in supply, the average number of properties on agents' books remained close to all-time lows in June – at just 39 on average per branch.
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The US recorded 55,000 new coronavirus cases in 24 hours Wednesday, a tally by Johns Hopkins University showed, bringing its total to 3,046,351 recorded infections since the pandemic began. The country, the hardest-hit in the world, had earlier Wednesday passed the grim milestone of three million infections. The actual number is likely far higher due to issues over getting tested in March and April. The US also added an additional 833 virus deaths, bringing the death toll to 132,195, the Baltimore-based institution showed at 0030 GMT Thursday. US President Donald Trump regularly downplays the numbers, attributing them to an increase in testing capacity during the month of June. Coronavirus cases are surging in several southern hotspots including Texas, Florida, Louisiana and Arizona, but the pandemic has almost entirely receded from its former epicenter in New York and the north-east.
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China's factory-gate prices fell at a slower-than-expected rate in June, official data showed, as the country works towards recovering from the coronavirus while grappling with a heavy blow to global demand. The producer price index fell 3% from a year ago, according to National Bureau of Statistics data, but remains weak owing to the Covid-19 pandemic fallout. PPI has been at four-year lows recently, shrinking 3.7% in May. China's consumer price index came in at 2.5%, a 0.1 point rise from May, on the back of a pick-up in food prices and in line with forecasts. In particular, pork prices, a driving factor behind surging inflation last year, rose 81.6% on-year in June, a similar pace to the month before.
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Machinery order data in Japan painted a mixed picture on Thursday, showing a sharp monthly fall but a small uptick when stripping out volatile orders. According to the Cabinet Office, total machinery orders were down 11% in May monthly, a sharper increase than the 8.3% booked in April. Excluding volatile orders - those for ships and those from electric power companies - orders rose 1.7% in May, however. That followed a 12% slump in April.
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BROKER RATING CHANGES
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RBC CUTS COMPASS GROUP TO 'UNDERPERFORM' ('SECTOR PERFORM') TARGET 1000(1250) PENCE
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COMPANIES - FTSE 100
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Persimmon said housing completions fell in the first half but it is entering the remainder of the year in a "strong position". The housebuilder said it generated revenue of GBP1.19 billion in the first half of 2020, down from GBP1.75 billion a year ago, as completions fell to 4,900 from 7,584. The average selling price, however, rose to GBP225,050 from GBP216,942. Persimmon said it has seen good activity in the six week period since sales offices re-opened in mid-May following the UK's lockdown, with average weekly net private sales reservations of 278 new homes, around 30% higher than the same period last year. Customer enquiries remained at "healthy levels" throughout the lockdown period, Persimmon added. "We enter the second half in a strong position, with work in progress well advanced, forward sales c. 15% ahead year-on-year, and cash holdings of c. GBP830m. Our financial strength and the agility of the business in responding to Covid-19 has ensured Persimmon is in robust health, and fully able to play its part in delivering the new homes the country needs to support the UK's recovery, in a range of future economic scenarios," said Chief Executive Dave Jenkinson.
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COMPANIES - FTSE 250
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Housebuilder Vistry Group warned margins are expected to be hit in the first half due to Covid-19. For the past ten weeks, the mid-cap firm said it has seen a week-on-week increase in sales rates, and over the last four weeks the average private sales rate per site per week including Vistry Partnerships' mixed tenure operations has been 0.62. Vistry said first half completions were 1,235, less than half of the 3,371 recorded a year ago, and warned margins are expected to take a hit. "The wide-ranging effects of Covid-19 are expected to impact margin for the first half across the business. The business has incurred additional costs directly related to the period of lockdown, lower levels of operating efficiency from social distancing and the lengthening of development period expectations. Margin is also impacted by our policy of recognising the full sales and marketing costs across the financial year, similar to administrative expenses, rather than apportioning," said Vistry. There has been a continued improvement in customer demand over recent weeks, while house prices have remained stable.
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Recruitment firm PageGroup said second quarter profit slumped but activity levels have started to pick-up in several markets. Gross profit tumbled 47% to GBP118.3 million in the second quarter, with gross profit from permanent recruitment down 54% and from temporary down 24%. "Having weathered a particularly challenging Q2, we now look forward to driving improved activity and gross profit through the second half," said Chief Executive Steve Ingham. During the second quarter, activity levels started to tick up in several markets and, in order to drive this into profit, PageGroup reinstated all its staff back to full pay from the start of July.
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COMPANIES - GLOBAL
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Twitter shares closed the formal trading day on Wednesday up more than 7% after word spread of a team codenamed "Gryphon" working on a subscription platform. Shares in the social network were up 7.3% at the close of the New York Stock Exchange, and rose 1.4% more in after-market trades. The free one-to-many messaging service has become a seemingly indispensable online venue for the latest news or commentary, with US President Donald Trump among those who post frequently. A subscription platform could be a way for Twitter to overcome challenges making money. A Twitter job posting said the San Francisco-based company is looking for a senior software engineer to lead payment and subscription work as part of a new "Gryphon" team. "This is a first for Twitter," the job posting read. "We are building a subscription platform, one that can be reused by other teams in the future." The Gryphon engineer is to collaborate with the team handling Twitter.com, according to the posting. Twitter confirmed the job posting, but declined to comment further.
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Ford Motor's second quarter sales in China rebounded, with demand growing as lockdowns lifted. A total of 158,589 vehicles were sold in Greater China during the second quarter, the car maker said, which is a 3% annual rise and a 79% jump from the first quarter. "Strong consumer demand and favourable product mix supported by new vehicle launches helped drive sales rebound," Ford explained. "The company's refreshed vehicle lineup, including the addition of the all-new Ford Escape and Lincoln Corsair, offered a favourable product mix to meet consumer needs. Sales were particularly strong in the commercial vehicle and luxury segments." Ford said it was also helped by the "lifting of Covid-19 pandemic restrictions", something which dogged the first quarter.
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Thursday's Shareholder Meetings
Workspace Group
Charles Stanley
Land Securities
Optibiotix Health
Pets at Home Group
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By Tapan Panchal; tapanpanchal@alliancenews.com
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