• Order intake of € 30.8 billion signals commercial aircraft momentum
• Airbus to increase Single Aisle production rate to 40 per month
• Stable revenues of € 20.3 billion
• EBIT* before one-off at € 0.6 billion
• EBIT* of € 406 million
• Net income: € 185 million
• Net Cash at € 8.9 billion remains key asset
EADS’ (stock exchange symbol: EAD) macro-economic and commercial environment continues to improve while challenges remain, particularly in the institutional sector. Revenues stood at € 20.3 billion. The EBIT* before one-off of € 0.6 billion benefited from good performance in Airbus legacy programmes and other business activities. EADS’ EBIT* amounted to € 406 million after exceptional foreign exchange effects. The order intake of € 30.8 billion mirrors the improved momentum in commercial aviation. EADS’ order book of more than € 454 billion provides a solid platform for future deliveries. The Group’s Net Cash position of € 8.9 billion remains a key asset.
“Berlin and Farnborough Air Show orders reflect an improvement in the commercial aviation market. I am particularly glad to see the return of aircraft lessors. However, the institutional outlook is more challenging as public budgets in our domestic markets are under tight review”, said Louis Gallois, CEO of EADS. “Our key priorities remain clear: improving efficiency on the A380 production, developing the A350 and finalising the A400M contract amendment with the Customer Nations. I want to add that we have submitted our bid for the U.S. Air Force tanker programme and that we will fight hard to win the competition again.”
In the first six months, EADS’ revenues remained stable at € 20.3 billion (H1 2009: € 20.2 billion). Deliveries at Airbus Commercial (250 units) and Eurocopter (249 helicopters) remained roughly stable at a high level. The percentage of completion methodology was resumed on the A400M programme. In the second quarter, based on the allocation of internal milestones, around € 300 million in revenues were booked on the programme. Customer Nations and EADS continue working towards a contract amendment. In the meantime, the A400M flight test programme is progressing better than expected; however, the development of the Flight Management System is on the critical path, with more challenges than expected. Risk mitigation actions are being undertaken. Management assumptions of March 2010 underpinning the A400M provision calculation remain valid. As previously indicated, reassessment of these assumptions could have a significant impact on future results.
EBIT* before one-off (adjusted EBIT*) – 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 € 0.6 billion (H1 2009: € 1.3 billion) for EADS and around € 0.3 billion for Airbus. It benefited from good performance in Airbus legacy programmes and other business activities. As expected, the A380 continues to weigh significantly on the underlying performance. Compared to H1 2009, EBIT* before one off was weighed down by the deterioration of hedge rates and higher investment in Research & Development.
EADS’ reported EBIT* of € 406 million (H1 2009: € 888 million) was further weighed down mainly by exceptional negative foreign exchange impacts. EADS has further refined its natural hedging strategy in line with IFRS, impacting reported EBIT* and other financial result but with no impact on EBIT* before one-off and net income. Exchange rate impacts weighed on the H1 2010 reported EBIT* by around € 550 million compared to H1 2009.
Net Income amounted to € 185 million (H1 2009: € 378 million), or earnings per share of € 0.23 (earnings per share H1 2009: € 0.47). The interest result reflects the decline in interest rates on the financial markets. The other financial result improved considerably by around € 270 million year on year. This line includes the positive revaluation of the Group’s U.S. dollar and GBP cash assets.
Self-financed Research & Development (R&D) expenses grew to
€ 1,301 million (H1 2009: € 1,172 million), driven by increases in Airbus due to a ramp up in A350 XWB activity as well as a rise in product investment at Defence & Security and Eurocopter.
Free Cash Flow before customer financing of € -470 million (H1 2009: € -948 million) reflects a lower deterioration in working capital but the decrease in EBIT* before one-off. Change in working capital amounted to € -815 million (H1 2009: € -1,898 million). The change in working capital reflects, as anticipated, an increase in inventories, mainly at Airbus although at a much lower level than in the first half year of 2009. H1 2009 included a ramp up on the A380 production but a low level of A380 deliveries as well as a mismatch between production and delivery rates on both single aisle and long range aircraft in the period. The inflow of advances linked to Airbus commercial activity is higher than one year ago, representing an increase in commercial aircraft orders. Some payment delays in the defence and institutional business were compensated by government receipts for development programmes. Customer financing needs for the first half reached around € 270 million. Free Cash Flow after customer financing amounted to € -737 million (H1 2009: € -1,169 million).
EADS’ Net Cash position of € 8.9 billion (year-end 2009: € 9.8 billion) continues to provide a solid foundation for the Group’s operational needs as well as future growth. It reflects the Free Cash Flow consumption of the first half year as well as a € 300 million contribution to the pension fund assets.
The order intake of EADS significantly increased to € 30.8 billion compared to one year ago (H1 2009: € 17.2 billion) due to higher commercial aircraft orders. This does not include orders booked at Farnborough Air Show. By the end of June 2010, EADS’ order book stood at € 454.5 billion (year-end 2009: € 389.1 billion), reflecting increases at Airbus and Astrium. The Airbus Commercial order book benefited from a positive revaluation impact of around € 56 billion due to the closing spot rate of the U.S. dollar that has significantly strengthened since year-end. The defence order book amounted to € 56.6 billion (year-end 2009: € 57.3 billion).
The strengthening of the dollar, if sustained, will improve profitability beyond 2012. In the short term, EADS’ net exposure is almost fully hedged. At the end of June 2010, the mark-to-market value of the Group’s hedge portfolio at the closing spot rate is a negative € 4.2 billion net of tax, impacting equity. These negative effects on equity will reverse as current hedges expire and/or the dollar further weakens. During the second quarter of 2010, EADS invested in foreign exchange options as well as forward contracts. Options consume less hedging capacity while allowing for a potential upside from more favourable rates.
In case of a drastic strengthening of the U.S. dollar against the euro, the size of the hedge portfolio and the volatility of the financial markets could limit the availability of long term hedging capacity using forward contracts and could weigh further on equity.
At the end of June 2010, EADS’ workforce consisted of 120,038 employees (year-end 2009: 119,506).
EADS’ guidance is based on an assumption of €1 = $1.35 for the H2 average and December closing spot rates.
The Group is increasing its guidance for orders, revenues, underlying profitability and free cash-flow.
Given the recent commercial success at Farnborough and the number of on-going campaigns, Airbus has increased its full year target for gross orders to above 400. Single aisle production rates will go up to 36 a month at the end of this year, to 38 in Q3 2011 and to 40 a month in Q1 2012.
On the other hand, the civil helicopter market and its related order stream are expected to be sluggish in H2 2010. At this stage, no significant impact is expected in 2010 from the pressure on institutional and defence budgets.
Airbus deliveries should be around 500 aircraft for the full year 2010. Eurocopter deliveries will be slightly below the last year.
Using these exchange rates and delivery assumptions, EADS revenues should increase to more than € 44 billion.
Thanks to a higher number of expected deliveries and an upside to the group’s underlying profitability, EADS EBIT* before one-off should reach around
€ 1.2 billion in 2010. At Airbus, H2 EBIT* before one-off will be lower than in H1. Compared to H1, the positive impact of higher volumes and better pricing will be more than offset by higher R&D and the deterioration of hedge rates compared to the first half of the year.
Going forward, the EBIT* performance of EADS will be dependent on the Group’s ability to execute on the A400M, A380 and A350 XWB programmes, in line with the commitments made to its customers. At €1 = $1.35, EADS maintains its EBIT* guidance of around € 1 billion despite the negative exceptional impacts from foreign exchange accrued in H1.
EADS is also improving its free cash flow guidance. 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 € 600 million.
* 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.
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.