Rolls-Royce sticks to guidance as wait for travel restart continues
Engineer Rolls-Royce this morning maintained that it would return to positive free cash flow in the second half of 2021 as vaccinations kick in and travellers return to the skies.
In a trading update this morning, the blue-chip stock said that its performance so far this year to had been in line with expectations.
It comes after a dire year for the firm, which derives a healthy chunk of its revenues from the number of hours for which airlines use its engines.
With travel all but ceasing last year, the firm’s revenues dried up, prompting Rolls-Royce to take a number of steps to survive.
It said that it was progressing well with its £2bn disposal plan, and had an “encouraging number of interested parties” for ITP Aero, which could raise €1.5bn on its own.
Over the first four months of 2021, Rolls-Royce said that large engine flying hours were around 40 per cent of pre-pandemic levels, in line with its expectations. Good progress was also being made with a cost-cutting plan, the company added.
Chief executive Warren East said: “Looking ahead, we are confident that the significant restructuring actions we have taken in 2020 will deliver permanent cost reductions, positioning us well for the rebound in international air travel.”
Shares in the firm dropped 1.7 per cent as markets opened today.
CMC Markets chief analyst Michael Hewson said that despite the positive overtones investors would be concerned as to whether air travel would return as quickly as Rolls-Royce needs.
“Today’s numbers bear that out with Rolls Royce saying that in the first four months of 2021, large engine flying hours were at 40 per cent of 2019 levels, supported by demand for cargo as well as the maintenance of key routes”, he said.
“While Rolls Royce management have said that this is in line with their planning assumptions for this year, and that expectations for this year remain on track, it would appear to rely on there being a significant uptick in the remaining 8 months of this year to hit that 55% level that was outlined a few months ago.
“This remains a big ask given that any return to significantly higher levels of flying hours is likely to take at least another two months or so given the slow pace of reopening that is currently being seen.
“As economies start to reopen for the summer season, we can expect to see some improvement in the overall number of engine hours flown, however as events in India, and other parts of the world have shown, the virus has continued to wreak havoc.”