Rolls-Royce restructuring ahead of schedule

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  • Rolls-Royce is on a major cost-savings plan and is cutting 8,500 jobs
  • Shares of FTSE 100-listed engine maker group fell today

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Rolls-Royce has confirmed that the pace of its transformation plan is ahead of schedule, stating that it is expected to eliminate 8,500 jobs worldwide by the end of this year.

The company said the restructuring programme, launched in May 2020, was delivering sustainable cost savings faster than initially anticipated, adding that it was on track to save £1.3bn by the end of next year.

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The engineering giant said its improved business performance drove a return to positive free cash flow in the third quarter and lowered expected outflows in the second half.

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Job loss: Rolls-Royce will cut around 8,500 jobs globally by the end of the year

Rolls now expects its free cash outflows for the fiscal year to be better than its previous guidance of £2 billion.

Boss Warren East said: ‘We are working on the elements within our control and staying focused on our commitments.

‘We have achieved great results with our fundamental restructuring programme, as we continually reduce costs and deliver a leaner and more efficient company and are firmly in place to complete our settlement programme.

‘While external uncertainty clearly remains, we have seen continued improvement in our civil aerospace business, a growing order book in Power Systems and a significant contract win in Defence.’

He added: ‘All of this underscores our strategy to build a better quality and more balanced business that can deliver significantly better returns and cash flow in the future.’

The $2 billion sale of its Spanish arm, ITP Aero, saw Rolls-Royce meet its £2 billion target in September.

The conglomerate, which has more than 400 airlines and leasing customers around the world, has been hit hard by the pandemic because of its exposure to the airline industry, forcing it to raise money and take on huge debt.

Shares in the FTSE 100-listed group fell this morning, and are currently down 2.18 percent, or 2.80p, to 125.84p. The firm’s share price was 129.65p a year ago. Investors are not ready to receive dividends from the group until 2023.

Richard Hunter, Head of Markets, Interactive Investor, said: ‘The Group’s share price is subject to some extreme volatility as the pandemic has passed through its various stages.

“The recent correction in prices in the last three months led to an improvement in the prospects for the 16 per cent price increase over the previous year by 2 per cent, compared to a 12 per cent increase for the broader FTSE 100.

‘Over the past two years, however, shares have fallen 48 per cent and the fact that dividends cannot be paid until at least 2023 removes another element of investment attractiveness.

There are signs of progress within its restructuring program and the company should emerge as a lean entity as and when some of the dust finally settles.

‘At the same time, the strength of the defense unit in particular is of consolation, and the gradual improvement in flight hours will improve the cause in the medium term.

In the meantime, however, the stock remains only for the most steely and patient of investors, with the market consensus of the shares as a hold also indicating that the company still has some way to go, before that recovery may be called.

Michael Hewson, chief market analyst at CMC Markets UK, said: ‘Overall, today’s update is broadly positive as other areas of business away from civil aviation are moving in the right direction, although investors were unable to address past concerns. Huh. International travel returns, with shares falling in early trade.

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