Based on a strong commercial momentum EADS (stock exchange symbol: EAD) displayed revenue growth within all its Divisions. High delivery levels led to revenues of € 39.4 billion – an increase of 15 percent (FY 2005: € 34.2 billion). For the first time the Group hit the landmark of € 10 billion in defence revenues. In 2006, EADS posted an EBIT* (pre goodwill and exceptionals) of € 399 million (FY 2005: € 2.9 billion). The impact of the A380, A350 and A400M combined with the deteriorating weakness of the US Dollar against the Euro pushed Airbus into a loss. It is overcompensated by strong EBIT* of the other EADS businesses.
Airbus difficulties overshadowed a remarkable order intake of 790 aircraft, record deliveries of 434 aircraft, the launch of the A350XWB programme and the successful A380 type certification. Eurocopter experienced an outstanding year in a very supportive market environment with an unprecedented level of 615 new orders for helicopters. It recorded a strategic breakthrough with the US Army light utility helicopter UH-72A Lakota order. With a total of 381 helicopters Eurocopter delivered more than ever before. EADS Astrium significantly improved profitability and was awarded important orders for satellites and systems such as SatComBW, a major satellite communication programme in Germany. The Defence & Security Division enhanced its performance and captured business opportunities in areas such as the secure networks business, thus creating a solid base for further long-term improvement.
The strong increase in revenues to € 39.4 billion was supported by all Divisions, in particular by the higher deliveries at Airbus and Eurocopter.
The contribution from the EADS Astrium Division came mainly from the ramp-up of Ariane 5 production, Paradigm and ballistic missile development.
At EADS Defence & Security, revenues grew due to Eurofighter, the missile business and to contributions from the Professional Mobile Radio business. Passing all A400M milestones (including the one shifted from 2005) led to higher revenues in the Military Transport Aircraft Division.
EADS’ total EBIT* in 2006 was € 399 million (FY 2005: € 2,852 million). EBIT* was substantially burdened by the impact of A380 delays, A350 related charges, high Research & Development (R&D) expenses and by losses at EADS Sogerma. Additionally, hedges for EADS Group matured at a less favourable average rate of € 1 = US$ 1.12 (FY 2005: € 1 = US$ 1.06). These negative factors were partly compensated by significantly improved contributions from Airbus’ series production and the Group’s helicopter, defence and space businesses, and a minor contribution from a pension accounting change. The Group’s reduced Net Income of € 99 million (FY 2005: € 1,676 million), or € 0.12 per share (FY 2005: € 2.11) mainly mirrors the Group’s EBIT* development.
Focused on the future, EADS invested over six percent of its revenues in R&D. In 2006, the Group’s self-financed R&D expenses increased to € 2,458 million (FY 2005: € 2,075 million), caused mostly by Airbus continuing aircraft development programmes and higher Research & Technology (R&T) effort across the Group.
Free Cash Flow including customer financing stayed high at € 2,029 million (FY 2005: € 2,413 million), as an unfavourable working capital development was offset by the increased sell-down of customer financing assets. Free Cash Flow before customer financing amounted to € 869 million (FY 2005: € 2,239 million).
The Net Cash Position of € 4.2 billion (year-end 2005: € 5.5 billion) was impacted by the acquisition of BAE Systems’ 20 percent stake in Airbus (€ 2.75 billion) and dividend payments. Adjusted for the one-off payment for the Airbus stake it has again improved, highlighting the strength of the underlying recurring business.
EADS’ order intake amounted to € 69.0 billion (FY 2005: € 92.6 billion).
In terms of new orders, Eurocopter set a new record in 2006 (up 39 percent compared to the previous record in 2005), Airbus had its second-best year ever and EADS Astrium another outstanding year.
At the end of December, EADS’ order book stood at € 262.8 billion (year-end 2005: € 253.2 billion). Contributions from commercial aircraft activities are based on list prices. The order book increase versus year-end 2005 was achieved despite a € 17 billion impact due to revaluation at a less favourable €/US$ exchange rate. The Group’s defence order book further increased and stood at € 52.9 billion as of 31 December 2006 (year-end 2005: € 52.4 billion).
The next meeting of the EADS Board of Directors will make a dividend proposal to the EADS Annual General Meeting.
Under its 2007 internal budget, EADS plans its revenues will experience a single-digit decrease (mainly due to the assumed €/US$ rate of 1.30), and its EBIT* will remain roughly stable in 2007.
Adjusted for a stable US Dollar, Airbus revenues would remain level, based on 440 to 450 deliveries through the year, and despite lower contributions from the A400M. Airbus will display another substantial loss in 2007, attributable to charges for the Power8 restructuring, further costs to support the A380 programme, potential A350XWB launch charges, higher R&D expenses, as well as the impact of the worsening US Dollar parity to the Euro.
Meanwhile, helicopters, defence and space businesses should display stable revenues, and should collectively increase their contribution to a combined EBIT* expected to be close to € 1 billion as soon as 2007.
The Free Cash Flow contribution from Airbus in 2007 will lead to a negative Group-wide Free Cash Flow as low as € -1 billion. However, volatility of working capital components can provoke substantial swings in this figure.
Over the medium term, the following factors will drive EADS’ outlook:
Deliveries of aircraft are currently expected to continue to grow, albeit at a much reduced rate. Airbus revenues will most likely be affected by a deterioration of mix and of pricing for recent orders, partly due to competitive pressure.
Research and Development expenses are planned to grow gradually, driven by the A350XWB development and increased R&T spending.
In the context of management change at Airbus, and the cost volatility resulting from the recent industrial problems on programmes, the management is working to establish a satisfactory long-term Airbus plan, and it is currently concentrating on the rebaselining of its cost base, to target mid-single-digit EBIT* margins.
All other businesses are expected to collectively grow their revenues and EBIT* contribution over the coming years.
EADS management is committed to restoring Group wide EBIT* margins, although at levels lower than the margin achieved in 2005.
EADS uses EBIT pre-goodwill impairment and exceptionals as a key indicator of its economic performance. The term “exceptionals” refers to such items as depreciation expenses of fair value adjustments relating to the EADS merger, the Airbus Combination and the formation of MBDA, as well as impairment charges thereon.
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