Rolls Royce reports a cash burn of £3 billion in the first half

on Jul 9, 2020
  • Rolls Royce reports a cash burn of £3 billion in the first half.
  • The British engineering company has £8.1 billion in cash.
  • Rolls Royce to cut at least 9,000 job in its civil aviation unit.

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Rolls-Royce (LON: RR) reported a cash burn of £3 billion in the first half (H1) on Thursday, attributed to COVID-19 restrictions that slashed its engines’ hours flown by 50%. For the second quarter, it still estimated an additional £1 billion of outflow.   

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Shares of the company opened less than 2% up on Thursday but tanked roughly 10% on market open. At 263 pence per share, Rolls-Royce is more than 60% down year to date in the stock market. Learn more about how to choose winning stocks.

Rolls-Royce has £8.1 billion in cash

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The British firm that manufactures engines for Airbus 350 and Boeing 787 reported a 75% decline in flying hours in the three months that ended in June. In the past two weeks as well, Rolls-Royce said, improvement has only been marginal.   

Despite the H1 outflow, CEO Warren East of Rolls Royce highlighted that the company had £8.1 billion in cash. The aerospace engineering firm, however, is still exploring ways to further strengthen its balance sheet. Rolls-Royce received an improvement notice earlier this week over safety breaches at Derby site

In a previous statement, the British engineering company expressed plans of cutting a minimum of 9,000 jobs. The layoff, as per Rolls-Royce, will primarily affect its workers in the civil aviation segment as its defence unit remained resilient in recent months. The power systems, as per the CEO, took a moderate hit due to COVID-19. The company also hinted at a prospect of withdrawing from a few of its sites.

CEO and analysts’ remarks on Thursday

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According to CEO Warren East:

“The COVID-19 pandemic has created a shock across the entire civil aviation industry. Across the first half of this year, widebody engine flying hours, which we get paid for under our servicing contract, were half of what they were last year.”

The restructuring, East added, is expected to boost the free cash inflow to about £750 million in 2022. JP Morgan analysts warn of a threat to Rolls-Royce future without new equity of at least £6 billion. The trading statement on Thursday, as per the experts, was significantly weaker than their expectations. According to JP Morgan analysts:

“If there is a second wave of COVID-19 or a slower than hoped for recovery then it is very possible, in our view, that the UK government will need to step in to save Rolls-Royce.”

At the time of writing, the London-based engineering company has a market cap of £5.08 billion.

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