Aero-engine maker Rolls-Royce (RR.) is expected to burn through a record £2 billion of free-cash this year after the FTSE 100 company slashed the forecast of the number of miles its engines will fly in 2021.

The downgrade comes as more contagious variants of Covid-19 spur tighter travel restrictions around the world. Rolls-Royce said enhanced restrictions were delaying the recovery of long-haul travel over the coming months compared to its prior expectations, impacting cash flows in 2021.

The company's cash outflow guidance was based on 2021 widebody engine flying hours at around 55% of 2019 levels, compared to a base case of 70% presented in October. Analysts had been anticipating around £900 million of free cash outflow this year, but those estimates will now have to change.

TWO-THIRDS VALUE WIPED OUT

Rolls-Royce stock plunged 10% to 88.21p in early trading, topping the FTSE 100 loser board. The shares have two-thirds of their value in the last 12 months, versus a rough 11% decline for Britain's benchmark index.

The outflow was expected to be heavily weighted to the first half, with Rolls-Royce saying it still expected to turn cash-flow positive at some point during the second half.

The firm's shares sank 7% to 90.5 pence in early trading. The stock has lost two-thirds of their value in the last 12 months, versus a rough 11% decline of Britain's benchmark index.

Rolls-Royce said liquidity of 9 billion pounds gave it confidence it was well-positioned for the future despite the more challenging environment.

The company, whose engines power Boeing 787s and Airbus A350s, said last year when boosting its liquidity with a £2 billion rights issue that it needed the funds given the uncertainty around the pace of the recovery in air travel.

The company attempted to offer optimism to investors by saying that continued progress on vaccination programmes is 'encouraging for the medium-term recovery of air traffic and economic activity', but admitted that in the near-term, more contagious variants of the virus are 'creating additional uncertainty.'

Rolls-Royce said its restructuring programme remained on track with 7,000 roles removed during 20202, progressing towards a target to remove at least 9,000 roles by the end of 2022.

As for the year just gone by, Rolls-Royce said trading in December was broadly in line with expectations across all business units.

Full-year 2020 free cash outflow was in line with previous guidance, and in-year cash cost savings of more than £1 billion were achieved.

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Issue Date: 26 Jan 2021