Rolls-Royce closed the first nine months of 2022 with £2.0bn cash along with £5.5bn in undrawn committed facilities. This included a £1bn five-year sustainability-linked loan, supported by an 80% guarantee from UK Export Finance (UKEF).
In September 2022, Rolls-Royce completed the £2bn programme of disposals with the sale of ITP Aero for €1.6bn and repaid the £2bn UK Export Finance-backed loan due in 2025. The thecompany has approximately £4bn of drawn debt outstanding.
Rolls-Royce recovered about 65% of 2019 levels in the four months to the end of October 2022 for large engine flying hours. According to the company, this reflects uneven recovery around the world, with stronger recovery in the US and Europe but lower travel in China and Asia due to ongoing Covid measures. Engine flying hours in Business Aviation remained strong and above the 2019 level year to date while Regulatory clearance for Boeing’s 787 aircraft has enabled aircraft deliveries to resume, and the concession balance is starting to unwind as expected, the company said in a release.
Chief Executive Warren East said: “The continued recovery in large engine flying hours, record order intake in Power Systems, and resilience in the Defence business give us confidence in the future. Our more agile operations and sustainably lower cost base position us well for the uncertain pace of the recovery from the pandemic, market volatility, and changes in economic conditions. We continue to focus on operational execution and delivering on our commitments and we have maintained our Group financial guidance for 2022.”
The company is planning a higher volume of large spare engine sales in 2022 and for the next few years, versus the typical range of 10-15% of total OE deliveries, with plans to grow the pool of spare engines to underpin fleet health and improve resilience. “Inflation-linked customer contracts and procurement agreements are supporting long-term service agreement (LTSA) margins, improving profitability in Civil Aerospace. This creates a positive contribution from contract catch-ups in 2022,” the company added.
“Our expertise and strong positions in established markets and investment in New Markets place us well to pursue decarbonization, net zero, and evolutionary technologies that can create substantial long-term economic and social value. Disciplined capital allocation will continue to be pivotal in our New Markets ventures as we invest in the technologies of the future. The completion of our disposal program with the sale of ITP Aero has enabled us to repay £2bn of debt. This marks a milestone recovery in the strength of our balance sheet and a clear step on our path back to investment grade in the medium term,” added Warren East.
In New Markets, Rolls-Royce continues to invest in technology to deliver on the transition to net zero.
Rolls Royce has agreed on a wage increase of 6.5% and an additional £1,500 payment with UK-represented staff. The company plans to recover the cost inflation through operational efficiencies as well as increased pricing. Supply chain pressures have led to higher levels of inventory, Rolls-Royce does not expect this to affect its ability to meet guidance and remain focused on delivering good cash conversion.
Going ahead, Rolls-Royce anticipates that the recovery in flying hours and a planned increase in spare engine sales will drive strong cash conversion, with operational cash expected to comfortably exceed the operating profit.