TIDMRR.
RNS Number : 3043I
Rolls-Royce Holdings plc
11 December 2020
11 December 2020
ROLLS-ROYCE HOLDINGS PLC TRADING UPDATE
-- Restructuring plans on track to deliver our targeted GBP1.3bn
cost savings by 2022; at least GBP1bn of near-term cash cost
mitigations confirmed for 2020
-- Power Systems end markets seeing some early signs of improvement
-- Defence remains resilient with strong order cover for 2021
-- Civil Aerospace large engine flying hours gradually recovering; year-to-date 42% of 2019
-- GBP5bn package completed in November to increase resilience,
strengthen the balance sheet and support long-term strategy
-- Expected 2020 FCF of approximately GBP(4.2)bn, subject to
timing of year-end working capital cash flows; resulting in
year-end net debt GBP1.5bn - GBP2.0bn and liquidity GBP8.5bn -
GBP9.0bn
-- Guidance unchanged: we expect to turn cash flow positive at
some point during H2 2021, target at least GBP750m free cash flow
(excluding disposals) as early as 2022 and at least GBP2 billion
from disposal proceeds
Warren East, CEO, said: "We have taken decisive actions to
protect and reposition our business in difficult and uncertain
trading conditions, including the impact from a second wave of
COVID-19. We have made rapid progress on our restructuring
programme and the consolidation and reorganisation of our Civil
Aerospace footprint is well underway. Our GBP5 billion
recapitalisation package in November was well supported and has
increased our resilience and strengthened our balance sheet. The
outlook remains challenging and the pace and timing of the recovery
is uncertain. However, our actions have given us a strong
foundation to deliver better returns as our end markets improve and
we continue to drive our ambition of delivering more sustainable
power to support the creation of a net zero carbon economy."
Trading update for 11 months to end November
Prior to COVID-19 we were reaching a pivotal point in Civil
Aerospace. Following a period of rapid growth and new engine
programme launches, R&D investment demands were falling and
returns improving as we began to benefit from our large and growing
installed base and reduced losses on new installed engines. The
benefits from this have been delayed due to COVID-19, but the
fundamental drivers of having a more efficient business with
stronger margins and better returns remain intact and position us
well for the eventual rebound.
In the 11-month period to end November, large engine LTSA
invoiced flying hours (EFH) were approximately 42% of their prior
year level. EFH have gradually improved since the trough in April
although more recently the pace of recovery has slowed due to the
second wave of infections in some geographies. In October and
November combined, EFH increased to approximately 33% compared to
2019. In Q3 our EFH were 29% of the prior year, an improvement
versus the 24% seen in Q2. We have reduced the pace of production
for our large engines and our full-year guidance for approximately
250 deliveries is unchanged.
Business aviation has continued to see less of an impact than
scheduled commercial flights with flying hours holding up
relatively well, despite border restrictions being in place in many
parts of the world.
Our Defence business has remained resilient with good cash
conversion. We have a strong order book and 2021 forecast sales are
well covered. In recent months we have secured orders for 56 new
EJ200 engines for the German Air Force and reached an agreement to
provide in-service support for the T-55 engine, should it be
selected as the future heavy transport helicopter of the German
Bundeswehr. We continue to focus on key growth opportunities for
our core products in the US and the UK. The recently announced
multi-year Defence budget increase in the UK will provide
additional investment for next generation capabilities, such as the
Future Combat Air System where we are a core partner in the growing
Tempest programme. In addition, we are innovating in adjacent
products and growing our aftermarket revenues from our large
installed base.
Power Systems has experienced a significant fall in demand in
most non-governmental end markets this year. The activity declines
seen in the second quarter caused by the pandemic continued into
the second half of the year, except in China where economic
activity has recovered more quickly and we have continued to grow
our market share. In recent months, we have seen some early
indications of order intake levels picking up and year-to-date our
net book:bill ratio has been approximately 1x. In November, at the
China International Import Expo, we announced provisional
agreements with six Chinese companies for almost 1,000 MTU engines
and systems.
Our Small Modular Reactor (SMR) consortium has signed strategic
agreements with Exelon Generation and CEZ and the UK Government has
committed GBP215m for a four-year development plan for SMRs. This
highlights the appeal and opportunities of our nuclear energy
solution to support the decarbonisation of power generation in the
UK and abroad.
In line with the challenging Civil Aerospace market trends, ITP
Aero has seen a continued negative impact on trading. Defence,
which represents 25% of ITP Aero volumes, benefited from the
Eurofighter order from the German Airforce for 56 EJ200
engines.
Taking actions to protect our business
The pandemic is causing a reduction in demand for our Civil
Aerospace products and services that we expect will take several
years to recover and as a result we announced, on 20 May, a major
reorganisation programme. We have made good progress towards our
target for GBP1.3 billion of pre-tax cash cost savings and a
reduction of at least 9,000 roles by the end of 2022. More than
5,500 roles will have been removed by the year end, ahead of our
prior expectation of over 5,000, with a significant proportion
achieved through voluntary severance. We are in consultation
regarding the next phase of our Civil Aerospace footprint review,
which includes a proposal to transfer our facility and workforce in
Hucknall, UK, which manufactures a range of aero-engine parts, into
ITP Aero. We are also proposing to consolidate the manufacture of
aero-engine structures into ITP Aero. These difficult but necessary
decisions will help generate efficiency savings for the Group and
strengthen ITP Aero's capabilities.
Our mitigating actions to preserve cash in 2020 are on track to
deliver more than GBP1 billion of in-year savings in 2020. We
expect approximately GBP4.2 billion free cash outflow in 2020,
reflecting the impact of the second wave on flying hours in the
fourth quarter. The actual outturn will be influenced by the timing
of significant working capital cash flows around the year-end, in
particular for original equipment concession payments which depend
on the timing of new aircraft deliveries to airlines.
Rebuilding our balance sheet and increasing our financial
resilience are key to our ability to position our company for the
future. Our GBP5 billion recapitalisation package, completed in
November, comprised GBP2 billion of new equity, GBP2 billion in new
bonds with maturity in 2026/2027 and a GBP1 billion 2-year bank
facility that remains undrawn. This extended and replaced shorter
term facilities including an undrawn GBP1.9 billion revolving
credit facility which was cancelled when the new financing was
finalised. As a result, we expect to end the year with net debt of
between GBP1.5 billion and GBP2.0 billion, excluding lease
liabilities of approximately GBP2.1 billion, and liquidity between
GBP8.5 billion and GBP9.0 billion.
Disposal update
In December we signed an agreement to sell our civil nuclear
instrumentation and control business, the first of a number of
disposals that we have under consideration. This transaction is
expected to conclude in the second half of 2021 and contributes
towards our target of generating at least GBP2 billion from
disposals, as announced in August. Other assets under consideration
for disposal include ITP Aero and our medium speed gas and diesel
engines business, Bergen Engines.
Looking forwards
As we look ahead, we are confident in our plans to position the
business for the recovery as we deliver our reorganisation
programme in Civil Aerospace to align to future demand and realise
the opportunities for future growth as our end markets recover. The
fundamental drivers behind long-term growth in global commercial
flights remain intact.
While many of our end markets continue to be significantly
affected by COVID-19, we will continue to actively respond to any
changing timing of recovery and the recent news on effective
vaccines is encouraging. Commercial air travel looks likely to
recover slowly in the first half of 2021, reflecting the reduced
winter schedules planned by the airlines and continuing the trends
seen in the second half of 2020. We anticipate an improvement in
the second half of 2021 as vaccination programmes support the
further reopening of borders and economic recovery.
We continue to expect the Group to turn cash flow positive at
some point during the second half of 2021, as we mitigate the
uncertainty of the timing and shape of the recovery through
cost-saving and capital allocation actions. Our target to deliver
at least GBP750 million free cash flow (excluding disposals) as
early as 2022 is also unchanged.
Trading update conference call at 09:00 (GMT) today
UK dial-in: 0333 300 0804 / US dial-in: +1 631 913 1422 /
International dial-in: +44 333 300 0804
Participant passcode: 7893 9687#
A replay will be available shortly after the call has
concluded
UK dial-in: 0333 300 0819 / US dial-in: +1 866 931 1566 /
International dial-in: +44 333 300 0819
Participant passcode: 3013 34996#
Our 2020 Full Year results announcement will be published on 11
March 2021.
For further information, please contact:
Media
Richard Wray
Director of External Communications & Brand, Rolls-Royce
plc
Tel +44 (0) 7810 850055
Richard.Wray@Rolls-Royce.com
Investors
Isabel Green
Head of Investor Relations, Rolls-Royce plc
Tel +44 (0) 7880 160976
Isabel.Green@Rolls-Royce.com
www.Rolls-Royce.com
About Rolls-Royce Holdings plc
1. Rolls-Royce pioneers cutting-edge technologies that deliver
clean, safe and competitive solutions to meet our planet's vital
power needs.
2. Rolls-Royce has customers in more than 150 countries,
comprising more than 400 airlines and leasing customers, 160 armed
forces, 70 navies, and more than 5,000 power and nuclear
customers.
3. Annual underlying revenue was GBP15.3 billion in 2019, around
half of which came from the provision of aftermarket services.
4. In 2019, Rolls-Royce invested GBP1.45 billion on research and
development. We also support a global network of 29 University
Technology Centres, which position Rolls-Royce engineers at the
forefront of scientific research.
5. Rolls-Royce Holdings plc LEI: 213800EC7997ZBLZJH69
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