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Rolls-Royce slumps to £4bn annual loss due to COVID-19

The Rolls Royce XWB engine assembly line at the Rolls-Royce's aero engine factory in Derby.
The Rolls Royce XWB engine assembly line at the Rolls-Royce's aero engine factory in Derby. Photo: PA (PA)

Engineering giant Rolls-Royce (RR.L) has posted a mammoth £4bn ($5.6bn) loss for 2020 after the COVID-19 pandemic devastated its aviation business.

Rolls-Royce, which makes and services engines for aeroplanes, said it made an underlying loss of £3.95bn last year as revenue dropped by almost a third to £11.7bn. The company recorded a loss of £3.1bn on a reported basis and made an operating loss of £2.1bn.

Chief executive Warren East said 2020 was "an unprecedented year" and the impact of COVID-19 was "felt most acutely by our Civil Aerospace business." The grounding of planes around the world led to plummeting demand for both new engines and the servicing of existing ones, which is where Rolls-Royce makes most of its money.

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READ MORE: Rolls-Royce to cut at least 9,000 jobs

Rolls-Royce's civil aviation arm lost £2.5bn last year, which offset small profits at its power systems and defence businesses.

Last May, Rolls-Royce announced plans to cut 9,000 jobs as part of a painful restructure to stem losses. East said on Thursday the decisions was "regrettable, but unfortunately very necessary."

More than £4bn left the business last year. Rolls-Royce said it was targeting free cash flow generation by the middle of this year.

READ MORE: Rolls-Royce job cuts a 'body blow' to town where turbojets born

Jack Winchester, an analyst at Third Bridge, said the cash outflow "really does bring into focus the deep pain caused by the pandemic."

"This is a business which has been producing positive cash flows in the hundreds of millions basically since the turn of the millennium," he said. “With a painfully large cash burn rate, all eyes will be on the fledgling air travel recovery people are hoping for."

Despite the large annual loss, revenue was slightly ahead of City forecasts and analysts were buoyed by the forecast of a return to free cash flow. Shares rose over 3% to top the FTSE 100 (^FTSE).

Rolls-Royce shares jumped on the annual numbers. Photo: Yahoo Finance UK
Rolls-Royce shares jumped on the annual numbers. Photo: Yahoo Finance UK (Yahoo Finance UK)

"We have made a good start on our programme of disposals and will continue with this in 2021," East said.

"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."

Michael Hewson, chief market analyst at CMC Markets, said: "The company still isn’t out of the woods yet, announcing that it is likely going to have shut its factories in the summer for two weeks to help stem the losses."

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