Coronavirus Update

Rolls-Royce Holdings Plc - Full Year Results

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2020 Full Year Results

Decisive and effective actions to address challenging market conditions

·       Severe impact of COVID-19 pandemic on Group performance and near-term outlook

·       More than £1bn saved in 2020 from in-year cash mitigations, compared to pre-COVID plans

·     Strengthened liquidity to £9bn and protected financial position with £7.3bn of new debt and equity and launched programme to raise at least £2.0bn from disposals

·       Strong progress on fundamental restructuring programme; around 7,000 roles removed in 2020

·     Targeting free cash flow (FCF) to turn positive during second half 2021 and at least £750m as early as 2022, dependent on the pace of the recovery in engine flying hours and underpinned by the restructuring programme

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. 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."

Group financial performance


Reported 2020

Reported 2019

Underlying 2020

Underlying 2019






Gross (loss)/profit





Operating (loss)/profit





(Loss)/gain on acquisition/disposal



Net losses on closing over-hedged position 1


Other financing costs





(Loss)/profit before taxation










(Loss)/profit for the period





(Loss)/earnings per share (pence) 2














Group free cash flow (FCF)





Reported movements in net funds





Net (debt)/cash (ex. leases)





1   Underlying financing charge of £1,705m reflects the cost of closing $11.8bn over-hedged £/US$ position across 2020-26 (£1,689m) and cost of closing over-hedged jet fuel position in 2020 (£16m). £202m of the cash cost was realised in 2020 with £1,503m cash cost across 2021-26.

2 2019 EPS restated to reflect the impact of the 2020 rights issue

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

Our 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 our end markets. A positive albeit reduced contribution from Power Systems and growth in Defence were important to the Group's overall performance, partly offsetting the severe impact to our 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 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.

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.

2020 Business unit performance summary

£ million



Organic  change 1


operating (loss)/profit

Organic  change 1

Civil Aerospace





Power Systems 2










ITP Aero





Corporate / eliminations





Non-core business





Total Group





1  Organic change at constant translational currency (constant currency) applying 2019 average rates to 2020 and excluding M&A. All commentary is provided on an organic basis unless otherwise stated.

2  The underlying results for Power Systems for 2019 have been restated to reclassify Bergen Engines AS and the Civil Nuclear Instrumentation and Control business as non-core.

Responding to the impact of COVID-19

We reacted quickly to the outbreak and rapidly implemented a number of proactive safety measures, in line with local and national guidelines, which helped us to protect our people and ensure continuity of our operations. We also increased our focus on employee mental health and wellbeing through our Employee Assistance Programme and additional resources. Additionally, we have supported the countries and communities in which we operate, providing practical assistance including support with PPE supply, ventilator production and educational tools. Furthermore, we launched the Emergent Alliance, a global community that uses data analytics to assist the global recovery.

To help mitigate the financial impact of COVID-19, we promptly implemented a number of cash cost saving actions to reduce our cash outflow in 2020. These included tighter controls on all discretionary expenditure and a 10% salary reduction for senior managers and executives. Our early response, with many of these measures in place by April, enabled us to achieve more than £1.0bn in-year cash cost savings for 2020 compared to our pre-COVID-19 expectations.

The impact of COVID-19 on international travel significantly altered the near and medium-term outlook for civil aviation. In May 2020 we launched a major restructuring programme to fundamentally re-size the cost base and capital requirements of our Civil Aerospace business. In total we expect the restructuring to lead to the reduction of at least 9,000 roles by the end of 2022, most of which are in Civil Aerospace. By the end of the year, approximately 7,000 permanent and contractor roles had been removed with a significant proportion achieved through voluntary severance and natural attrition. Through these role reductions and a continued focus on costs, we expect to reduce our operating costs and capital spend by £1.3bn versus 2019 levels, with full run-rate savings realised by the end of 2022.

In 2020, $500m of bonds matured and we secured £7.3bn of additional debt and equity funding to strengthen our liquidity. Our strong liquidity position ensures that, even in a severe but plausible downside scenario (page 25) we have enough funding for our operations, business development and near-term debt maturities. In addition, in March 2021 we secured approvals for a £1.0bn increase, which we intend to leave undrawn, to the existing £2.0bn term-loan facility supported by an 80% guarantee from UK Export Finance. We are targeting at least £2.0bn from disposals by early 2022 and have already announced agreements to sell our Civil Nuclear Instrumentation and Control and Bergen Engines businesses. We expect the proceeds from the rights issue in 2020, together with business disposals and cash generated from operations over the next few years, to help us to return to a net cash position in the medium term.

Our recovery expectations

Our diversified portfolio helped to protect the Group's performance during the COVID-19 crisis, with support from governmental end-markets in Power Systems and Defence in particular. Looking ahead over the next couple of years, we are encouraged by the outlook for vaccinations and testing and we expect the rebound in global GDP and lifting of travel restrictions to drive our recovery.

Although the pace and timing of the air travel recovery remains outside our control, we have acted quickly to reset our cost base, particularly in Civil Aerospace, to deliver improved returns and greater operational efficiency. Our large engine LTSA flying hours (EFH) in 2021 are expected to increase to around 55% of 2019 levels (2020: 43%) with an acceleration in the second half as global vaccination programmes enable travel restrictions to be lifted. In 2022, our base case is for EFH to reach around 80% of 2019 levels (previously 90%). Large engine deliveries are expected to remain at the current lower levels for the next few years.

In Power Systems, the shorter-cycle nature of its business means that many of its end markets are expected to recover from the effects of the pandemic by the end of 2021 supporting our expectation that our revenues will be back to 2019 levels by 2022. In addition, our success in China is enabling us to continue to expand our business and win market share. Beyond 2021, we expect structural growth to be driven by global economic activity and the shift towards more sustainable, lower carbon power solutions, most notably hybrid-electric and hydrogen solutions as well as microgrids.

Our Defence business has a strong order book providing good visibility, with around 90% order cover for 2021, and steady growth into the medium term. With an installed base of more than 16,000 engines, we see potential to expand our aftermarket services with through-life upgrades for existing products. We expect broadly stable Defence revenues in the medium term, with strong cash conversion. Defence has substantial new programme opportunities, with good prospects in the US that could generate more than $7bn of lifetime revenue. We are also a key member of the Tempest programme in the UK.

Well positioned for the future

Despite the challenges we faced in 2020, we continued to invest organically and acquisitively in new opportunities, focused on technologies which enable our net zero carbon ambitions as the pace of adoption of low carbon solutions accelerates.  

In 2020, approximately 7% of our research and development (R&D) spending was related to low carbon technologies (2019: 4%) and 38% towards next generation engine development with the remainder spent on delivering or enhancing our current product portfolio. The engine programmes we launched in recent years are now maturing and our investment priorities are pivoting towards lower carbon solutions as well as a more equitable balance across our business units. We intend to dedicate approximately 20% of our annual R&D expenditure to low carbon solutions including small modular reactors (SMRs), hybrid, hydrogen and electric power technologies, by 2023.

We publicly affirmed our ambition to enable the sectors we serve to achieve net zero carbon by 2050 when we joined the UN Race to Zero campaign in 2020.

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.