Rolls-Royce Holdings PLC is scrapping its targets and final dividend to shore up its finances as the British aero-engine maker’s customers around the world ground planes due to the COVID-19 pandemic.
Rolls-Royce, one of Britain’s most historic industrial names, which before the pandemic struck was trying to emerge from a multiyear turnaround plan, has suspended its dividend for the first time since 1987.
The company’s engines power Airbus SE and Boeing Co’s widebody jets, but more than 60 percent of that fleet is now grounded, according to aviation data provider Cirium.
Rolls-Royce is paid by airlines based on how many hours they fly.
Over the past six weeks, the headwind from the novel coronavirus was about ￡300 million (US$369 million) on flying hours that were 50 percent lower last month and expected to deteriorate further this month, Rolls-Royce said.
Rolls-Royce chief executive officer Warren East said that the company’s focus was on strengthening its financial resilience and as such it would be looking at cutting its cash expenditure, including reducing salary costs across its global workforce by at least 10 percent this year.
The company yesterday said that it had secured an additional ￡1.5 billion revolving credit facility, bringing its overall liquidity to ￡6.7 billion, to give it headroom during a potentially prolonged downturn.
Withdrawing its previously announced guidance for this year and noting the ongoing uncertain outlook, Rolls-Royce said that its board was no longer recommending its final dividend in respect of last year, saving ￡137 million.
The company said actions to reduce costs, including on non-critical capital expenditure projects, and salary cuts and deferrals for senior managers, would have a cashflow benefit of at least ￡750 million this year.
Rolls-Royce also warned that it was anticipating a reduction in engine delivery, and maintenance and overhaul volumes, affecting its revenue in the longer term.
The group’s power systems business, which supplies industrial customers, is expected to weaken this year, the company said.
Jefferies Group LLC analyst Sandy Morris said that Rolls-Royce’s update should give investors confidence in the company’s ability to cope with the downturn.
“There is plenty of liquidity. There are no worrying developments,” Morris said.
Shares in Rolls-Royce were up 13 percent at ￡2.84 in early trading. The stock has lost 55 percent over the past month.
Rolls-Royce relies on aerospace for just over half of its annual revenue, which was about ￡15 billion last year, deriving the rest from its defense and power systems businesses.
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