EADS’ (stock exchange symbol: EAD) annual results 2009 demonstrate the Group’s ability to face a challenging macro-economic and commercial environment thanks to proactive management of the order-book and of customer funding sources. It enabled strong deliveries across all businesses. However, earnings are weighed down by provisions for delays on new programmes. Revenues stood stable at € 42.8 billion. The EBIT* before one-off amounted to € 2.2 billion. Foreign exchange effects and the provision booked for the A400M programme in particular have weighed on EADS’ EBIT* of € -322 million. The order intake of € 45.8 billion reflects the significantly weaker commercial momentum in 2009. At the same time, the Group recorded strong defence and institutional business. EADS’ order book of € 389 billion provides a solid platform for future deliveries. The Net Cash position is solid at € 9.8 billion thanks to better than expected Free Cash Flow (see explanations on page 2) and remains a strong asset for the Group.
“In 2009, the commercial business environment was difficult – but we anticipated many of the challenges ahead of us and overcame them. This illustrates the strength EADS has developed over its first ten years,” said EADS CEO Louis Gallois. ”Beyond simply managing the economic downturn, our objective in 2009 was to keep a strong focus on innovation across our portfolio to lay the foundation for the next decade. I deeply appreciate the support of the Customer Nations for the A400M. Thanks to the agreement between the Customer Nations and EADS this programme is now back on track. Although the Group has to take an additional significant provision, this stabilises the programme. Apart from the A400M, we remain fully focused on improved programme management including further ramp-up of the A380, the development of the A350 and the Saudi Border Surveillance programme.”
Revenues of EADS stood at € 42.8 billion (FY 2008: € 43.3 billion), supported by record commercial aircraft deliveries at Airbus (498 units compared to 483 in 2008) but offset by lower revenue recognition in the A400M programme, price deterioration on commercial aircraft deliveries and negative foreign exchange impacts. In addition, revenues at Astrium grew by 12 percent.
EBIT* before one-off – an indicator capturing the underlying business margin by excluding non-recurring charges or profits caused by movements in provisions or foreign exchange impacts – stood at € 2.2 billion (FY 2008: € 3.3 billion). Compared to 2008, higher volumes at Airbus and Power8 savings were more than offset by a degradation of hedge rates, the deterioration of pricing on Airbus commercial deliveries and cost increases. A380 continued to weigh significantly on the underlying performance. The performance of Single Aisle and Long Range programmes in Airbus as well as in other Divisions remains robust.
The EBIT* of EADS of € -322 million (FY 2008: € 2,830 million) was burdened by A400M and A380 provisions and exceptional negative foreign exchange impacts. In total, exchange rate impacts weighed down 2009 EBIT* by € 2.5 billion compared to 2008.
EADS’ Net Income amounted to € -763 million (FY 2008: € 1,572 million), or earnings per share of € -0.94 (earnings per share FY 2008: € 1.95). The Net Income was weighed down by the deterioration of EBIT*. Self-financed R&D expenses slightly increased to € 2,825 million (FY 2008: € 2,669 million), assigned to spur new technologies and future business.
Exceptionally, due to the significant loss in 2009, the EADS Board of Directors recommends no dividend payment this year.
Free Cash Flow before customer financing of € 991 million (FY 2008: € 2,886 million) exceeded guidance due to successful Cash Flow management. It also benefited from payments of public customers at year-end which were expected in 2010. Net customer financing outflow was lower than expected during 2009 at around € 400 million. Free Cash Flow after customer financing amounted to € 585 million (FY 2008: € 2,559 million). EADS refinanced its € 1 billion Eurobond in August. Investing activities consumed € 1.9 billion, reflecting an increase in capital expenditure as investment ramps up in the A350 programme. The Group’s Net Cash position reached € 9.8 billion (year-end 2008: € 9.2 billion).
The Group’s order intake decreased to € 45.8 billion (FY 2008: € 98.6 billion). The target order intake for commercial aircraft was achieved but as expected falls short of the 2008 level. On 31 December 2009, the order book of EADS stood at a robust € 389.1 billion (year-end 2008: € 400.2 billion) despite the revaluation impact at the closing rate of 1.44 $/€ at the end of December versus 1.39 $/€ at the end of December 2008. This revaluation has led to a reduction of around € 11 billion. The defence order book increased to € 57.3 billion (year-end 2008: € 54.9 billion). This growth was driven by important military contracts in 2009 including Eurofighter Tranche 3a.
At the end of December 2009, EADS had 119,506 employees (year-end 2008: 118,349).
In 2009, EADS continued improving its Group-wide efficiency. Airbus had achieved € 2 billion in Power8 gross savings (different from the net EBIT* impact) compared to the projected cost base by the end of 2009. Smart buying, supply chain streamlining and logistics integration as well as lean manufacturing have made solid contributions to a leaner Airbus.
Power8 plus has now started and contributions will be made from all Divisions. Additional projects at Airbus include redesign implementation in single aisle and long range programmes.
Regarding the Future EADS integration and savings plan, the Group is increasing its target for gross annual savings compared to the projected cost base from € 200 million to € 350 million at the end of 2012. Future EADS aims to simplify, harmonise and integrate support functions in all areas. The savings run through ten project streams from Finance to IT, General Procurement and Facility Management.
The different cost saving initiatives are being consolidated at Division level as they further mature like in Eurocopter where they are captured within the SHAPE programme.
Upon evaluation of the request for proposal for the US Air Force Tanker replacement, Northrop Grumman has decided not to submit a bid to the US Department of Defence for the KC-X program.
As a team, serious concerns were expressed to the US Department of Defence and the US Air Force that the acquisition methodology outlined in the request for proposal (RFP) would heavily weigh the competition in favour of the smaller, less capable Boeing tanker. Northrop’s in-depth analysis of the RFP reaffirmed those concerns and prompted the decision not to bid.
This decision does not diminish EADS’ commitment to the US, or to its service men and women. EADS also remains convinced that the A330 Multi Role Tanker Transport (MRTT) aircraft would deliver added capability, lower risk and best value for both the service men and women and US taxpayer.
It has been flown, tested and proven. The A330 MRTT has been selected over the Boeing tanker in the last five consecutive competitions and will shortly enter service with several US allies.
As EADS enters into 2010, the Group remains fundamentally solid to cope with the improving but still volatile economic environment.
This is based on a resilient, actively managed backlog of 3,488 aircraft in Airbus, 1,303 in Eurocopter and strong backlog in the Space and Defence businesses.
Progressive recovery in traffic and yield especially in emerging markets should first stabilise airline financials before it leads to additional ordering activity.
Based on a number of active campaigns, which should lead to 250-300 new gross orders in 2010 and a stable overbooked backlog on single aisle aircraft, Airbus decided to increase production rate from 34 to 36 aircraft per month on single aisles starting in December 2010 while keeping the long range programme production rates roughly stable at around 8 aircraft per month.
In 2010, Airbus expects to deliver up to the same level of aircraft as in 2009 and new gross orders should range between 250 and 300 aircraft. Eurocopter should deliver around 6 percent less helicopters in 2010 compared to 2009.
Therefore, using € 1 = $1.40 as the average spot rate, EADS revenues should be roughly stable in 2010.
EADS’ EBIT* in 2010 will be around € 1 billion. The deterioration of the hedge rates will weigh by about € -1 billion compared to 2009. A380, while slightly improving, will continue to weigh substantially on the EBIT* before one-off, as in 2009. Cost savings and some improvement in aircraft pricing should contribute positively while weaker helicopter deliveries, some increase in Research & Development (R&D) and cost inflation will weigh on profitability.
Going forward, the EBIT* performance of EADS will be dependent on the Group’s ability to execute on the A400M, A380 and A350 programmes in line with the commitments made to its customers.
Provided a sustainable year-end cash inflow of institutional and government business and subject to Pre-Delivery Payment advances for the A400M programme, the Free Cash Flow before customer financing should be break-even. Free Cash Flow after customer financing should be negative due to customer financing cash-outflows of around € 1 billion.
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.
This accounting method was used by EADS from September 2008 until the end of December 2009 as EADS could neither finally agree with OCCAR on an updated contract scheme for the A400M programme nor reliably assess the related financial implications of the delayed A400M programme. (For more details refer to the “Year 2009 Report, Unaudited Condensed Consolidated, Financial Information of EADS N.V. for the year ended December 31, 2009”).
EADS is a global leader in aerospace, defence and related services. In 2009, the Group - comprising Airbus, Eurocopter, EADS Astrium and EADS Defence & Security – generated revenues of € 42.8 billion and employed a workforce of more than 119,000.
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