Rolls-Royce makes £4bn loss amid ‘severe’ impact of pandemic

Rolls-Royce confirms 7,000 job losses during 2020

Engineering company Rolls-Royce (LON:RR) swung to a £4bn loss in 2020 as the coronavirus pandemic severely impacted the airline industry.

The company’s loss came following an underlying profit before tax of £583m in 2019.

In 2020 its cash outflow was £4.2bn. Rolls-Royce predicted an improvement this year to around £2bn, with its cash outflow set to turn positive during H2 of 2021.

Rolls-Royce has taken strong acton to reduce its costs by an added £1bn, including 7,000 job losses during 2020, with the aim of saving a total of £1.3bn by 2022.

Jack Winchester, analyst at Third Bridge, commented on the vulnerability of the aviation group’s business model.

“Rolls Royce’s management have been guiding this 4.2bnGBP cash outflow since mid December, but while it isn’t a surprise, it really does bring into focus the deep pain caused by the pandemic. This is a business which has been producing positive cash flows in the hundreds of millions basically since the turn of the millennium.”

“What we’ve seen over the past year is the inherent fragility of Rolls Royce’s business model – when you sell engines to customers at a loss, you are very dependent on your aftermarket ‘power by the hour’ business.”

The company raised £7.3bn to get through the pandemic via tapping up shareholders and borrowing from the Bank of England. The company will also look to raise money by selling off parts of the business.

At early morning trading, Rolls-Royce’s share price is up by 2.35% to 115.65p per share.

Warren East, chief executive of Rolls-Royce, commented on the measures taken by the company during the pandemic, as well as its outlook moving forward:

“The impact of the COVID-19 pandemic on the Group was felt most acutely by our Civil Aerospace business. In response, we took immediate actions to address our cost base, launching the largest restructuring in our recent history, consolidating our global manufacturing footprint and delivering significant cost reduction measures,” East said.

“We have taken decisive actions to enhance our financial resilience and permanently improve our operational efficiency, resulting in a regrettable, but unfortunately very necessary, reduction in the size of our workforce. With the support of our stakeholders we successfully secured additional liquidity with a rights issue, bond issuance and further credit facilities put in place during the year. We have made a good start on our programme of disposals and will continue with this in 2021. We continue to invest in developing market-leading technology and low carbon opportunities in all our end markets, to create value for our stakeholders and ensure we are well positioned to take advantage of the transition to a lower carbon economy and growing demand for more sustainable power solutions.”