Rolls-Royce’s autonomy has given Chancellor a boost | Nils Pratley | Company


Rishi Sunak will be delighted. The Chancellor has told the airline industry that government-backed bailouts will only be considered “as a last resort,” and now engine manufacturer Rolls-Royce will demonstrate what it can do on its own steam.

Rolls shareholders should also be satisfied. The suspension of Monday’s dividend is bad news for them, but not half as bad as a rights issue would have been. The latter has been avoided (at least for now). Instead, investors got a reassuring demonstration of the company’s ability to absorb financial hardship by borrowing more and spending less.

Rolls withdrew a £ 2.5 billion credit facility and secured a £ 1.5 billion one, bringing its total liquidity to £ 6.7 billion. The cash collapse the other way around is serious, which is only to be expected if Rolls raised £ 3.9 billion in 2019 via engine flight hours (EFH) contracts. With so many planes not flying, the plunge in the EFH line in March was 50%; The April rate will be worse.

Income subsidies

Direct cash grants for the self-employed, accounting for 80% of average profits, up to £ 2,500 per month. There are similar wage subsidies for employees.

Business loan guarantees

The government will support £ 330 billion in loans to support businesses through a Bank of England program for large businesses. There are loans of up to £ 5 million interest-free for six months for small businesses.

Business rate

The taxes levied on commercial premises will be eliminated this year for all retailers, leisure shops and businesses in the hotel sector.

Cash grants

The 700,000 smallest UK businesses eligible for £ 10,000 cash grants. Smaller retailers, leisure and hospitality businesses can get larger grants of £ 25,000.


The government will increase the value of universal credit and tax credits by £ 1,000 a year, as well as expand eligibility for these benefits.

Sickness benefit

Statutory sickness benefit must be available from the first day, rather than the fourth day, of absence from work, although ministers have been criticized for not raising the level of sickness benefit above £ 94.25 per week. Small businesses can request state reimbursement of sickness bills.


Local authorities will get a £ 500 million fund to provide people with tax relief for the city council.

Mortgage vacations and rentals available for up to three months.

Add that all up, however, and city analysts say any financial crisis at Rolls would only appear in the fall. Remember, two smaller divisions – the defense and food systems – are functioning normally. And Rolls estimates that it can reduce its cash flow by £ 750 million this year by cutting spending, paying no dividends and forcing workers’ wages to drop 10% temporarily.

The big unknown, of course, is how long the fleets of aircraft will be anchored in the world and how quickly life will return to normal afterwards. That remains to be guessed, and Rolls CEO Warren East wisely did not offer a forecast. But the 18% rebound in share price tells the story: self-help can keep Rolls’ engine running for a while.

Debenhams Gives Courageous Face To Lockout Administration

They are optimistic at Debenhams. As the department store chain headed for the administration for the second time in 12 months, management whistled on how lenders are supporting and how normal trade will resume when buyers are allowed to return to the main streets. This latter administration is apparently of the “light” type and is simply intended to prevent creditors from being sued.

Debenhams providers are doubtful to feel so relaxed because, unlike the last administration, they probably won’t be paid in full this time. Yet, strange as it may seem, Debenhams will likely live to fight another day.

Most of the 22,000 employees can be placed on government leave; and since even the mighty Primark doesn’t pay his rent, the owners can be asked to whistle for a few months. After a new selection of its stores, Debenhams should emerge in a vaguely recognizable form.

However, do not confuse survival with prosperity. This is more akin to an exercise in limiting financial damage for Silver Point Capital, the American hedge fund that now controls Debenhams. Covid-19 is a huge setback for his plans, but the hurdles must roll the dice again, keep the business alive and hope for something to come up.

Legal & General’s divi isn’t as risky as it sounds

As a former senior treasurer, Sir John Kingman can read regulatory breezes. So, we suspect Legal & General, of which he is president, is clear about his decision to continue paying a dividend.

Last week, the Bank of England advised insurers to ensure that distributions are “prudent and in line with … risk appetite.” It was far from an outright ban, as it has been applied to banks. So, as long as it’s safe, L&G should be fine.

And, yes, L&G is conservative by most measures. His last reading of credit was sound. Much of its business these days is fund management, which does not consume large amounts of capital. And his annuity book is supported by stable long-term assets.

Furthermore, it is fair to think that putting money in the hands of investors serves a broader purpose. The money can be recycled and used for rescue fundraising elsewhere. L&G and Kingman are at risk of being embarrassed if the market turmoil worsens significantly, reaching key ratios. But saving the divi seems like the right decision for now. Someone has to give an income to the pension funds.


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