--Rolls-Royce Holdings warned that its medium-term outlook has deteriorated due to the pandemic

--The British aircraft-engine maker expects a cash outflow of GBP4 billion this year

--Shares in Rolls-Royce fell sharply on the back of the news

 

By Anthony O. Goriainoff and Adria Calatayud

 

Shares in Rolls-Royce Holdings PLC took a hit Thursday after the company warned of the deterioration of its medium-term outlook due to the coronavirus pandemic and said it expects to bleed 4 billion pounds ($5.04 billion) in cash this year.

The U.K. jet-engine maker, which has been hurt by a collapse in demand for its civil-aerospace business due to the pandemic, said it forecasts a shortfall of dollar-denominated cash receipts over the next seven years compared to its hedged position. As a result, the company will reduce its hedge book by $10 billion to $27 billion to realign it with expected midterm demand. The move will come at a cost of GBP1.45 billion, Rolls-Royce said.

Shares at 0951 GMT were down 8.4% at 263.50 pence, making Rolls-Royce the top FTSE 100 faller.

"The Covid-19 pandemic has created a historic shock in civil aviation which will take several years to recover," Chief Executive Warren East said.

Rolls-Royce, which had struggled with problems in its Trent 1000 engines before the pandemic struck, has in recent weeks said it would cut 9,000 jobs, out of a global workforce of 52,000, and that it was reviewing options to strengthen its balance sheet.

Russ Mould, investment director at brokerage AJ Bell, said Rolls-Royce might need to issue shares or even offload a part of the group to generate cash.

For the first half, the company forecasts a free cash outflow of GBP3 billion, which reflects a GBP1.1 billion reduction in receipts from engine flying hours and engine deliveries. The rate of cash consumption is expected to slow in the coming months to end the year with an outflow of GBP4 billion, it said.

Widebody engine flying hours were down approximately 75% in the second quarter and 50% for the first half as a whole, Rolls-Royce said.

"We currently forecast widebody engine flying hours to be down in the region of 55% this year, with more long-haul routes opening up in the fourth quarter. We continue to plan for about 250 widebody engine deliveries in 2020, based on announced build rates from our airframer customers," the company said.

Rolls-Royce said its plan to reduce costs by GBP1.0 billion this year is on track, with savings of around GBP300 million achieved in the first half. It added that its restructuring is underway, supporting a recovery in its cash flow to generate at least GBP750 million in 2022.

The company said it has made good progress on Trent 1000 fixes, and that its defense business has remained resilient, thanks to continued demand from key government customers.

Rolls-Royce said it anticipates a gradual recovery of its end markets as travel restrictions ease in the coming months, while acknowledging the elevated level of uncertainty in the industry outlook.

 

Write to Anthony O. Goriainoff at anthony.orunagoriainoff@dowjones.com and to Adria Calatayud at adria.calatayud@dowjones.com

 

(END) Dow Jones Newswires

July 09, 2020 06:26 ET (10:26 GMT)

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