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11 Mar 2021 | 07:02

Rolls-Royce targets cash flow revival after £4bn loss

(Sharecast News) - Rolls-Royce said it expected to turn cash flow positive in the second half of 2021 as the engine maker reported a £4bn annual loss that was worse than expected. The company swung to a £4bn underlying pretax loss in the year to the end of December from a £583m profit a year earlier as underlying revenue fell to £11.8bn from £15.5bn.

Analysts had on average expected a £3.1bn underlying pretax loss. The group's reported operating loss widened to £2.1bn from £852m.

Rolls-Royce burned through £4.2bn of cash in 2020. The company predicted it would take a further £2bn cash flow hit in 2021 but that free cash flow would turn positive in the second half and reach at least £750m as early as 2022.

Rolls-Royce's civil aerospace business was hammered by the Covid-19 crisis as the airline industry faced the greatest emergency in its history. The business makes most of its money from payments based on the flying hours of its jet engines and with fleets grounded worldwide revenue crumbled.

The operating loss included £1.4bn of impairments and write-offs, £489m for restructuring, and a £620m provision release on the Trent 1000 engine programme. The pretax loss also included a £1.7bn for a foreign exchange hedge book reduction.

Rolls-Royce said it cut about 7,000 jobs during 2020 and cut more than £1bn extra costs compared with pre-pandemic plans. The group raised £7.3bn of debt and equity to survive including £2bn from a rights issue.

Chief Executive Warren East said: "The impact of the Covid-19 pandemic on the group was felt most acutely by our civil aerospace business. 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."

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