Rolls-Royce Plans GBP2 Billion Disposals to Boost Balance Sheet -- Update
August 27 2020 - 5:09AM
Dow Jones News
By Anthony O. Goriainoff
--Rolls-Royce is reviewing options to strengthen balance sheet,
including making GBP2 billion of disposals
--The company posted a first-half pretax loss of GBP5.37 billion
and expects 2020 underlying revenue to be down 25% to 30%
--Rolls-Royce said it continues to expect GBP4 billion cash
outflow this year
--The engine maker said it will require additional funding if
its base-case scenario occurs
Rolls-Royce Holdings PLC said Thursday that it has identified up
to 2 billion pounds ($2.64 billion) of potential disposals over the
next 18 months as it seeks to shore up its balance sheet, while it
continues to bleed cash.
The British aircraft-engine maker--which has been hurt by a
collapse in demand for its civil-aerospace business due to the
coronavirus pandemic--said it is reviewing a number of options to
strengthen its balance sheet that could include a combination of
debt, equity as well as money raised from disposals.
Rolls-Royce said it expects cash outflow for the year to be GBP4
billion and that net debt will increase significantly by the end of
2020. It had debt of GBP1.7 billion at June 30.
The company said it has started a number of initiatives to
return to positive free cash flow from the second half of next
year, with a sustained cash flow from 2022.
Rolls-Royce warned that the timing of recovery of commercial
aviation to pre-pandemic levels and the availability of sufficient
funding indicated "the existence of material uncertainties that may
cast significant doubt about the group's ability to continue as a
going concern."
The company said its GBP1.9 billion revolving credit facility is
due to expire in October 2021, and that its base-case scenario
calls for additional funding of a similar amount to maintain
sufficient liquidity from then on.
Rolls-Royce said that in the event of a second wave of the
coronavirus pandemic, and its plausible downside scenario is
reflected, the company would require additional funding over and
above the revolving credit facility through a combination of debt,
equity and the proceeds from the business disposals.
The company said it has identified a number of potential
disposals, including Spanish engine and turbine maker ITP Aero, as
well as a number of other assets. As part of its restructuring
plan, Rolls-Royce said more than 4,000 people in its civil
aerospace division had left the business and that it expects at
least a further 5,000 across the company to leave by the end of the
year. This includes more than 2,500 voluntary-severance and
early-retirement agreements in the U.K., it said.
The company posted a pretax loss of GBP5.37 billion for the
first half of the year, compared with a loss of GBP791 million for
the same period of 2019.
Rolls-Royce said this was partly due to a GBP2.6 billion
non-cash loss stemming from the revaluation of its foreign-exchange
hedge book.
Revenue was GBP5.82 billion compared with GBP7.88 billion for
the year-prior period. Rolls-Royce said that it expects full-year
revenue to be 25%-30% below last year's level of GBP15.45 billion,
and believes revenue will be back to 2019 levels in 2022.
The board hasn't declared an interim dividend in order to
preserve cash.
Shares at 0840 GMT were down 24 pence, or 9.5%, at 229.20
pence.
Write to Anthony O. Goriainoff at
anthony.orunagoriainoff@dowjones.com
(END) Dow Jones Newswires
August 27, 2020 04:54 ET (08:54 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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