Latest News | 28 January 2021

Rolls-Royce 'well-positioned' for future after restructure

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Engineering giant Rolls-Royce has said it is “well-positioned” for the future after implementing a series of measures to help it through the coronavirus crisis.

Last year, the firm, which has its civil aerospace and defence divisions in Derby, announced plans to shed around 9,000 jobs, after the firm was hit hard by the sudden drop-off in air travel caused by the coronavirus crisis.

But in a trading update issued to the markets this week, the firm said that the restructuring of the business will be a “key enabler” of its aim to deliver at least £750 million of free cash flow, excluding disposals, as early as next year, depending on the recovery of engine flying hours.

In the update, the firm said that it cut about 7,000 roles last year, putting it well on the way to achieving its target of around 9,000 by the end of 2022.

Rolls-Royce added that its 2020 group free cash flow was in line with previous guidance and that cost savings of more than £1 billion had been achieved from its mitigating actions.

Its year-end liquidity was about £9 billion, at the upper end of its previous guidance range.

The trading update said: “Continued progress on vaccination programmes is encouraging for the medium-term recovery of air traffic and economic activity.

“In the near-term, however, more contagious variants of the virus are creating additional uncertainty.

“Enhanced restrictions are delaying the recovery of long-haul travel over the coming months compared to our prior expectations, placing further financial pressure on our customers and the wider aviation industry, all of which are impacting our own cash flows in 2021.

“In this environment, financial forecasts remain highly sensitive to changes in external conditions and, while we are continuing to drive cost reduction, our current forecasts indicate a free cash outflow in the region of £2 billion in 2021.

“Though significant uncertainty remains over the precise shape and timing of the recovery in air traffic and the phasing of engine (OE) concession payments, free cash outflow this year is forecast to be heavily weighted towards the first six months.

“We continue to expect to turn cash flow positive at some point during the second half, reflecting our forecasted profile of flying hours as they recover from today's low base.”

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