Covid-19 hits Rolls-Royce Civil Aerospace hard, but diversification helps the group

11th March 2021

By: Rebecca Campbell

Creamer Media Senior Deputy Editor

     

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UK-based global major industrial technology group Rolls-Royce has reported its full-year results for last year. The group was hit hard by the Covid-19 pandemic, suffering a loss (including tax) of nearly £3.17-billion. In 2019, it had experienced a loss (including tax) of just over £1.31-billion. Reported revenues for 2020 came to a little more than £11.8-billion, in comparison to the almost £16.6-billion accrued in the previous year. And last year the group also suffered from a negative free cash flow of nearly £4.19-billion, as against a positive free cash flow of £873-million in 2019.

“2020 was an unprecedented year and I would like to thank everyone at Rolls-Royce for their hard work, dedication and sacrifice to help secure the Group’s future,” said group CE Warren East. “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.”

To meet the crisis created by the pandemic, Rolls-Royce used in-year cash mitigations to cut spending by more than £1-billion and launched a disposal programme to raise a minimum of £2-billion. It also implemented a major restructuring programme and cut 7 000 jobs during the year. It strengthened its liquidity to £9-billion and protected its financial position with £7.3-billion in new debt and equity. 

“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,” he affirmed. “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.” 

The group was targeting a return to a positive free cash flow during the second half of this year. Supported by the restructuring programme and depending on the rate of recovery in commercial engine flying hours, Rolls-Royce could achieve a positive free cash flow of at least £750-million as soon as next year.

During last year, the group’s Civil Aerospace business suffered an underlying operating loss of almost £2.6-billion. The category “Corporate/eliminations” recorded an additional loss of £70-million, while non-core businesses contributed a further loss of £22-million. On the other hand, the Power Systems business reported an underlying operating profit of £178-million, while the underlying profit for Defence was £448-million. Subsidiary ITP Aero, which Rolls-Royce was seeking to sell, recorded an underlying profit of £68-million.

“Our diversified portfolio helped to protect the group’s performance during the Covid-19 crisis, with support from our governmental end-markets in Power Systems and Defence in particular. Looking ahead over the next couple of years, we are encouraged by the outlook for vaccinations and testing and we expect the rebound in global (gross domestic product) and lifting of travel restrictions to drive our recovery,” reported Rolls-Royce in its results statement. “Despite the challenges we faced in 2020, we continued to invest organically and acquisitively in new opportunities, focused on technologies which enable our net zero carbon ambitions as the pace of adoption of low carbon solutions accelerates.” 

In 2019, the group devoted about 4% of its research and development expenditure to low carbon technologies. Last year, it was 7%. Rolls-Royce planned to increase this to some 20% by 2023, covering technologies such as hybrid, hydrogen and electric power technologies and small modular nuclear reactors.

Edited by Creamer Media Reporter

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