Rolls-Royce, a UK icon that may become a UK tragedy
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When the employees of Rolls-Royce Holdings read that coronavirus lockdowns and home-working have ignited a technology boom, they could be forgiven for weeping.
The company makes the jet engines that power large passenger jets, which is one of the most technically complex engineering tasks known to man. And yet, most of Rolls-Royce’s products are grounded right now because hardly anyone’s flying.
On Thursday the British manufacturer revealed the devastation inflicted on its business by Covid-19 travel restrictions: the £5.4bn loss for the six months to end-June was one of the biggest profit shortfalls in UK corporate history.
A separate announcement that Rolls-Royce’s CFO, Stephen Daintith, is jumping ship to Ocado Group, an online grocer, compounded the gloom. It’s depressing that e-commerce is seen as a better destination than advanced engineering.
But you can’t blame Daintith for grabbing a parachute. Ocado’s shares have doubled this year, valuing the company at almost £19bn. Rolls-Royce — the pride of British manufacturing — is worth a quarter of that, having lost two-thirds of its value in eight months. Technology companies aren’t all equal in this market.
Incredibly, the £5.4bn loss wasn’t even the most troubling number in Rolls-Royce’s financial statement. Its balance sheet liabilities now exceed its assets by £8bn. This partly reflects big swings in the value of currency derivatives, rather than the underlying health of the business. Nevertheless, the massive net liabilities are by far the largest of any European company, according to Bloomberg data.
It’s a terrible look for a company that spends years developing new engines, and then makes most of its money from long-term service agreements. Customers need to be confident that it will be around to meet those maintenance obligations.
While Rolls-Royce’s airline customers have their own pandemic problems, they’ve good reason to worry about the financial health of a key supplier. When the coronavirus crisis is over, Rolls-Royce will need to invest heavily in new technology that cuts carbon emissions. It doesn’t have the balance sheet to do that.
There’s enough money to keep the lights on for the next 12 months, including £8bn of cash and undrawn credit facilities. But if there’s a second virus wave that prevents airlines from resuming long-haul flying, things might get tight in the UK autumn of 2021, when Rolls-Royce must repay or replace a £1.9bn revolving credit facility.
The accounts include a warning of material uncertainty over whether the company ...
The company makes the jet engines that power large passenger jets, which is one of the most technically complex engineering tasks known to man. And yet, most of Rolls-Royce’s products are grounded right now because hardly anyone’s flying.
On Thursday the British manufacturer revealed the devastation inflicted on its business by Covid-19 travel restrictions: the £5.4bn loss for the six months to end-June was one of the biggest profit shortfalls in UK corporate history.
A separate announcement that Rolls-Royce’s CFO, Stephen Daintith, is jumping ship to Ocado Group, an online grocer, compounded the gloom. It’s depressing that e-commerce is seen as a better destination than advanced engineering.
But you can’t blame Daintith for grabbing a parachute. Ocado’s shares have doubled this year, valuing the company at almost £19bn. Rolls-Royce — the pride of British manufacturing — is worth a quarter of that, having lost two-thirds of its value in eight months. Technology companies aren’t all equal in this market.
Incredibly, the £5.4bn loss wasn’t even the most troubling number in Rolls-Royce’s financial statement. Its balance sheet liabilities now exceed its assets by £8bn. This partly reflects big swings in the value of currency derivatives, rather than the underlying health of the business. Nevertheless, the massive net liabilities are by far the largest of any European company, according to Bloomberg data.
It’s a terrible look for a company that spends years developing new engines, and then makes most of its money from long-term service agreements. Customers need to be confident that it will be around to meet those maintenance obligations.
While Rolls-Royce’s airline customers have their own pandemic problems, they’ve good reason to worry about the financial health of a key supplier. When the coronavirus crisis is over, Rolls-Royce will need to invest heavily in new technology that cuts carbon emissions. It doesn’t have the balance sheet to do that.
There’s enough money to keep the lights on for the next 12 months, including £8bn of cash and undrawn credit facilities. But if there’s a second virus wave that prevents airlines from resuming long-haul flying, things might get tight in the UK autumn of 2021, when Rolls-Royce must repay or replace a £1.9bn revolving credit facility.
The accounts include a warning of material uncertainty over whether the company ...