Rolls-Royce has revealed measures to cut costs in the wake of the novel Coronavirus.
The company has said it is “executing a number of specific mitigations to reduce [its] cash expenditure which will have a cash flow benefit of at least £750 million in 2020 in addition to [its] ongoing transformation plans.”
These moves include minimising discretionary costs such as non-critical capital expenditure projects, consulting, professional fees and sub-contractor costs, ceasing all non-essential travel and postponing external recruitment. Salary costs will also be reduced across Rolls-Royce’s global workforce by at least 10% in 2020, subject to local legal requirements.
Salaries for senior managers and the Executive Team will be reduced by 20% for the rest of 2020, comprising a reduction of 10% and a deferral of 10%, with an additional bonus deferral for the CFO and CEO. There will also be a corresponding reduction in fees for Non-Executive Directors of the Board for the remainder of the year.
In addition, the Board has decided they are no longer recommending a final shareholder payment of 7.1 pence per share in respect of 2019, equivalent to a further £137 million.
In response to a change in outlook resulting from the global spread of COVID-19, in March Rolls-Royce made the decision to draw fully on its £2.5 billion revolving credit facility. Including this cash, which has been placed on short-term deposit, the company’s current gross cash balance is £5.2 billion. It has also secured an additional £1.5 billion revolving credit facility commitment with a consortium of banks, which will increase overall liquidity to £6.7 billion.
The primary impact from COVID-19 so far has been on engine flying hours in Rolls-Royce’s Civil Aerospace business. Widebody flying hours fell by approximately 25% in the first quarter, compared to the prior year, and fell approximately 50% in March, with an expected further deterioration in April and beyond as airlines ground fleets.
Warren East, CEO, said: “We find ourselves in unprecedented times, both as a company and as a key player in vital power markets across the world. Our priority is to do everything we can to safeguard the lives and livelihoods of our people and to play our part in helping our customers, partners and communities.
“We are taking significant measures to strengthen the operational and financial resilience of our business. I would like to thank all our 52,000 colleagues worldwide for their support, dedication and hard work at this time when difficult decisions are being made.”
Rolls-Royce is part of the VentilatorChallengeUK Consortium which is working to increase the UK’s supply of ventilators. Its role in the consortium is to organise a parallel supply chain to feed in materials as quickly as possible to a number of new assembly plants.