Aerospace engineer Rolls-Royce (RR.) is hoping to raise up to £2 billion through assets sales in an attempt to shore up its shredded balance sheet after reporting massive half-year losses thanks to the impact of the Covid pandemic.
The aerospace and engineering company reported a pre-tax loss of £5.4 billion, including a £2.6 billion hit from foreign currency hedges.
SHARES AT 2003 LEVELS
Rolls’ shares plunged by around 10% in early trading before declines eased back to roughly 6% at 237.48p, but it still leaves the stock as the worst performer on the FTSE 100 on Thursday.
It leaves the stock below the March Covid sell-off lows and barely above its 230p floor earlier in August. The share price hasn’t been this deflated since 2003.
The underlying pre-tax loss was £3.2 billion, while Rolls reported asset write-offs worth £1.1 billion and £366 million in restructuring charges. This was partly offset by a £498 million one-off credit on the Trent 1000 programme.
Underlying revenue of £5.6 billion was down 24% compared to the first-half of 2019.
URGENT NEED FOR CASH
‘The smoke signals from Rolls-Royce have been fairly clear - it needs to do something to prop up its balance sheet and market speculation has long pointed towards a very large equity raise’, said AJ Bell’s investment director Russ Mould.
The company continues to say it is weighing up options but there is nothing concrete about a rights issue in today’s news. In June the rating on the company’s bonds was cut to junk status.
Rolls-Royce has been forced to cut 4,000 jobs worldwide in an attempt to slash £1 billion of costs, but the company continues to talk about the ‘timing and shape’ of any airline industry recovery from the pandemic remaining uncertain.
Rolls would probably be better off pushing the button on an equity cash call now rather than letting the current funding uncertainty linger.
As AJ Bell’s Mould says: ‘Asset sales will help Rolls-Royce in the short-term and it will also save money through large job cuts. But it is clearly going to be a tough road ahead, which might explain why chief financial officer Stephen Daintith is jumping ship to Ocado (OCDO) where the growth opportunities are plentiful.’
