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07 November 2007
Company

Ad-hoc release, 8 November 2007. EADS – 9 months 2007 results. Challenges in key development programmes weigh on EADS’ business recovery

Amsterdam

  • 9-months EBIT* dropped to € -343 million
  • Major 9-months EBIT* burdens: A400M charge (in Q3 2007) and Power8 and A350 XWB launch charges (all in H1 2007)
  • EADS expects full-year 2007 EBIT* to roughly break-even
  • Free Cash Flow improved due to better contributions from operations; Net Cash stood at € 4.5 billion
  • Order intake more than tripled

EADS (stock exchange symbol: EAD) displayed strong commercial and operational performance of its legacy programmes, but its EBIT* for the first nine months was burdened by charges for new programmes and restructuring. In particular financial consequences of the A400M programme status have led EADS to update its 2007 EBIT* guidance. For the full-year 2007 the Group expects EBIT* to be around break-even.

“It isn’t time to lower our guard. The sliding trajectory of the US Dollar confirms the necessity to implement and to reinforce Power8 with additional measures. This, and the complexity of programmes that will define tomorrow’s competitive position – both technological and contractual – mean we have to keep on fighting: fight for lower costs, fight for optimal execution, and in the case of A400M, fight for proper support from partners and customers alike. There is no way around additional efficiency measures to ensure EADS’ long-term competitiveness,” said EADS CEO Louis Gallois. “Apart from that, EADS’ Divisions show ongoing improvements in their operational performance and provide strong business fundamentals.”

In the first nine months of 2007, Airbus deliveries increased to 330 aircraft, especially for the A320 Family, and it registered initial savings in the Power8 restructuring programme. In addition, the first delivered A380 started commercial operations with Singapore Airlines on 25 October. Eurocopter successfully ramped up its serial helicopters production and its service business. EADS Astrium benefited from the growing operations in Paradigm services and a raised Ariane 5 production rate. In the Defence & Security Division the operational improvements came from both Military Air Systems and Defence and Communication Systems.

Revenues were € 27.8 billion (9m 2006: € 27.5 billion), fuelled by higher commercial aircraft deliveries at Airbus (330 units versus 320 compared to the same period of the previous year) and have been further supported by increased volumes at Eurocopter and EADS Astrium.

The slightly positive development in Group revenues was achieved despite a decrease in A400M revenue recognition (€ -677 million) and an unfavourable US Dollar impact of € -660 million.

In the first three quarters of 2007, EADS’ EBIT* (pre goodwill and exceptionals) dropped to € -343 million compared to € 1,426 million in the same period of the previous year. The EBIT* was strongly burdened by the Group-wide A400M charge of € 1.37 billion (thereof € 1.1 billion at Airbus) recorded in the third quarter. The 9-months EBIT* was further weighed down by Power8 restructuring and A350 XWB launch charges at Airbus
(all accounted in the first half of 2007). However, during the first nine months of 2007, the Group experienced an ongoing improvement in its underlying legacy programmes' business performance. An increase in Airbus deliveries and growth in commercial helicopter, space and defence business contributed positively.

EADS registered a Net Loss of € 705 million (Net Income 9m 2006: € 867 million), or a loss per share of € 0.88 (earnings per share 9m 2006: € 1.08).

In the first nine months of 2007, self-financed R&D expenses increased to € 1,906 million (9m 2006: € 1,691 million). This reflects Airbus’ continuing aircraft development programmes.

Free Cash Flow before customer financing increased to € 216 million (9m 2006: € -695 million) thanks to an improved cash flow from operations and reduced capital expenditure. Stronger inflows of customer advance payments only partly compensated the build-up of inventories and higher payments made to suppliers. Free Cash Flow including customer financing improved to € 159 million (9m 2006: € -153 million) as the above described positive impacts were partly offset by a deterioration at customer financing. During the first nine months of 2007, the Net Cash Position grew slightly to € 4.5 billion (year-end 2006: € 4.2 billion).

EADS achieved an order intake of € 82.6 billion (9m 2006: € 25.7 billion) due to a significant upswing at Airbus (up 374 percent) Eurocopter (up 43 percent) and Defence & Security (up 38 percent). In the commercial aircraft and helicopter market the Group benefited from both robust demand and an attractive product offering. The growth was partly curbed by the weaker US Dollar.

At the end of September 2007, EADS’ order book grew to € 304.7 billion (year-end 2006: € 262.8 billion), even though it experienced a € -13 billion revaluation due to the weaker US Dollar. Orders of commercial aircraft activities are based on list prices. The Group further expanded its defence order book through new contracts for Eurocopter, EADS Astrium and Defence & Security; it stood at € 55.4 billion as of 30 September 2007
(year-end 2006: € 52.9 billion). At the end of September, EADS had 117,266 employees (year-end 2006: 116,805).

Outlook

EADS revenues are expected to decrease very slightly in 2007 compared to 2006, based on 440 to 450 aircraft deliveries for the full year, mainly due to an assumed exchange rate of € 1 = US$ 1.40.

All other factors held equal, EADS’ full year EBIT* is expected to break-even in 2007, reflecting the satisfactory results of the Group’s strong legacy programmes, and a lower deterioration of delivered aircraft prices than expected.

This projection is based on the same A400M programme assumptions that underly the charge taken in the third quarter. Besides, it does not take into account the potential influence of short-term currency movements on revaluations of existing provisions.

EADS expects Free Cash Flow to surpass € 1 billion in 2007, provided the sell-down of Paradigm revenue streams from the UK MoD can be completed timely. Were this condition not met, Free Cash Flow is expected to be positive in any case.

* EBIT

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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