Rolls Royce was down almost 8% in the first hour of trading after the company reported a record £5.4bn loss for the first half. The company has been hit hard by the grounding of airlines during Covid-19, with the company noting that flying hours for their engines were down 70-75% between May and July. The loss also included impairment charges and restructuring costs.
In my article earlier in the week, Rolls Royce Needs a Half Year Earnings Boost, I said that the company was in the early stages of deciding how to enhance its balance sheet. I stated that this could involve some divestments or capital raising and the company outlined plans to sell Spanish turbine blades unit ITP Aero and other assets to raise at least £2bn. Reuters had learned in July that the company may also go ahead with a rights issue to raise £1.5bn. CEO Warren East said, “…we are continuing to assess additional options to strengthen our balance sheet”.
First-half revenue declined year-on-year to £5.8bn from £7.8bn and the company burned through £2.8bn of cash for the period. One silver lining in the latest loss was that £2.6bn was related to a revaluation of currency hedging contracts and this could improve in H2. Rolls Royce had warned in May that 9,000 jobs would need to go and confirmed today that 4,000 employees had already left its civil aerospace unit. The company also confirmed that Chief Financial Officer Stephen Daintith had resigned.
The Rolls Royce share price had failed to break above a descending resistance line and was bearish ahead of the news, so further lows were likely. The latest drop sees the price trading at 232.2 and it’s possible we could see the 3rd August lows around 213 tested this week. Resistance for a move higher is at 270, but this is an unlikely path given the latest loss and the potential for a capital raise that would dilute the price, whilst the airline industry is still in the doldrums.
