EADS (stock exchange symbol: EAD) continued its robust underlying performance in the first half of 2008 and achieved significant efficiency improvements across all Divisions despite programme challenges the Group is still facing. Within an uncertain macro-economic environment EADS registered a remarkable order intake reflecting the quality of its commercial and defence product portfolio. The Group confirms its full-year 2008 EBIT* guidance of € 1.8 billion in spite of an A380 charge.
Airbus continued to ramp-up deliveries and handed over 245 aircraft (H1 2007: 231 aircraft) to its customers. Just recently, Emirates became the second operator of the A380, receiving its first aircraft from the delivery centre in Hamburg. The Military Transport Aircraft Division rolled out the first A400M from the final assembly line in Seville; first flight is expected in autumn. Eurocopter registered a strong order intake bringing its order book to a record high. Astrium made substantial progress in completing the military satellite communication system Skynet 5. The Defence & Security Division expanded its secure communications business and forged ahead in its Unmanned Aerial Vehicle (UAV) activities.
Revenues increased by 8 percent to € 19.7 billion (H1 2007: € 18.4 billion) reflecting growth across all five Divisions despite a negative US dollar headwind. Higher Airbus deliveries (245 units, including four A380s, compared to 231 aircraft in the same period of 2007), increased volumes at Eurocopter, Astrium and Defence & Security and an A400M milestone achievement demonstrate the strong commercial momentum in the first half of 2008.
EADS’ EBIT* (pre goodwill and exceptionals) for the first half of 2008 reached € 1.16 billion compared to € 358 million in the first half of 2007, when Airbus' EBIT* in particular was heavily burdened by Power8 restructuring provisions and A350 launch charges. The growth resulted from improvements across all Divisions. At Airbus, strong operational performance and achievement of Power8 cost savings were partly offset by a € 715 million charge in the context of the A380 programme review announced in May. Nevertheless, in the first six months of 2008, Group EBIT* benefited from under-proportional R&D expenses but this benefit will reverse in the second half of the year. In the first six months of 2008 a negative US dollar impact of around € 700 million led to loss-making contract adjustments and put pressure on the Group’s EBIT*. Deterioration of hedge rates was compensated by temporary excess volume of matured hedges.
In line with the Group's EBIT* development, EADS improved its Net Income to € 403 million (H1 2007: € 71 million), or earnings per share of € 0.50 (earnings per share H1 2007: € 0.09). To further address the weak US dollar and to secure future profitability, EADS is taking decisive actions with regard to its hedging activities. The Group started to complement its hedging positions buying a significant amount of US dollar options.
Self-financed R&D expenses decreased slightly to € 1,130 million (H1 2007: € 1,266 million), but are expected to grow over the full year mainly in the context of Airbus’ aircraft development programmes, especially for the A350.
Free Cash Flow before customer financing increased significantly to € 962 million (H1 2007: € -29 million) driven by improved cash flow from operations and reduced capital expenditure. The improvement in operating cash flow mainly related to a stronger inflow of customer advance payments; it additionally benefited from a much lower build-up of inventories. Consequently, Free Cash Flow including customer financing improved to € 1,043 million (H1 2007: € -67 million) despite a cash-out for the acquisition of PlantCML. An additional benefit came from a net contribution from sell-down of customer financing assets compared to a cash-out in the first half of 2007. In the first half of 2008, Cash Flow is significantly less impacted by capital expenditure, settlement payments and restructuring expenses than it will be over the rest of the year. At the end of June, the Net Cash Position reached € 8.1 billion (year-end 2007: € 7.0 billion).
In the first six months of 2008, EADS’ order intake reached a remarkable level of € 51.2 billion compared to a record of € 70.1 billion in the first six months of 2007, when the order intake was strongly supported by the extraordinary high order flow at the Paris air show. Up to the end of June 2008, the Group’s order book remained at a record level of € 354.2 billion (year-end 2007: € 339.5 billion). Orders for 247 aircraft received during the recent Farnborough air show are not yet included in H1 order book. The growth in order book was achieved despite a € -17 billion revaluation due to the weaker US dollar at the end of June. Orders within the commercial aircraft business are based on list prices. The Group further expanded its defence order book mainly thanks to its Military Transport Aircraft Division; the defence order book closed the first half at € 57.7 billion (year-end 2007: € 54.5 billion). At the end of June, EADS had 117,198 employees (year-end 2007: 116,493).
Group-wide efficiency measures are progressing well. The Power8 restructuring programme is ahead of schedule and achieved around € 400 million EBIT* contribution in the first half of 2008. Airbus has made considerable progress in overhead reductions and secured approximately 40 percent of the target for this module. The Group-wide selection of 28 preferred suppliers of engineering services out of an existing pool of 2,000 marked a significant step towards implementing a global sourcing strategy. In terms of Smart Buying, Airbus is changing its supplier contracts to life-cycle of programme contracts for selected aerostructures, systems and equipment suppliers to limit non-recurring costs. General procurement targets are already secured to 2010, driven by quick wins and new sourcing initiatives as well as optimized logistics. The site divestment strategy is maintained and the creation of the new French and German aerostructures companies is progressing. These companies must comply with the full original Power8 cost saving targets. The sale of Laupheim (Germany) to Diehl/Thales is nearing completion, negotiations on divestment in Filton (UK) are ongoing. Early July, EADS opened exclusive negotiations with the Group DAHER for acquisition of a majority interest within EADS Socata. Given the progress and prospects registered on the Power8 programme so far, EADS and Airbus maintain the previously communicated Power8 targets regarding EBIT* and Cash savings.
In addition to the successfully running Power8 programme EADS is launching a Group-wide Power8 Plus programme to expand current initiatives after 2010. EADS will strengthen its focus on increasing its global footprint for engineering and manufacturing. Power8 Plus targets a more internationalised cost base (compared to a current one dominated by the Euro) and is intended to deliver a further annual EBIT* benefit of € 1 billion from across the Group in 2011 to 2012. The measures will be presented to the European Works Council in autumn.
The EADS guidance is based on a closing spot rate at year-end 2008 of € 1 = US$ 1.45.
EADS expects Airbus to capture above 850 aircraft orders in 2008.
EADS revenues are expected to exceed € 40 billion in 2008, with about 470 aircraft deliveries for the full year.
EADS expects its 2008 EBIT* to reach € 1.8 billion. The strong underlying performance generated across all businesses in the first half of 2008 provides some upside potential. Nevertheless, EADS remains cautious regarding the A400M programme. The Group expects that the results of the first flight tests and further negotiations with customers and suppliers will provide a sound basis for the finalisation of the cost-at-completion exercise on the A400M programme.
The weakening of closing spot rate at year-end 2008 could have negative impacts on earnings linked to the revaluation at a deteriorated US dollar rate of some Airbus balance sheet items, including loss-making contract provisions.
Before the impact of customer financing, EADS expects 2008 Free Cash Flow at above € 1 billion if the current trend is confirmed and while bearing in mind that this is the most volatile item to predict.
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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