Rolls-Royce falls to huge loss

Aero-engine maker Rolls-Royce recorded a £5.4bn half-year loss as the collapse in air travel wiped out demand for its engines.

Rolls-Royce engineer © Rolls-Royce
(Image credit: Rolls-Royce engineer)

Last week Rolls-Royce warned that its future “could be at risk” after it plunged to a record £5.4bn half-year loss, says Simon Foy in The Daily Telegraph. It says the collapse in air travel has crushed demand for its engines. So it has signalled its intention to raise £2bn from asset sales, including its ITP Aero division, which makes turbine blades for jet engines.

Meanwhile, the firm’s chief financial officer, Stephen Daintith, is leaving to join online grocer Ocado. Daintith’s move looks “rational” given the “ugly” short-term outlook, says Nils Pratley in The Guardian. What’s more, Rolls-Royce’s stock has fallen to a near-ten year low while its debt is “rated as junk”.

Still, it shouldn’t panic just yet. Not only can it sell assets, but it also “still has some room to borrow”. So while the firm’s share price remains“hostage to Covid-19 infections”, and shareholders may be forced to contribute in the form of a rights issue, the group is likely to “muddle through”.

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An immediate rights issue might be a better option than selling off key assets, says Ed Cropley on Breakingviews. Asset sales may please creditors, but they will leave the company with a “permanent limp”. As far as ITP Aero is concerned, there is unlikely to be a “seller’s market” for an asset whose operating profit slid by more than two-thirds in the last six months. “And in terms of corporate synergies, losing a maker of jet-engine turbines inside a maker of jet engines sounds very unhelpful.” Selling the family silver “only works if you’ve got something else to eat of

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

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