Daily Management Review

Rolls-Royce Reports Record Loss But Confident Of Weathering Pandemic Crisis


Rolls-Royce Reports Record Loss But Confident Of Weathering Pandemic Crisis
Despite the British engine maker Rolls-Royce reported a record 4 billion pound ($5.6 billion) underlying loss for 2020, the company expressed confidence that it would be able to weather the crisis in the aviation industry resulting from the Coviud-19 pandemic slump the in the aviation industry because it had enough cash at hand, said the company’s chief executive on Thursday.
The cash burn that had reached unprecedented amounts last year should become half in 2021 and should turn back into positive territory in the second half of the year with the toll out of vaccination results in more holiday and travel markets opening up, said the British company.
"The worst is now well behind us," CEO Warren East said.
And even though if his comments seemed to be overly optimistic, the company is well placed to manage more upheavals in the industry after its drive to reduce costs and raise funds, the CEO added.
"We have our cash burn under control ... We have ample liquidity to get through this crisis as long as it lasts," East told reporters.
During the pandemic hit 2020, much of the revenue sources of the company dried up because of its business model of charging airlines for the number of hours its engines fly. Airlines had virtually stopped functioning last year as countries shut down borders to prevent the entry of the pandemic in their respective countries. The company was forced to request its shareholders to infuse cash into the company while also taking on new debts worth 5.3 billion pounds.
In a normal year, just over half of group’s total annual revenue is accounted for by the civil aerospace business unit of the company whose engines power Airbus A350 and Boeing 787 jets.
The company reported cash burn of 4.2 billion pounds for 2020 which was in line with expectations of analysts and the company forecast that amount to come down to about 2 billion pounds for 2021.
As its cost cutting measure, 15 per cent of its staff was laid off in 2020 and it has set a target of sale of assets worth 2 billion pounds to give more solidity to its balance sheet.
An underlying pretax loss of 4 billion pounds for 2020 was reported by Rolls which was worse than was being expected analysts at 3.1 billion pound loss and was the biggest ever on an underlying basis of the company. Rolls was founded in 1906 and one of the last vestiges of Britain's once mighty manufacturing industry.
Rolls had "much to do", but the "fix" was feasible, said Jefferies analyst Sandy Morris. "The possibility of reaching modest net debt by end 2023 is alive," he said.
For the current year of 2021, the cash flow of Rolls improving is dependent on global airlines operating at about 55 per cent of the 2019 levels for the current year. The company expected that with the wider roll out of Covid-19 vaccines, there will be more travel.