Rolls-Royce reports worse than expected 2020 loss

Rolls-Royce plunged to a worse than expected loss last year as the collapse in air travel led to the grounding of most of the world’s fleet, but stuck to previous guidance to turn cash flow positive in the second half of this year. 

The UK aero-engine group generates profits in its civil aerospace division through long-term contracts under which it is paid for the number of hours its engines fly. The unprecedented halt in flying because of the pandemic meant most of its income dried up.

Rolls-Royce reported an underlying pre-tax loss of £4bn for 2020, higher than the consensus forecast of £3.1bn.

The loss included a £1.7bn underlying charge related to the unwinding of hedging contracts. Cash outflow for the year was £4.2bn, including a charge of £1.1bn related to the cessation of invoice discounting. Underlying revenues were £11.7bn, down from £15.4bn a year earlier.

Rolls-Royce has been forced to shore up its balance sheet with £7.3bn of new equity and debt and launched a disposal programme to raise at least £2bn. A major restructuring programme is also under way and 7,000 jobs have been cut so far.

However, the company said it still expected to turn cash positive during the second half of 2021 and to generate at least £750m as early as 2022. Both forecasts, however, are dependent on the pace of the recovery in engine flying hours and are underpinned by the restructuring programme.

Rolls-Royce said it expected large engine flying hours in 2021 to increase to about 55 per cent of 2019 levels, up from the 43 per cent level seen in 2020, supported by an acceleration in global vaccination programmes.

For 2022, the company said its base case was for flying hours to reach around 80 per cent of 2019 levels, down from a previous expectation of 90 per cent. It said it expected large engine deliveries to remain “at the current lower levels for the next few years”.

Warren East, chief executive, said 2020 had been an “unprecedented year”. The group, he added, had taken “decisive actions to enhance our financial resilience and permanently improve our operational efficiency”.