Rolls-Royce has reported that trading in December and for 2020 was “broadly in line with expectations across all business units”, noting that for the full year 2020, the manufacturer achieved cash cost savings of more than £1bn and ended the year with £9bn liquidity, which is at the upper end of the previously guided range.
Although Rolls-Royce lauds the continued progress on vaccination programmes as “encouraging for the medium-term recovery of air traffic and economic activity”, for the near-term the manufacturer expects the variants of the virus to create additional uncertainty that will delay the recovery of long-haul travel. As a result, Rolls-Royce expects its financial forecasts to remain “highly sensitive” to changes in external conditions and, although cost cuts will continue, it expects a free cash outflow in the region of £2 billion in 2021. This is based on 2021 widebody engine flying hours at around 55% of 2019 levels (compared to the base case of 70% presented on 1 October 2020).
“Though significant uncertainty remains over the precise shape and timing of the recovery in air traffic and the phasing of engine (OE) concession payments, free cash outflow this year is forecast to be heavily weighted towards the first six months. We continue to expect to turn cash flow positive at some point during the second half, reflecting our forecasted profile of flying hours as they recover from today’s low base.”
Despite the gloomy outlook for the first half of 2021, Rolls-Royce remains confident that its high liquidity levels, positions the company well to weather the current market conditions. “We remain focused on completing our restructuring programme and footprint consolidation as well as maintaining cost control and capital discipline. During 2020 we removed around 7,000 roles, making good progress towards our target to remove at least 9,000 roles by the end of 2022. This restructuring will be a key enabler of our target to deliver at least £750 million of free cash flow (excluding disposals) as early as 2022, contingent on the expected recovery in engine flying hours.”
Rolls-Royce will report its 2020 Full Year results on 11 March 2021. Rolls-Royce shares dipped by 10% on the news recovery to a 4% drop by late morning in London on Tuesday 26 Jan.