10 July 2020 by jbchevrel
Rolls-Royce Plc (ROLLS) is a UK-based engineering company focused on power and propulsion systems. ROLLS segments include Civil Aerospace, Defence Aerospace and Power Systems. ROLLS struggles due to the collapse in the number of hours flown by its wide-body engines. This is the source of more than 50% of their Civil Aerospace segment revenue. This metric (number of hours flown by their wide-body engines) fell -75% in Q2 and -50% in H1, according to the Trading Statement published today. This is like a pre-statement, ahead of the official H1-2020 numbers, which will be released on August 27. According to this Trading Statement, ROLLS will have burnt roughly -£3b in H1 and roughly -£4b in full year 2020. ROLLS CDS widened by +22bp today, it under-performed other Main s33 index constituents (-5/+10). On the positive side of things, ROLLS said they have made good progress on Trent 1000 fixes, achieved single-digit aircraft on ground target. This had been one of the main headwinds for ROLLS before COVID undoubtedly took the #1 position. When is ROLLS going to be generating cash again? According to the Trading Statement, ROLLS Restructuring is underway and should help ROLLS generate +£750m in 2022 (vs -£4b in 2020). Also supportive for credit, last Friday, it was reported that ROLLS is exploring options to raise funds to fortify their balance sheet. The main options being: 1/ raising equity (£1.5-2B area) 2/ divesting assets (ITP Aero unit is being speculated about). ROLLS CDS closed 385 last Friday. Today ROLLS CDS closed 438bp. The post-COVID range (21 February to now) for ROLLS 5y CDS has been [93bp,660bp].