ENGINEERING giant Rolls-Royce has reported a £4 billion annual loss after the pandemic hammered the global aviation industry.
The group’s eye-watering loss for last year was worse than expected and compares with underlying pre-tax profits of £583 million in 2019.
On a statutory basis, Rolls-Royce reported pre-tax losses of £2.9bn against losses of £891m in 2019.
Rolls-Royce said there had been a “severe impact” from the pandemic on its performance and near-term outlook.
It said it is “encouraged” by the vaccination programme and hopes the aviation sector can recover as the global economy bounces back, but warned that prospects remain “uncertain and highly sensitive to the developments of the Covid-19 virus”.
However, it stood by its forecast for cash outflow, which is a closely-watched measure for the group, to improve in 2021.
READ MORE: Rolls-Royce signs five-year Inchinnan commitment with Unite the union
It saw cash outflow of £4.2bn in 2020, though Rolls forecast this would improve this year to around £2bn and is set to turn positive at some stage during the second half.
This is set to be supported by an increase in engine flying hours to around 55 per cent of pre-Covid levels in 2021 as the industry starts to rebound, rising to 80% in 2022.
The group said it had taken swift action to slash costs by an extra £1bn amid aims to save a total of £1.3bn by 2022, including 7,000 job losses in 2020.
A total of 9,000 job cuts are expected in total under the programme, with around two-thirds going in the UK.
The firm last month said more than 500 jobs in Scotland have been safeguarded from compulsory redundancy for at least five years following an agreement with Unite the union.
Pre-Covid, Inchinnan, which is the company’s second-largest civil aerospace facility in the UK behind its Derby base, employed 1,300. Around 575 people are now secure under the agreement at Rolls-Royce’s last major Scottish site, which produces turbine blades and aerofoils.
That includes around 40 roles that had been earmarked for redundancy, the union said. The number of compulsory redundancies last year round was 50, with the rest being either voluntary redundancy or redeployment.
It has also raised £7.3bn to survive the pandemic through tapping up shareholders and borrowing from the Bank of England, with plans to raise at least £2bn from selling off some parts of the business.
Warren East, chief executive of Rolls-Royce, said: “I would like to thank everyone at Rolls-Royce for their hard work, dedication and sacrifice to help secure the group’s future.
“The impact of the Covid-19 pandemic on the group was felt most acutely by our civil aerospace business. In response, we took immediate actions to address our cost base, launching the largest restructuring in our recent history, consolidating our global manufacturing footprint and delivering significant cost reduction measures.
“We have taken decisive actions to enhance our financial resilience and permanently improve our operational efficiency, resulting in a regrettable, but unfortunately very necessary, reduction in the size of our workforce. With the support of our stakeholders we successfully secured additional liquidity with a rights issue, bond issuance and further credit facilities put in place during the year.”
READ MORE: Rolls-Royce in move to raise up to £5bn as Scotland job cuts ongoing
He said the firm had made a good start on its programme of disposals, adding: “We continue to invest in developing market-leading technology and low carbon opportunities in all our end markets, to create value for our stakeholders and ensure we are well positioned to take advantage of the transition to a lower carbon economy and growing demand for more sustainable power solutions.”
Laura Hoy, equity analyst at Hargreaves Lansdown, said the Rolls-Royce results are “brutal”.
“No amount of cost-saving and restructuring was enough to offset massive declines in civil aerospace, the group’s largest division.”
She added that the civil aerospace arm, which accounts for nearly half of Rolls-Royce’s revenues, is set to be “bogged down by losses well into the future”.
Shares lifted 3% higher on optimism over the group’s cash flow outlook, but closed flat at 113.8p, ending up just 0.71%, or 0.8p.
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