Rolls-Royce swings back to profit despite slow international travel recovery
Engine maker Rolls-Royce reported an operating profit of £307m in the first half of 2021, marking a significant improvement from the £1.6bn in losses a year ago.
The group said international travel would bounce back once restrictions are lifted, but warned recovery is “likely to occur beyond the initial expected timeframe of 2022.”
Shares had increased by around 3 per cent by mid-morning, at a total share price of 107.5.
Flying hours for large engines remained less than half 2019 levels, at 43 per cent, in the first half for its civil aviation business, the company’s biggest unit. This represents a nine per cent improvement compared to the second half of 2020. For business aviation engines and large engines on domestic routes, flying activity has already returned to 2019 levels.
Swift cost-cutting actions and disposal plans to raise capital have contributed to the strengthening of its pandemic-stricken finances. The civil aerospace arm of the group drives suffered as the crisis grounded the planes of its clients. Around £1bn in savings could be achieved expected by the end of the year.
Rolls-Royce’s £2bn asset sell-off plan to raise cash from offloading parts of the business is “progressing well”. The company recently announced it is in exclusive talks to sell its Norwegian maritime engine maker Bergen arm to Langley Holdings for £54m. A deal is also underway for the sale of its ITP Aero unit based in Spain for £1.5bn.
Around 8,000 roles have already been removed and 1,000 more are expected in the restructuring. Two-thirds of these layoffs are said will impact the UK.
Rolls-Royce boss Warren East said: “This leaner cost base together with a strong liquidity position gives us confidence in our ability to withstand uncertainties around the pace of recovery in international travel and benefit from the eventual rebound.”
“It’s certainly an important milestone for us to have that positive operating profit, and that’s a reflection of the fact that two thirds of our business isn’t exposed today to long distance international travel,” added East on BBC Radio 4’s Today Show. He said that beyond civil aviation, the defence and power system units of the business have been resilient throughout the pandemic and profits are up.
On the expansion of the green and amber travel lists, East said they are “a very encouraging sign” and “anything that governments around the world can do to open up air travel is good news for our business.”
The engine-maker is also increasing its proportion of investment in research and development spend on lower carbon and net-zero technologies to 75 per cent by 2025.