Rolls-Royce shares hit 17-year low after it reveals £2bn cash-call
Shares in Rolls-Royce have tumbled to a 17-year low as the aircraft engine-maker announced a £5bn emergency plan to shore up a balance sheet ravaged by the coronavirus pandemic.
The dramatic decline in global air travel during the pandemic has hit Rolls-Royce’s revenues from servicing its jet engines and from selling new ones.
The engineering group said it would tap shareholders in a £2bn rights issue and raise more debt through a £1bn bond offering. It also announced a new two-year loan of £1bn and a potential £1bn extension of a loan that would be 80% backed by the government’s UK export finance agency (UKEF).
The £2bn rights issue was the largest capital raise by a non-financial public company in the UK since 2010, according to Greenhill, one of the investment banks advising Rolls-Royce. Eleven investment banks were among the recipients of £80m in fees connected to the fundraising.
It follows days of speculation and share price falls at the manufacturer, which has lost 80% of its value since January and has a market capitalisation of less than £2.5bn. At one point on Thursday, its shares were trading at 112.55p, the lowest since 2003. They ended the day down 10.2%, at 117p.
Rolls-Royce said its rights issue was fully underwritten, and was offering a 41% discount, with the company planning to issue 10 new shares for every three existing shares. In addition, the group has agreed a new two-year loan facility worth £1bn, conditional on completing the equity raise.
The coronavirus lockdown has prompted some of the UK’s most prominent companies to announce large-scale job losses. The aviation, automotive and retail sectors have been among the worst hit, as businesses adjust to dramatically reduced revenue projections.
While the government’s job retention scheme has so far protected millions of jobs, fears are mounting that unemployment will rise as the scheme begins to be phased out from August.
Since lockdown began on 23 March, some of the UK’s largest companies have announced plans to cut a total of 60,000 jobs globally, many of which will fall in the UK.
M&Co. – 400 jobs
5 August: M&Co., the Renfrewshire-based clothing retailer, formerly known as Mackays, will close 47 of 215 stores.
WH Smith – 1,500 jobs
5 August: The chain, which sells products ranging from sandwiches to stationery, will cut jobs mainly in UK train stations and airports.
Pizza Express – 1,100 jobs
4 August: The restaurant chain plans the closure of 70 restaurants as part of a rescue restructure deal.
Dixons Carphone – 800 jobs
4 August: Electronics retailer Dixons Carphone is cutting 800 managers in its stores as it continues to reduce costs.
DW Sports – 1,700 jobs at risk
3 August: DW Sports fell into administration, closing its retail website immediately and risking the closure of its 150 gyms and shops.
Marks & Spencer – 950 jobs
20 July: The high street stalwart cuts management jobs in stores as well as head office roles related to property and store operations.
Ted Baker – 500 jobs
19 July: About 200 roles to go at the fashion retailer’s London headquarters, the Ugly Brown Building, and the remainder at stores.
Azzurri – 1,200 jobs
17 July: The owner of the Ask Italian and Zizzi pizza chains closes 75 restaurants and makes its Pod lunch business delivery only
Burberry – 500 jobs worldwide
15 July: Total includes 150 posts in UK head offices as luxury brand tries to slash costs by £55m after a slump in sales during the pandemic.
G4S – 1,150 jobs
13 July: The security company G4S plans to make 1,150 workers redundant as it scales back its struggling cash handling business and contends with pandemic-hit cash usage.
Boots – 4,000 jobs
9 July: Boots is cutting 4,000 jobs – or 7% of its workforce – by closing 48 opticians outlets and reducing staff at its head office in Nottingham as well as some management and customer service roles in stores.
John Lewis – 1,300 jobs
9 July: John Lewis announced that it is planning to permanently close eight of its 50 stores, including full department stores in Birmingham and Watford, with the likely loss of 1,300 jobs.
Celtic Manor – 450 jobs
9 July: Bosses at the Celtic Collection in Newport, which staged golf's Ryder Cup in 2010 and the 2014 Nato Conference, said 450 of its 995 workers will lose their jobs.
DHL – 2,200 jobs
7 July: Some 2,200 UK logistics workers involved in making Jaguar Land Rover vehicles are set to lose their jobs. About 40% of DHL's staff employed on the contract for the carmaker.
Reach – 550 jobs
7 July: The owner of the Daily Mirror, Daily Express and Daily Star newspapers is to cut 550 jobs, 12% of its workforce, amid reduced demand for advertising in its titles.
Pret a Manger – 1,000 jobs
6 July: Pret a Manger is to permanently close 30 branches and could cut at least 1,000 jobs after suffering “significant operating losses” as a result of the Covid-19 lockdown
Casual Dining Group – 1,900 jobs
2 July: The owner of the Bella Italia, Café Rouge and Las Iguanas restaurant chains collapsed into administration, with the immediate loss of 1,900 jobs. The company said multiple offers were on the table for parts of the business but buyers did not want to acquire all the existing sites and 91 of its 250 outlets would remain permanently closed.
Arcadia – 500 jobs
1 July: Arcadia, Sir Philip Green’s troubled fashion group – which owns Topshop, Miss Selfridge, Dorothy Perkins, Burton, Evans and Wallis – said in July 500 head office jobs out of 2,500 would go in the coming weeks.
SSP Group – 5,000 jobs
1 July: The owner of Upper Crust and Caffè Ritazza is to axe 5,000 jobs, about half of its workforce, with cuts at its head office and across its UK operations after the pandemic stalled domestic and international travel.
Accenture – 900 jobs
1 July: The New York-listed consultancy firm is making 900 job cuts at all levels across 11,000 UK employees in the face of lower demand for its services.
Harrods – 700 jobs
1 July: The department store group is cutting one in seven of its 4,800 employees due to the “ongoing impacts” of the pandemic.
Airbus – 1,700 jobs
30 June: The European planemaker announced plans to cut 15,000 jobs, including 1,700 in the UK, as it warned the coronavirus pandemic had triggered the “gravest crisis” in its history.
Harveys – 240 jobs
30 June: Administrators made 240 redundancies at furniture chain Harveys with more than 1,300 jobs at risk if a buyer cannot be found.
TM Lewin – 600 jobs
30 June: Shirtmaker TM Lewin closed all 66 of its outlets permanently with the loss of about 600 jobs.
Royal Mail – 2,000 jobs
25 June: Royal Mail has announced a cost-cutting plan that will involve slashing about 2,000 jobs, or one in five of its near-10,000 management roles.
Swissport – 4,500 jobs
24 June: Swissport, which handles passenger baggage and cargo for airlines, has begun a consultation process to make 4,556 workers redundant, more than half of its 8,500 UK workforce.
Jaguar Land Rover – 1,100 jobs
15 June: The UK’s largest car producer has cut 1,100 contract workers at manufacturing plants in Merseyside and the West Midlands.
Travis Perkins – 2,500 jobs
15 June: The builders’ merchant, which is behind DIY retailer Wickes and Toolstation, is cutting 2,500 jobs in the UK, accounting for almost a 10th of its 30,000-strong workforce.
Centrica – 5,000 jobs
11 June: The owner of British Gas announced in June that it intends to cut 5,000 jobs - a quarter of its UK workforce - in mostly senior roles, and remove three layers of management.
Johnson Matthey – 2,500 jobs
11 June: The chemicals company, a major supplier of catalytic converters for cars, plans to make 2,500 redundancies worldwide over the next three years, 17% of its workforce.
Bombardier – 600 jobs
11 June: The Canadian plane maker will cut 600 jobs in Northern Ireland, as part of 2,500 redundancies announced in June.
Monsoon Accessorize – 545 jobs
11 June: The fashion brands were bought out of administration by their founder, Peter Simon, in June, in a deal which saw 35 stores close permanently and led to the loss of 545 jobs.
BP – 2,000 jobs
8 June: The oil company said in June it plans to make 10,000 people redundant worldwide, including an estimated 2,000 in the UK mostly in office roles, by the end of the year.
Mulberry – 470 jobs
8 June: The luxury fashion and accessories brand said in June it is to cut 25% of its global workforce and has started a consultation with the 470 staff at risk.
Bentley – 1,000 jobs
5 June: The Crewe-based luxury carmaker intends to shrink its workforce of 4,200 by almost a quarter, slashing 1,000 roles through a voluntary redundancy scheme.
Aston Martin Lagonda – 500 jobs
4 June: The Warwickshire-based luxury car manufacturer, struggling even before the pandemic, has announced 500 redundancies.
Lookers – 1,500 jobs
4 June: The car dealership chain said it plans to cut 1,500 jobs and close 12 dealerships just days after car showrooms were allowed to reopen in England.
Rolls-Royce – 9,000 jobs
3 June: The jet-engine manufacturer has confirmed that 3,000 job cuts, of a planned 9,000 worldwide, will be made in sites in the UK.
The Restaurant Group – 3,000 jobs
3 June: The owner of dining chains such as Wagamama and Frankie & Benny’s has closed most branches of Chiquito and all 11 of its Food & Fuel pubs, with another 120 restaurants to close permanently. Total job losses could reach 3,000.
EasyJet – 4,500 jobs
28 May: The airline has announced plans to cut 4,500 employees, or 30% of its workforce, as it prepared for lower demand.
McLaren – 1,200 jobs
26 May: McLaren Group, the Formula One team owner and maker of supercars, cut 1,200 jobs as it scrambled to save cash.
Clarks – 900 jobs
21 May: Clarks plans to cut 900 office jobs worldwide as it grapples with the growth of online shoe shopping as well as the pandemic.
Ovo Energy – 2,600 jobs
19 May: Britain’s second biggest energy supplier announced in May it planned to cut 2,600 jobs and close offices after the lockdown saw more of its customer service move online.
JCB – 900 jobs
15 May: Digger maker JCB said in May up to 950 jobs were at risk after demand for its machines halved due to the coronavirus shutdown.
Tui – 8,000 jobs
13 May: Travel company Tui plans to cut up to 8,000 jobs worldwide in response to the coronavirus chaos engulfing the tourism industry.
Virgin Atlantic – 3,000 jobs
5 May: Richard Branson’s airline is to cut more than 3,000 jobs, more than a third of its workforce, and will shut its operations at Gatwick.
Ryanair – 3,000 jobs
1 May: The Irish airline intends to slash 3,000 roles and reduce staff pay by up to a fifth.
Aer Lingus – 900 jobs
1 May: The Irish flag carrier, part of International Airlines Group (IAG), plans to cut 900 jobs.
Oasis and Warehouse – 1,800 jobs
30 April: The fashion brands were bought out of administration by restructuring firm Hilco in April, with all of their stores permanently closed and the loss of more than 1,800 jobs.
British Airways – 12,000 jobs
28 April: The UK flag carrier plans to make up to 12,000 of its staff redundant, a reduction of one in four jobs at the airline, with cabin crew, pilots and ground staff affected.
Meggitt – 1,800 jobs
23 April: British engineering company Meggitt plans to shed about 1,800 jobs making parts for commercial aviation.
Safran – 400 jobs
23 April: French aircraft seat maker Safran made 400 job cuts at its UK operations, including a plant in Cwmbran.
Cath Kidston – 900 jobs
21 April: More than 900 jobs are to be axed with immediate effect at retro retail label Cath Kidston after the company said it was permanently closing all 60 of its UK stores.
Debenhams – 4,000 jobs
9 April: At least 4,000 jobs will be lost at Debenhams in its head office and closed stores, following its collapse into administration in April, for the second time in a year.
Laura Ashley – 2,700 jobs
17 March: Laura Ashley collapsed into administration with 2,700 job losses and said rescue talks had been thwarted by the pandemic.
The Derby-based company said the measures were designed to improve its liquidity and reduce the debt on its balance sheet. It added that it did not expect to generate cash again until 2022.
Rolls-Royce has been hit hard by the impact of coronavirus on its civil aviation business, and in August it reported a record £5.4bn first-half loss. The company said it expected to have burned through £4bn in cash by the end of 2020.
Demand for its engines has slumped, and the group is in the middle of the largest restructuring in its history, cutting 9,000 jobs globally and closing several production sites. It is also looking to sell assets to raise at least £2bn, including the Spanish engine-maker ITP Aero.
Rolls-Royce’s chief executive, Warren East, said: “We are undertaking decisive and transformative action to fundamentally restructure our operations, materially reduce our cost base and improve our financial position. The capital raise announced today improves our resilience to navigate the current uncertain operating environment.”
Before Thursday’s announcement, Rolls-Royce had come in for criticism from some of its shareholders for a perceived delay in announcing the details of its cash-call.
East said the company had wanted to put together an “integrated package”, including raising equity, fresh debt and loans.
“It was important we got other elements of the package in place before running to the equity market,” he said. “We could sit this out for another six months, but that would give us serious issues around going concern. We know the debt and equity markets are open now and we don’t know if they will be.”
Rolls-Royce predicted it would take until 2025 for aircraft engine orders to return to pre-coronavirus levels, and said its path to making money again remained dependent on the timing and shape of the economic recovery from the pandemic.
The rescue package received a cautious welcome from some analysts. The credit ratings agency Moody’s, which cut Rolls-Royce’s rating to junk status in July, said the fundraising was overall a positive in terms of the prospects of the company paying back its debt, but highlighted continued uncertainty for aviation.
“Rolls-Royce’s proposed debt and equity raising package will substantially improve liquidity headroom to manage through a potentially slow and delayed recovery in engine flying hours,” said Martin Hallmark, a senior vice-president at Moody’s. “But downside risks around future cashflows including its delivery of cost savings and the evolution of market recovery, mean liquidity headroom remains uncertain.”
