The firm has reported a £5.4bn loss © Carsten Koall/Getty Images
The firm has reported a £5.4bn loss © Carsten Koall/Getty Images

Rolls-Royce monitoring supply chain for distress

Will Green is news editor of Supply Management
27 August 2020

Rolls-Royce has said it is “closely monitoring” its supply chain for supplier distress.

In its latest results the engineering firm said large reductions in demand meant “supplier distress is now more likely”.

“We are closely monitoring our supply chain and putting in place mitigations where appropriate,” the company said.

Rolls-Royce said industry average payment terms varied between 90 to 120 days, but it was paying smaller suppliers in 30 days.

“Our payment terms with suppliers vary on the products and services being sourced, the competitive global markets we operate in and other commercial aspects of suppliers’ relationships,” the firm said.

It said suppliers had drawn £634m under its supply chain finance scheme, set up in partnership with banks and available to suppliers on its standard 75-day payment terms.

Rolls-Royce said it expected to make pre-tax savings of at least £1.3bn by the end of 2022, with £700m coming from job losses and the rest from “reduced expenditure across plant and property, capital and other indirect costs”.

This work has included “minimising discretionary expenditure such as non-critical capital expenditure projects, reducing consulting spend, professional fees and subcontractor costs”.

The company reported a loss of £5.4bn for the first half of 2020.

Warren East, chief executive, said: “We ended 2019 with good operational and financial momentum. However, the Covid-19 pandemic has significantly affected our 2020 performance, with an unprecedented impact on the civil aviation sector with flights grounded across the world.

“We have made significant progress with our restructuring, which includes the largest reorganisation of our civil aerospace business in our history.”

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