Rolls-Royce has reported a “good start to the year with improving cash flow and profits from continuing operations”. For the first six months of 2021, the engine manufacturer reported revenue of £5.2bn with underlying operating profit of £307million, up from a £1.63bn loss in 2020 H1, mainly due to cost savings from the restructuring programme, primarily in civil aerospace.
Rolls-Royce has a negative free cash flow of £1.174bn, which is significantly better than prior year with negative cash flow of £2.86bn. Rolls-Royce states that this will improve to negative £2bn at the end of this financial year thanks to expected savings of around £1bn by the end of the year. The company also has a strong liquidity position with no maturities before 2024.
Rolls-Royce reports an overall improvement in its civil aerospace division, with a recovery in business aviation and domestic large engine flying activity together with the substantial cost savings. Large engine LTSA flying hours were 43% of the 2019 level, up from the 34% in H2 2020; 92 large engine major shop visits were completed and 100 large engines were delivered.
Civil aerospace revenue rose to £2.168bn with an underlying profit of £39 million.
“Our continued focus on the elements within our control, together with a good performance from Defence and order intake recovery in Power Systems have enabled us to deliver solid progress in the first half,” said chief executive Warren East. “The benefits of our fundamental restructuring programme in Civil Aerospace are evident in our reduced cash outflow and improved operational efficiency. This leaner cost base together with a strong liquidity position gives us confidence in our ability to withstand uncertainties around the pace of recovery in international travel and benefit from the eventual rebound. We are making disciplined investments in the new opportunities to drive future growth, particularly in net zero power where we are leading the way with innovation and engineering excellence. Our net zero pathway and targets, announced in June, set out our plan to enable the sectors in which we operate achieve net zero by 2050 by driving step-change improvements in engine efficiency, helping accelerate the take-up of sustainable fuels and developing new technologies."
Rolls-Royce retains a strong liquidity position with £7.5bn of liquidity including £3.0bn in cash at the end of the half year after repaying the 2021 €750m loan notes and the £300m Covid Corporate Financing Facility (CCFF) loan in the first half. Net debt (before leases) was £3.1bn at the period end. This week the Group has signed an extension to the 2022 £1bn unused loan facility to 2024, consequently the Group has no debt maturities before 2024 (excluding ITP Aero).
Rolls-Royce has confirmed recent speculation in the media about a possible sale of ITP Aero, stating that it has decided to enter into exclusive discussions with a consortium led by Bain Capital on a potential sale of the business. But adds that “there can be no certainty that an agreement will be reached”. Rolls-Royce announced its intention to sell ITP Aero in August 2020.
Looking ahead, Rolls-Royce states that it is confident that when border restrictions are lifted the recovery of international travel will accelerate, adding that free cash flow of at least £750m (before disposals) is still achievable in a 12-month period.
In June, Rolls-Royce announced its net zero pathway setting short and medium-term targets to reach net zero carbon by 2050. To achieve this, the company is developing new technologies, enabling an accelerated take-up of sustainable fuels and driving step-change improvements in fuel efficiency, within aviation, shipping and power generation. By 2030, Rolls-Royce plans to make all new products compatible with net zero and by 2050 all products in operation will be compatible.