Rolls-Royce begins Asia layoffs, cuts 24% of Singapore headcount
Rolls-Royce’s share price fell 10% last Thursday after it provided an update on its H1 trading results and restructuring plans.
Rolls-Royce trims Asia workforce
UK multi-industry engine maker Rolls-Royce Holdings continues to roll out layoff plans globally, as part of a company-wide effort to trim down 9,000 jobs, or 17% of its headcount.
In Asia, job cuts were announced by the Singapore office last Thursday 09 July 2020. Some 240 roles amounting to roughly 24% of the multi-national company’s local workforce – mostly in technical fields – will be made redundant starting from August 2020.
Bicky Bhangu, president of Rolls-Royce for South-east Asia, the Pacific and South Korea, said that ‘the decision to remove jobs is not an action we take lightly’.
However, he noted that the Covid-19 pandemic’s global impact on the aviation sector has been ‘the most significant in history’, adding that the industry will ‘take considerable time to recover’.
As such, Rolls-Royce – which employs about 1,000 workers out of its Seletar Aerospace Park base in Singapore – has been forced ‘to take swift action in order to secure the business for future generations’, he said.
Restructuring to result in at least £1.3 billion of savings
Restructuring plans, first announced 20 May 2020, began last month via a voluntary severance programme in the UK, including an enhanced early retirement scheme.
Rolls-Royce said in its global H1 2020 trading update - posted last Thursday, that it has received more than 3,000 expressions of interest for voluntary severance in the UK to-date, with approximately two-thirds of these currently expected to leave by the end of August.
Rolls-Royce also stated that the reorganisation is ‘progressing well’ and is forecast to deliver at least £1.3 billion (US$1.63 billion) in annual pre-tax cash savings by the end of 2022 (including remaining savings of around £100m from the restructuring programme announced in 2018).
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What’s the business outlook for Rolls-Royce for the rest of 2020?
In the same update, Rolls-Royce also stated that its cashflows ‘have been significantly affected by Covid-19’, with the resulting free cash outflow in the first half of 2020 coming in at approximately £3 billion (US$3.8 billion).
It attributed this to £1.1 billion (US$1.38 billion) lower cash inflow in the first half of FY2020 due to widebody engine flying hours (EFH) being down by approximately 50% in H1 2020.
Nevertheless, the company remains optimistic in its outlook for the rest of 2020.
‘We currently anticipate a gradual recovery of our end markets as travel restrictions ease in the coming months, while acknowledging the elevated level of uncertainty in the industry outlook,’ Rolls-Royce stated in the press release.
Meanwhile, the rate of cash outflow is also expected to ease in the second half supported by increased benefits from cash mitigation actions, the timing of working capital movements and the anticipated ongoing recovery of commercial aviation from the trough reported in April.
Where next for Rolls-Royce’s share price?
In terms of its share price outlook, the Rolls-Royce stock currently has a three-month consensus price target of £361 per share, based on estimates from six investment bank analysts compiled by Shares Magazine.
In terms of ratings, three brokers have rated the stock a ‘strong buy’, three on ‘neutral’, two on ‘sell’ and one on ‘strong sell’.
Rolls-Royce shares closed Monday 13 July’s session at £268.70 per share on the IG platform. Shares fell last Thursday by 10% following the H1 trading update.
IG’s market analysis show that ‘buys’ form 52% of all trades on the Rolls-Royce counter so far this month. Additionally, 97% of IG client accounts with open positions in this market expect the price to rise, and just 3% expecting price to decline.
Rolls-Royce's full half-year financial results will be published on 27 August 2020.
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