Thursday 9 July 2020 8:40 am

Rolls-Royce shares fall as it burns through £3bn in first half

Rolls-Royce reported cash outflows today of £3bn for the first half of its financial year, as income fell away amid the coronavirus crisis.

The aerospace engineer, which makes engines for the Boeing 787 and Airbus 350 planes, forecast an improvement in the second half which would result in full-year outflows of £4bn.

Shares fell more than seven per cent this morning as investors took stock of the update.

Rolls-Royce’s current restructuring process, which will see at least 9,000 jobs cut, will support a recovery to produce a free cash inflow of at least £750m in 2022.

Read more: Rolls-Royce to swing axe at 9,000 employees over coronavirus

The high levels of cash outflows reflected a £1.1bn fall in receipts from engine flying hours and deliveries this year, and a £1.1bn one-off cost from the end of a practice used to align the timing of cash receipts with deliveries.

Flying hours were cut in half in the first six months of the year, as the pandemic weighed on travel and shipping around the world. Analysts said this is unlikely to improve for Rolls-Royce in the second half of this year, rising to a cut of 55 per cent despite some regions such as China getting back on track.

“Today’s update goes some way to alleviating investor concerns about the company having to raise extra capital in the short term, however it is clear that a lot of things will have to go right over the next 12 months, for these concerns not to come back,” said CMC Markets chief analyst Michael Hewson.

“There is also the prospect of further job losses, unless management can get better control of the company cash flow.”

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Rolls-Royce said it had increased its liquidity to £8.1bn, including a new undrawn £2bn five-year term-loan facility.

“The Covid-19 pandemic has created a historic shock in civil aviation which will take several years to recover,” Rolls-Royce chief executive Warren East said.

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