The manufacturing giant made a pre-tax loss of £5.3bn ($6.9bn) in the six months to the end of June, hit by £1.1bn in write-offs and impairments, a £2.6bn loss on foreign exchange hedging contracts, and restructuring costs of £366m.
Rolls-Royce made an underlying operating loss of £1.6bn, compared to a profit of £203m in 2019. Revenue slumped 24% to £5.5bn.
“The COVID-19 pandemic has significantly affected our 2020 performance, with an unprecedented impact on the civil aviation sector with flights grounded across the world,” chief executive Warren East said in a statement.
Rolls-Royce’s revenue has been battered by global air travel bans in the first half of 2020, which have led to collapsing demand for its aircraft engines and for services to its engines already in use. In an update in July, the company said engine flying hours fell 50% in the first six months of the year.
The high fixed costs of Rolls-Royce’s factories have left the company burning cash at an alarmingly fast rate. Rolls-Royce saw cash outflows of £2.8bn in the first six months of the year and it has said it expects to burn through £4bn across 2020.
The interim results come “against a backdrop of concerns about its precarious financial position,” Micheal Hewson, chief market analyst at CMC Markets, said ahead of the figures.
Shares in the company have collapsed over 60% since the start of the year, including a one-day drop of 10% in July after it warned revenue for the next seven years would be lower than forecast due to the pandemic.
In response, Rolls-Royce’s chief executive Warren East has been pursuing an aggressive cost cutting strategy aimed at saving £1bn a year. The company announced plans to cut 9,000 of its 52,000 staff globally in May and closure of one of Rolls-Royce’s factories in Nottinghamshire was announced on Wednesday as part of the cost cutting drive. Rolls-Royce said on Thursday that 4,000 staff members have now left the business.
“These actions will significantly reduce our cost base, which combined with recovery in Power Systems and continued resilience in Defence, will help us to deliver significantly improved returns as the world recovers from the pandemic,” East said.
However, cutting costs will not be enough.
“While our actions have helped to secure the Group’s immediate future, we recognise the material uncertainties resulting from COVID-19 and the need to rebuild our balance sheet for the longer term,” East said.
Rolls-Royce confirmed on Thursday it was planning to raise £2bn by selling off assets, including its Spanish engine and turbine business ITP Aero.
East said the company was also “continuing to assess additional options to strengthen our balance sheet”.
“The big question remains how much extra capital the company will need to raise in order to bolster its balance sheet, and whether it will be in the form of a rights issue or a disposal of assets,” Hewson said in a note previewing results last week.
Adding to the company’s woes, Rolls-Royce recently disclosed wear and tear on the blades of some of its older Trent XWB engines. The issue evoked memories of the long-running problems with the company’s Trent 1000 engines, which it spent billions of dollars resolving.
Earlier this month activist investor ValueAct, which was once Rolls-Royce’s biggest investor, sold its entire stake in the business after five years as a shareholder.