7th May 2020 09:38
(Alliance News) - Rolls-Royce Holdings PLC said Thursday the Covid-19 pandemic has caused "significant disruption" to the aerospace industry but it will deliver up to GBP1.0 billion in cash savings in 2020.
Shares in the FTSE 100-listed jet engine maker were down 4.7% in London on Thursday morning at 279.83 pence each.
Speaking at the company's annual general meeting on Thursday, Chief Executive Warren East said: "In this unprecedented period of uncertainty we have rapidly adapted our business to safeguard its future for all of our stakeholders. We have implemented heightened safety procedures to protect our people and we are providing practical assistance to combat the impact of Covid-19 on the countries in which we operate."
Due to these actions, Rolls-Royce had been hoping to save GBP750 million in 2020, but on Thursday the company said it has made "better than anticipated progress" and will save up to GBP1.0 billion.
Cancelling the final dividend saved GBP137 million. An additional revolving credit facility of GBP1.5 billion was secured to bolster the group's liquidity position and a successful syndication process with a larger group of banks has increased this to GBP1.9 billion.
"Looking ahead, the severity of the disruption caused by Covid-19 is expected to lead to a smaller commercial aerospace market which may take several years to recover," Rolls-Royce added.
As a result, the company is "actively pursuing" changes to its business, particularly in Civil Aerospace, to better align to the medium-term market conditions.
Rolls-Royce added: "We are committed to working with our trade union and employee representatives, as well as our customers and suppliers, as we adjust to the new outlook and establish a more appropriate cost base in order to secure our future for all stakeholders."
Civil Aerospace widebody engine flying hours were about 40% lower than prior expectations for the first four months of the year, Rolls-Royce said. This reflected a fall of 90% in April as airlines around the world have temporarily grounded large proportions of their fleets.
Due to the lower activity, volume of service visits to maintenance, repair & overhaul shops will be down in 2020 from 2019, it said.
Rolls-Royce currently expects to deliver around 250 widebody engines in 2020, down from previous guidance of 450.
To combat this, it has placed 4,000 staff on furlough, but this is not expected to hurt the recovery of the troubled Trent 1000 engine.
Rolls-Royce noted the "diversity" of its business makes it "resilient". In particular, the company noted the "robust" performance of its Defence unit in the year-to-date, but did note social distancing may hurt supply chains going forward.
In Power Systems, however, Rolls-Royce experienced "weaker" trading since the first quarter due to extended shutdowns in local markets and ongoing travel bans, the effects of which have only been partly mitigated by "diverse" end-market exposure and cost savings.
As a result, while Rolls-Royce expects a "meaningful" positive contribution to full-year profit and cash flow from Power Systems, its performance in 2020 is likely to show a "material deterioration" compared to the prior year.
In PowerGen, delays to construction projects are currently impacting sales of backup power solutions, however looking ahead Rolls-Royce continues to expect the higher data traffic resulting from Covid-19 to drive greater demand for backup power for data centres.
"As a group, we are prepared to endure a prolonged period of uncertainty. Due to the unprecedented reduction in air traffic caused by Covid-19, we are anticipating a significant net cash outflow during the second quarter and it remains too early to guide on the likely outcome for the full year," Rolls-Royce added.
The company believes it is "well placed" once the recovery from the pandemic begins.
By Paul McGowan; [email protected]
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