Rolls-Royce: What to expect from the FTSE blue chip’s results
Rolls-Royce will tomorrow reveal the full extent of the damage the coronavirus pandemic has caused the aerospace engineer when it posts its full year results.
It comes at the end of a harrowing 12 months for the engine maker, which has seen its revenue collapse due to the worldwide grounding of planes.
In the first half of the year, Rolls-Royce fell to a £5.4bn loss as flying all but dried up amid the pandemic’s initial surge.
Shares fell into a death spiral, only levelling out around £38, their lowest levels since 2004.
As a result of the carnage, the FTSE blue chip made plans to cut 9,000 jobs, and later in the year launched a £2bn rights issue in a bid to correct financial course.
It is also looking to raise another £2bn through disposals. However, its attempt to sell off its Bergen Engines division for €150m hit a pocket of turbulence today after Norway paused the deal due to security concerns.
Further, the Derby-based firm has already said it will shut its factories for a two week period in the summer, the first time the engineer has ever taken such a step.
And there could be more woes to come, as CMC Markets’ Michael Hewson says. Rolls-Royce generates half of its revenue of the back of miles flown by airlines using its engines. However, earlier this year it said that flying hours would drop to 55 per cent of 2019’s levels, down from prior estimates of 70 per cent.
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“At its last trading update the company estimated a free cashflow outflow of £2bn. This is based on 2021 wide body engine flying hours of 55 per cent of the levels of 2019, with an expectation of turning cash flow positive at the end of the second half of the next fiscal year”, Hewson said.
“This seems a touch optimistic, given that air travel is unlikely to be able to return to any semblance of normal this year.”
He said that Rolls-Royce would do well if its revenues came in at half of 2019’s £15.45bn.
Given the current travel restrictions, investors will be looking to see if that cash flow estimate remains intact.
Laura Hoy, analyst at Hargreaves Lansdown, said that traders would also be watching for updates as to the progress of Rolls’ restructuring plans, which is meant to save the firm £1.3bn.
“The shuffle also includes a target to generate more than £2bn from disposals—the sale of Rolls’ civil nuclear instrumentation and control business being one”, she said.
“The only question now is what will be next to go and whether too much trimming could cost the group future growth.”