Rolls-Royce shares have collapsed from a peak of ten pounds two years ago, when order books for the Trent 1000 engine were overflowing and global air travel expanding exponentially, to just above one pound.
The value destruction is among the most pernicious commercial impacts of coronavirus.
Instead of guiding Rolls-Royce ever higher, chief executive Warren East has found himself deep into financial engineering amid a torrent of departing cash, which has threatened a repeat of the existential crisis of 1971 when the aerospace innovator was saved from extinction by Ted Heath’s Tories.
Nosedive: Rolls-Royce shares have collapsed from a peak of ten pounds two years ago to just above one pound
This time around it is Chancellor Rishi Sunak, and the much disparaged Business department, which is to the rescue.
The best thing which could happen and boost Rolls-Royce cash flows would be a re-opening of transatlantic and global travel since the group is among the biggest beneficiaries of air miles.
Second best is financial support which will see it through to 2022 or so without collapse. Sunak has been adamant that Covid self-help is best.
And with its painful deeply discounted and underwritten rights issue of £2billion, Rolls has been able to unlock government support in the shape of £1billion of government loan guarantees, in addition to £2billion of export credits already in place.
The capital reconstruction will allow it to tap into commercial bond markets. As helpful is the unseen hand of R&D support.
Among work gaining an extra government push is ‘ultrafan’ research on greener turbines. There is recognition that with nuclear policy in disarray, Rolls-Royce’s neglected small modular reactor design might have a real role to play.
At a time when Rolls is axing 9,000 jobs, pressure on employment has been relieved by the transfer of engineers from civilian to government supported defence work.
The best that Rolls-Royce can offer investors is that it could be generating cash in the second half of 2021 and moving back towards full throttle in 2022.
East has assured investors that he will see through the rebuild. If prospects were to veer off course again they will be unforgiving.
Saving G4S
The debate about future ownership and control of G4S looks to have come down to price. Big investors including Schroders in Britain have decided that the 190p a share or £3billion being offered by smaller Canadian upstart Garda World, with the support of BC Partners, is not enough.
Garda World’s boss Stephan Cretier has embarked on a hostile campaign to disparage G4S for a series of scandals, and arrogantly is promising to ‘educate’ shareholders as if they were schoolchildren who don’t understand their investment.
Long-term shareholders, having lived through the worst of times and forced management changes, might want to enjoy the upside rather than hand it over to outsiders.
Yes, G4S has made huge mistakes and there are outstanding legal challenges. There also are serious questions about how fat-cat chairman John Connolly, who was savaged a quarter-of-century ago over his role in the Barlow Clowes collapse, is in post at G4S after eight scandal-splattered years.
Investors and other stakeholders, including 570,000 employees, should not fall for the Garda World spin.
G4S, for all its faults, stands at the core of Britain’s global services economy at a moment when we need such firms. It carries out important government work, including running prisons.
The most important obstacle to this deal is the ultimate buyer, BC Capital Partners.
The interest of private equity is to make quickie returns for its executives and investors by loading up companies with debt and stripping out costs, including jobs.
In the age of Covid and Brexit, passing command and control to interlopers should not be an option. The G4S board needs to strengthen controls and find a credible new chairman without delay, or it will be eaten alive.
Vaccine velocity
The European Medicines Agency is enthused about the prospect of the Astrazeneca/Oxford Jenner Covid vaccine and has taken the unusual step of initiating rolling reviews of the global trials with the aim of speeding up approvals.
Contrast this with the US’s Food & Drugs Administration, which is demanding that Oxford scientists provide data on previous vaccine trials before approving resumption of experimental use in America.
This looks a clear win for EU enterprise over US foot-dragging.
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