The Rolls-Royce share price is under pressure as the first half adjusted operating loss was £1.67 billion, while equity analysts were expecting a loss of £191.8 million.
The reported loss before tax was £5.4 billion. The company’s troubles have been known well and in today’s update it revealed plans to help whip itself into shape. It delivered £350m in cost reductions, and that will help towards its target of £1bn in 2020.
Action needed to help Rolls-Royce's share price
The struggling engineering titan is reviewing its options in relation to beefing up its balance sheet, and it is looking into raising at least £2bn from asset sales, which would include spinning-off aerospace assets. Traders are likely to welcome the news of planned disposals, and the firm needs to take action with regards its financial health. The defence division remains in rude health so some aspects of the group are performing well.
It’s liquidity position stands at £6.1bn and it has £2bn in loans agreed for the second half so it should be able to ride out the near-term turbulence. Rolls Royce cautioned it still expects cash flow for 2021 to be significantly lower on a yearly basis. In the second half of 2020, it expects free cash outflow of £1bn, and an extra £400m will flow out from restructuring costs.
Ocado’s Duncan Tatton-Brown will replace Stephen Daintith as CFO – the new blood should help with the turnaround of the group.
Yet another hit for Rolls-Royce share price
The Rolls-Royce share price took a knock in early July on the back of its first half trading update, the coronavirus crisis promoted a lot of companies alter the way they report their numbers. Cost cutting has been crucial recently in light of the major pressure on the company because of the pandemic. Rolls-Royce lowered costs by £300m in the six month time frame, and it aims to cut another £700m by the end of the year. The pro-forma liquidity position stood at £8.1bn. The group had outward cash flow of £3bn and it said another £1bn would flow out in the rest of the year. Traders fixated on the outward cash flow, but Rolls-Royce said that cash consumption should decline sharply in the next couple of years.
It has been a tough few years for the group as the issues with the Trent 1000 engine weighed on the stock price, and more recently, the XWB-84 engine has had problems too. The aviation industry essentially ground to halt a few months ago, and even though things have improved, airlines are operating at a much lower capacity that they were one year ago. The ripple out effect has been terrible for Rolls-Royce, who announced a £1.5bn rights issue at the end of last month.
In early August, it was revealed that ValueAct, a US hedge fund, sold off its stake in the group. The investment firm built up a 10% position in the Rolls-Royce, which made it the largest shareholder in the company. It’s not a good look when your biggest investor walks away from you, as it suggests they have had enough of the underperformance, and now they want to cut their losses.
The Rolls-Royce share price has been struggling for over a year but the pandemic has greatly accelerated the negative move. Between February 2019 and 31 December 2019, it dropped by 32% but, year-to-date, Rolls-Royce share price is down over 60%. It has been pushing higher throughout August, but while it holds below the 240p area, it might retest the recent lows.