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Author: Alan LittleDate: 2020-10-02

Rolls-Royce (RR) craters to 16-year low as COVID-19 hits finances

Rolls-Royce (RR) shares slumped to the lowest level in 16 years on Thursday after the engineering company said that it had suffered a “sharp deterioration” in financial performance due to the COVID-19 pandemic.

Rolls-Royce’s core civil aerospace division has been decimated by the major slowdown in aviation travel this year, and it is now attempting to raise £5bn to help it to continue operating under a “worst case scenario”.

The Derby-based company recorded a staggering £5.4bn loss for H1 2020 in September and admitted that it would not bounce back to strong cash generation until 2022 at the earliest.

CEO Warren East said that it is now attempting to restructure operations and reduce its cost base to improve its finances.

Rolls-Royce has already announced 9,000 global job cuts.

The plan to raise £5bn will include £2bn from existing shareholders and a further £3bn from a government debt package.

Rolls-Royce had been in talks to sell a stake of its business to overseas investors but decided to shelve talks earlier this week amid concerns among shareholders about diluted shares.

CMC Markets’ chief economist Michael Hewson said that Rolls-Royce has been under pressure to outline its equity capital raising and believes that the “continued procrastination is not helping”.

RR stock has cratered this year, falling 80% to cut the company’s market cap to £2.5bn.

Shares have been in sharp decline all week and there was another 10.15% drop on the London Stock Exchange on Thursday.

The latest 116p price is the lowest since 2004, but analysts at The Motley Fool still don’t believe that RR is worth pursuing for investors right now as they expect losses to continue mounting for a while yet.

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