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Rolls-Royce To Resize Civil Aerospace Business

Rolls-Royce Holdings plc (RYCEF.PK,RR.L,RYCEY.PK) said it is taking steps to resize its Civil Aerospace business citing lower medium-term demand due to the coronavirus pandemic. This could affect jobs.

The company said that its cash flows have been significantly affected by COVID-19 and as a result its free cash outflow in the first half was about 3 billion pounds. The main impacts in the period included: about 1.1 billion pounds less cash inflow due to lower receipts associated primarily with widebody engine flying hours together with lower engine deliveries.

The company said it remains on track to deliver in-year cash savings in 2020 of up to 1.0 billion pounds.

Meanwhile, the company said its major reorganization, which was announced on 20 May 2020, is progressing well and is forecast to deliver at least 1.3 billion pounds in annual pre-tax cash savings by the end of 2022.

The company expects a reduction of over 17% of its workforce, equivalent to more than 9,000 roles across the Group worldwide, including approximately 8,000 in Civil Aerospace business.

Last month the company opened voluntary severance in the UK, including an enhanced early retirement scheme. To-date, we have received more than 3,000 expressions of interest for voluntary severance in the UK with approximately two-thirds of these currently expected to leave by the end of August.

The company is progressing well with the type test of the replacement high pressure turbine blade for the Trent 1000 TEN, the final durability issue to be fixed, and remain on track for its incorporation into the fleet by the end of the first-half of 2021.

The commercial aerospace activities of ITP Aero, which account for approximately 75% of its business, have experienced a similar deterioration in end market demand as Civil Aerospace business unit. Its defence related activities remained stable.

Long-term demand growth for reliable power solutions is expected to remain intact with demand in data centre mission critical applications increasing above pre-COVID levels.

The company currently anticipates a gradual recovery of our end markets as travel restrictions ease in the coming months. It currently forecast widebody engine flying hours to be down in the region of 55% this year, with more long-haul routes opening up in the fourth quarter.

It continues to plan for about 250 widebody engine deliveries in 2020, based on announced build rates from its airframer customers.

The company expects its rate of cash consumption to significantly reduce in the coming months, resulting in a full year free cash outflow of approximately 4 billion pounds.

The company remains positive about the long-term outlook for sustainable power solutions. It expects Defence to continue to experience good demand. In Power Systems, many of our impacted end markets are forecast to recover by the end of 2021.

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