“Our current financial position and liquidity remain strong,” Rolls-Royce stressed without elaborating, adding it will “make a further announcement if and when appropriate.”
The British government has a ‘golden share’ in Rolls-Royce and would hence need to consent to any takeover. Market observers note it is “highly unlikely” that Prime Minister Boris Johnson would rubber stamp such a deal given Rolls-Royce’s history and strategic importance to the British economy.
Drawdown on £2.5bn credit line
CEO Warren East already proposed a “major reorganisation” saying the impact of COVID-19 on Rolls-Royce and the whole of the aviation industry is “unprecedented.” Since then the company has taken action to strengthen the financial resilience of our business and reduce cash expenditure in 2020.
In April, Rolls-Royce decided to draw fully on a £2.5 billion revolving credit facility to “ensure cash headroom” in the event of a prolonged reduction in trading activity due to the Covid-19 outbreak. The company’s gross cash balance is now £5.2 billion, the company said at the time, and an additional credit has been lined up to bring overall liquidity to £6.7 billion.
Cutting jobs and capital spending
In May, Rolls-Royce announced the restructuring that will see the loss of at least 9,000 roles from our global workforce of 52,000. “This is not a crisis of our making. But it is the crisis that we face and we must deal with it,” Mr. East commented. “Being told that there is no longer a job for you is a terrible prospect and it is especially hard when all of us take so much pride in working for Rolls-Royce,” he added.
The proposed reorganisation is hoped to generate annualised savings of more than £1.3 billion, of which the reduced headcount will contribute around £700 million. The cash restructuring costs related to these actions are likely to be around £800 million, the company specified with outflows incurred across 2020 to 2022.
Turing to clean energy business
Remaining positive, the Rolls-Royce CEO said the strategic choices made over the last few years leave the company well placed to capitalise on the long-term potential of the markets it is active in - aviation and power generation.
“The world on the other side of this pandemic will need the power that we generate to fuel economic recovery. I absolutely believe the call for that power to be more sustainable will be stronger than ever,” Mr. East said, stressing the company’s need to innovate as the industry moves to net-zero carbon emissions.