Rolls-Royce reports that it is hoping to “turn free cash flow positive during the second half of 2021 as engine flying activity recovers and cost savings are delivered.”
The company issued a trading update today ahead of its AGM reported that operational and financial performance were in line with its expectations. The statement also contained a commitment to permanent cost reductions, net zero emissions and sustainable aviation fuel.
The halt of international travel last year led to a freefall in revenue for the manufacturer as its business model charges airlines on the number of hours its engines fly but the latest statement suggests a return to more stability. The statement added that large engine flying hours were around 40 per cent of pre-pandemic levels during the first four months of 2021 which was also in line with its expectations.
£1.3bn of annualised cost savings targeted
Rolls-Royce is progressing a cost cutting programme, targeting £1.3bn of annualised cost savings. The company has also taken on debt and raised equity to weather the effects of the pandemic. The sale of £2 billion worth of assets is also planned to shore up its finances. The update stated there were an “encouraging range” of parties interested in buying Spanish unit ITP Aero, which has a €1.5 billion price tag.
At the Annual General Meeting of Rolls-Royce Holdings plc today, Chief Executive Warren East will address shareholders. His statement is reported on the company’s website: “We faced unprecedented challenges in 2020 with events that were beyond our control. We acted quickly and decisively by putting in place the measures necessary to protect our people and our business. I would like to thank our colleagues for the dedication and hard work this year and all our stakeholders for their engagement and support.”
“Looking ahead, we are confident that the significant restructuring actions we have taken in 2020 will deliver permanent cost reductions, positioning us well for the rebound in international air travel. In Business Aviation we are very proud to recently announce that Dassault has chosen us to power their new flagship Falcon 10X aircraft.”
Commitment to net zero targets
East added: “We are committed to our net zero targets and seizing the opportunity of supporting the transition in our end markets to low carbon and net zero carbon solutions. In the last few months, we have taken significant steps, including successfully testing 100 per cent sustainable aviation fuels in current generation aircraft engines in Derby, while our Spirit of Innovation all-electric aircraft will take to the air within weeks.”
While the timing of the recovery remained uncertain, progress of the vaccine roll-out in countries such as the US and UK were encouraging. He said: “Combined with increased testing, vaccination programmes are key enablers of further recovery in international air travel.”
East added govermental demand in Power Systems remained resilient and aftermarket demand was increasing, putting performance back on track. “We expect the recovery to accelerate through the remaining months of the year,” he added.
Defence performance is “resilient”
Defence had also seen investment from governments. He said: “In Defence, we have continued to perform resiliently with high levels of backlog cover following a strong period of order intake in recent years. We await the outcome on our tender for the B-52 new engine programme, where a decision from the US Department of Defense is expected in the second half of this year. The UK government’s recent defence review confirmed investment in technology-led solutions supported by the increase in defence funding announced last year, including £2 billion for the Future Combat Air System.”
His statement added that the guidance “remains sensitive to the timing of EFH recovery and the timing of original equipment (OE) concession outflows on already delivered widebody engines.”
The restructuring programme was announced in May 2020 to reduce the company’s fixed cost base and improve productivity. East said the programme would “set up the framework that will enable us to recover strongly when activity levels return.”
Rolls-Royce’s next scheduled trading update will be its Half Year 2021 results on 5 August 2021.