Rolls Royce-Sputtering back to life

by | Aug 5, 2021

Revenue in the first half fell 9% to $5.2bn, as declines in Civil Aerospace outweighed a stable performance in Power Systems and growth in Defence.

Rolls Royce swung from a £5.4bn loss in 2020 to profits of £393m, helped by cost savings achieved through the restructuring and a £280m tax credit.

The group still expects to turn free-cash positive in the second half, bringing the full-year free cash outflow to around £2bn.

The shares were up 1.9% following the announcement

Laura Hoy, Equity Analyst at Hargreaves Lansdown:

Despite booking a 9% revenue decline, Rolls Royce is on track to meet its full-year goal to turn free cash positive in the second half. Considering the group’s bread and butter is making and servicing engines for long-haul aircraft, that’s welcome news. Rolls admitted it will need passenger traffic to climb to at least 80% of pre-pandemic levels in order to meet its longer term targets and keep cashflow in the black.

This is somewhat unsettling, particularly when you look at the forecasts from  IAG last week, which expect passenger numbers to remain at less than half of normal levels in the third quarter.

Commercial aviation isn’t the only thing underpinning Rolls’ operations, though. The group’s Defence business churned out solid growth and its restructuring plans are on track to deliver significant savings. We’re encouraged to see that ITP Aero is nearly out the door, allowing the group to sharpen its focus on more profitable arms of the business.

Rolls has done well considering the cards it was dealt and we’re encouraged by the progress that’s been made. But we’re mindful that Rolls can’t recover until the airlines recover, which could be some time yet.”

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