Covid Turbulence: Rolls-Royce Plunges to £4bn full-year loss

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Aerospace giant, Rolls-Royce swung to a £4bn loss in 2020, as the cost of Covid turbulence became clear. Rolls-Royce plunged to a loss of £4bn compared to a £306m profit in 2019 as the pandemic stopped airlines flying.

The firm’s underlying revenue also sunk to £11.7bn from £15.5bn the previous year.

Summary of 2020 financial performance and financial impact of COVID-19

The financial performance in 2020 was significantly affected by the COVID-19 pandemic. The global spread of the virus from March resulted in a sudden deterioration of some of its end markets.

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Covid Turbulence Rolls-Royce Plunges to £4bn full-year loss Brandspurng

A positive albeit reduced contribution from Power Systems and growth in Defence was important to the Group’s overall performance, partly offsetting the severe impact to Civil Aerospace business.

Cash flow

  • FCF of £(4.2)bn, reflecting deterioration in underlying performance as a result of the impact of COVID-19 on Civil Aerospace in particular, and a deterioration in working capital which included a £(1.1)bn impact from the cessation of invoice discounting.
  • Actions to reduce non-critical spend and payroll delivered more than £1bn of savings in a year compared to pre-COVID plans partly mitigating the impact of lower flying hour receipts.
  • Reported movement in net funds of £(2.9)bn was helped by £2.0bn inflow from the rights issue.

Underlying performance

  • Underlying revenue of £11.8bn reflected lower activity and included a £(1.1)bn revenue impact from Civil Aerospace LTSA contract accounting catch-ups.
  • Underlying operating loss of £(2.0)bn included £(1.3)bn of one-off charges largely due to COVID-19 comprising charges for LTSA catch-ups, contracts that have become loss-making in the year and customer provisions.
  • Underlying loss before tax of £(4.0)bn included a £(1.7)bn underlying finance charge related to the FX hedge book reduction, due to lower USD receipts in 2020 and forecast future years.
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Reported performance

  • Reported operating loss of £(2.1)bn included £(1.3)bn net exceptional charges, largely as a result of COVID-19, including £(1.4)bn from impairments and write-offs, £(489)m from restructuring, and a £620m exceptional provision release on the Trent 1000 programme.
  • A full reconciliation of reported results to underlying results is presented on page 6.

Financial and liquidity position at year-end

  • Liquidity of £9.0bn at year-end comprised £3.5bn cash and £5.5bn undrawn credit facilities.
  • A total of £7.3bn additional liquidity was secured during 2020, including £2.0bn rights issue and £5.3bn new credit through bonds, bank loan facilities and commercial paper.
  • Net debt of £(1.5)bn excluding leases (£(3.6)bn including leases).
  • Under the terms of recent loan agreements, we are restricted from making or declaring payments to our shareholders until after 31 December 2022. Regardless of these restrictions, the Board recognises that it would be inappropriate to make payments at this time due to the Group’s financial position.
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Warren East, Chief Executive said:

“2020 was an unprecedented year and I would like to thank everyone at Rolls-Royce for their hard work, dedication and sacrifice to help secure the Group’s future. The impact of the COVID-19 pandemic on the Group was felt most acutely by our Civil Aerospace business.

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In response, we took immediate actions to address our cost base, launching the largest restructuring in our recent history, consolidating our global manufacturing footprint and delivering significant cost reduction measures.

We have taken decisive actions to enhance our financial resilience and permanently improve our operational efficiency, resulting in a regrettable, but unfortunately very necessary, reduction in the size of our workforce.

With the support of our stakeholders, we successfully secured additional liquidity with a rights issue, bond issuance and further credit facilities put in place during the year. We have made a good start on our programme of disposals and will continue with this in 2021.

We continue to invest in developing market-leading technology and low carbon opportunities in all our end markets, to create value for our stakeholders and ensure we are well-positioned to take advantage of the transition to a lower-carbon economy and growing demand for more sustainable power solutions.”

Outlook and financial guidance

In this challenging environment, near-term financial forecasting is more difficult and the potential range of outcomes wider. Our expectations and targets are based on the pace of delivery of our fundamental restructuring programme and our current view of the shape and timing of the recovery.

  • We expect Group FCF in the region of £(2.0)bn in 2021, based on EFH at around 55% of 2019 levels, with the outflow weighted towards the first half before the Group turns cash flow positive at some point during the second half of the year.
  • Group FCF of at least £750m (excluding disposals) is achievable when EFH exceed 80%, on average, of 2019 levels for a 12-month period. We aim to reach this as early as 2022, underpinned by our cost reductions and management actions, however, the exact timing is dependent on the pace of air travel recovery.
  • Medium-term, we aim to return to a net cash position and an investment-grade credit position driven by free cash generation and our planned £2.0bn disposal programme.

The near-term outlook remains uncertain and highly sensitive to the developments of the COVID-19 virus and the related measures taken by governments around the world.

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Latest News

Strongest first quarter ever: Preliminary results of Deutsche Post DHL Group above market expectations

  • All divisions significantly increased EBIT in first quarter 2021; Group EBIT tripled to around EUR 1.9 billion
  • Free cash flow development continued positive trajectory and improved by more than EUR 1.4 billion to around EUR 1.0 billion
  • CEO Frank Appel: "The start into the new financial year was more dynamic than ever"

SINGAPORE - Media OutReach - 12 April 2021 - Deutsche Post DHL Group has today released preliminary results for the first quarter of 2021 and has raised the outlook for the current financial year. Preliminary operating profit (EBIT) for the first three months improved to around EUR 1.9 billion (Q1 2020: EUR 592 million). The positive development of the group's businesses seen in the fourth quarter 2020 has continued well through the first quarter 2021. In the first three months of the year the B2C shipment volumes remained high in all networks while the recovery in the B2B business continued.

"The start to the new financial year was more dynamic than ever. It proves that we have successfully geared our business to the right growth drivers. One year into the pandemic we experienced in the first quarter 2021 a sustained momentum in e-commerce and a significant stabilization in global trade with increasing air- and sea-freight volumes. Consequently all divisions reported a significant jump in earnings above market expectations. Global trade continues to recover and vaccine distribution is in full swing which makes me very optimistic for the rest of 2021 and beyond," said Frank Appel, CEO of Deutsche Post DHL Group.

All divisions optimally positioned for continuing e-commerce boom and growth in global trade

Express: The division reached an EBIT of around EUR 955 million in the first quarter 2021 compared to EUR 393 million in Q1 2020.

Global Forwarding, Freight: EBIT in Global Forwarding, Freight stood at around EUR 215 million in Q1 2021, clearly above previous year's Q1 of EUR 73 million.

Supply Chain: EBIT at Supply Chain came in at around EUR 165 million in the first quarter 2021 compared to EUR 105 million in Q1 2020.

eCommerce Solutions: eCommerce Solutions recorded a first quarter 2021 EBIT of around EUR 115 million, clearly above last year's Q1 result of EUR 6 million.

Post & Parcel Germany: EBIT in Post & Parcel Germany in Q1 2021 was around EUR 555 million (Q1 2020: EUR 334 million).

Earnings momentum mirrored in positive cash flow development and improved outlook

The continued positive business development is underpinned by a strong cash flow development; free cash flow amounted to around EUR 1.0 billion in the first quarter 2021. In Q1 2020 this figure was still negative at EUR -409 million.

In light of the strong earnings momentum, guidance for 2021 is adjusted as follows:

Group EBIT for 2021 is now expected to be significantly above EUR 5.6 billion (previous forecast: more than EUR 5.6 billion). Equally, the result for the DHL divisions is now seen significantly above EUR 4.5 billion (previous forecast: more than EUR 4.5 billion). EBIT for the Post & Parcel Germany division is no longer expected at around EUR 1.6 billion but above EUR 1.6 billion. The expectation of a Group Functions EBIT of around EUR -0.4 billion remains unchanged. Full year 2021 Free Cash Flow is now expected to be significantly above EUR 2.3 billion (previous forecast: around EUR 2.3 billion).

The Group will introduce a revised detailed guidance with the comprehensive disclosure for Q1 2021 which will be published as planned on May 5, 2021.

Deutsche Post DHL Group

Deutsche Post DHL Group is the world's leading logistic company. The Group connects people and markets and is an enabler of global trade. It aspires to be the first choice for customers, employees and investors worldwide. To this end, Deutsche Post DHL Group is focusing on growth in its profitable core logistics businesses and accelerating the digital transformation in all business divisions. The Group contributes to the world through sustainable business practices, corporate citizenship and environmental activities. By the year 2050, Deutsche Post DHL Group aims to achieve zero emissions logistics.

Deutsche Post DHL Group is home to two strong brands: DHL offers a comprehensive range of parcel and international express service, freight transport, and supply chain management services, as well as e-commerce logistics solutions. Deutsche Post is Europe's leading postal and parcel service provider. Deutsche Post DHL Group employs approximately 570,000 people in over 220 countries and territories worldwide. The Group generated revenues of more than 66 billion Euros in 2020.

The logistics company for the world.

Covid Turbulence: Rolls-Royce Plunges to £4bn full-year loss - Brand Spur
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