EADS half-year results confirm 2003 targets

EADS (stock exchange symbol: EAD), the world’s second largest aerospace and defence company, achieved half-year results fully in line with its expectations and confirmed its 2003 targets. Earnings Before Interest and Taxes (EBIT, pre-goodwill and exceptionals) reached EUR 592 million (first half 2002: EUR 775 million).

In accordance with the guidance provided to the markets, earnings compared to the first half year 2002 were influenced by Research and Development (R&D) expenditure at Airbus, up by EUR 221 million mainly for the A380, fewer Airbus deliveries (149 compared to 160 aircraft) and a restructuring charge at the Space Division of EUR 88 million. In the first half of 2002, the disposal of the EADS share in the company Aircelle had a positive EBIT effect of EUR 63 million. During the first six months of 2003, all EADS divisions except Space improved their EBIT margin before R&D compared to the same period last year.

“The EADS half-year results confirm our outlook for the full year”, the EADS CEOs Philippe Camus and Rainer Hertrich said in a statement. “And so, in spite of recent world events, we continue to deliver what we have promised, knowing that genuine business risks still characterise aerospace markets in the short term. We remain vigilant. Our continued focus on profitability and containing costs across our businesses as well as limiting financial exposure is the foundation for our confidence.”

“Based on our strong order intake and our recent market successes, we should be well positioned once our markets pick up again to deliver strong growth in cash and overall financial performance”, the CEOs continued. “This relates not only to the civil aviation business, where we see very early signs of a recovery on the horizon, but also to the excellent growth prospects of our reorganised Defence and Security Systems division. At Space, we are on track to achieve a turnaround in 2004. The new organisation and the restructuring of Space, along with our prime contractorship for the Ariane system and new large-scale programmes such as Galileo, have been major breakthroughs helping to secure the long-term profitability of our Space activities.”

EADS expects the full-year 2003 EBIT to remain in the same range as 2002, based on 300 aircraft deliveries by Airbus. During the first six months, Airbus has already delivered 149 aircraft in a very difficult market environment.

The results were presented by EADS at a press conference in London on Monday. The UK is one of the home countries of EADS, with 13,000 highly skilled employees and revenues of EUR 2.5 billion in the full year 2002, of which about 25% are from the defence businesses. The existing orderbook of more than EUR 17 billion with UK customers at the end of June 2003 supports a fast growing business in the UK. Further growth opportunities include the EUR 3 billion Skynet 5 military satellite communications system, where the contract nears agreement, the selection of EADS/MBDA for the initial assessment phase for the new UK Ground Based Air Defence (GBAD) programme, and the AirTanker bid to meet the Royal Air Force’s future air refuelling requirements.

EADS revenues in the first six months of 2003 decreased by 7% to EUR 13.1 billion (first half 2002: EUR 14 billion). At constant EUR/US$ exchange rates revenues would have remained on the same level; the impact of lower Airbus deliveries has been offset by a better mix of delivered aircraft, by the first-time 100% consolidation of Astrium (EUR 163 million impact) and by the ramp-up of defence programmes. However, EADS expects to maintain 2003 full year revenues in the same range as 2002 (EUR 29.9 billion), applying a lower average exchange rate of 1 EUR = 1.10 US$. This is because the expected decrease in Airbus revenues should be compensated for by growth in other divisions such as Defence and Security Systems.

EADS’ defence and public safety businesses, which are mainly part of the Defence and Security Systems and the Aeronautics Divisions, are subject to strong seasonal influences. Typically, revenues and earnings are significantly stronger in the second half of the year. This is again expected to be the case in 2003.

The order intake grew strongly as a result of the recent market successes of both the commercial aircraft and the defence businesses, reaching EUR 43.2 billion in the first half of 2003. This is almost three times the comparable figure in the first half of 2002 of EUR 14.8 billion. The order book also increased to EUR 187.7 billion at the end of June, with about EUR 42 billion of defence contracts including the EUR 20 billion A400M contract. The strong orderbook confirms the competitiveness of EADS’ products and services and provides a strong basis for sustained growth of future Cash Flow and improved financial performance.

Major market successes were the Airbus orders from JetBlue Airways of 65 aircraft and the Emirates Airlines order of 41 aircraft (including 21 A380s). Achievements in the Space businesses included the EUR 3 billion agreement on 30 Ariane launchers and the positive decision on the Galileo programme. EADS is consistently delivering the results of its strategic focus on the defence business with new programme wins such as the A400M military transport aircraft programme and the initial success of GBAD in the UK. EADS expects to continue to grow the defence business in the second half of 2003 by securing the Austrian Eurofighter order, the Skynet 5 project and other ongoing campaigns.

The Net Cash position remained strongly positive at EUR 914 million. Free Cash Flow before gross customer financing improved to EUR 305 million (first half 2002: EUR 221 million). The EADS gross customer financing exposure increased minimally by EUR 262 million - almost completely from Airbus - over the first half 2003, leading to EUR 4.0 billion. Taking into account a conservative value for the collateral asset, EADS’ net exposure is only EUR 1.6 billion, which is fully covered by provisions, in line with the company’s conservative accounting policy. EADS is expecting more additions in the second half, well below the budget provided for the year.

Net Income pre-goodwill and exceptionals reached EUR 231 million by June 2003, compared to EUR 462 million in the first half of 2002. Earnings per share pre-goodwill and exceptionals amounted to EUR 0.29 (first half 2002: EUR 0.57).

As usual for EADS, Net Income was significantly affected by non-cash amortisation of goodwill, amounting to EUR 281 million in the first half year. Net Income after goodwill and exceptionals amounted to EUR -66 million in the first six months of 2003.

At the end of June 2003, EADS had 107,845 employees. This was an increase of 4% compared to the end of December 2002, mainly due to the ramp-up of the A380 programme and the first-time full consolidation of EADS Astrium.

The divisional breakdown now reflects the new structure of the Defence and Security Systems and the Aeronautics divisions.

In the first half year, the Airbus EBIT of EUR 621 million (same period 2002: 874 million) was impacted by higher R&D costs, amounting to EUR 901 million, compared to EUR 680 million in the first six months of 2002. The EBIT pre-R&D remained stable at about EUR 1.5 billion. Revenues of EUR 8,773 million (first half 2002: EUR 9,870 million) were lower due to fewer aircraft deliveries and the weaker US-Dollar versus the Euro. Currently, earnings are basically not impacted by the exchange rate situation, due to the extensive hedging of EADS. The part of revenues, which is naturally hedged by Dollar-denominated costs, is however recorded at US$ market rates and therefore reduced by a weaker Dollar.

From January to June 2003, Airbus delivered 149 aircraft (same period 2002: 160), half of the expected 300 deliveries for the full year 2003. In total, Airbus received 199 orders during the first six months of 2003 compared to 107 in the same period last year. This is a major achievement given the continuing difficulties faced by many airlines, resulting in a net market share in terms of value of 66%. The Airbus order backlog amounted to a total of 1,531 commercial aircraft (A400M not included) at the end of June, twelve more than at the same time last year.

The Military Transport Aircraft division recorded an EBIT of EUR -8 million (first half of 2002: EUR -72 million, affected by a EUR 54 million non-recurring charge following the insolvency of Fairchild Dornier). Revenues increased to EUR 268 million (first half of 2002: EUR 234 million), thanks to the military derivative business, but they do not yet include A400M revenues. In addition, the seasonal effects of the defence business will lead to a much stronger performance in the second half of the year. Thanks to the signing of the A400M contract, the division’s orderbook leapt to EUR 20.5 billion.

At the Aeronautics division, EBIT reached EUR 59 million (first six months 2002 pro-forma figure: EUR 29 million). The result no longer includes the Military Aircraft business, which is now part of the Defence and Security Systems division. At EUR 1,613 million, revenues remained on the same level (first half of 2002 on a pro-forma basis: EUR 1,606 million). EBIT and revenues are very much driven by Eurocopter, which usually shows stronger performance in the second half of the year.

The Space division’s EBIT of EUR -131 million (first half of 2002: EUR -85 million) continued to be impacted by the weak markets. EBIT reflected mostly a restructuring charge of EUR 88 million as part of the restructuring announced in March 2003. Order intake reached EUR 779 million in the first half year. Revenues of EUR 1,008 million (first six months 2002: EUR 882 million) include, like all Space division figures, for the first time in 2003 the 100% consolidation of Astrium.

The new Defence and Security Systems division now concentrates Missiles Systems, Defence Electronics, Military Aircraft, Defence and Communications Systems and Services under one roof. The division recorded an EBIT of EUR -28 million, compared to EUR -37 million in the first half of 2002 on a pro-forma basis. Revenues grew slightly to EUR 1,902 million (first half 2002 on a pro-forma basis: EUR 1,856 million). Growth in revenues and EBIT is being driven by the ramp-up of defence programmes such as Eurofighter, Aster and Storm Shadow missiles, and will as usual further accelerate in the second half of the year.

EADS is the second largest aerospace and defence company in the world with revenues of EUR 29.9 billion in the year 2002 and a workforce of more than 100,000. It is a systems integrator and as such is one of the few companies worldwide capable of combining various products and technologies to form complete systems and offering the associated services. The EADS Group includes the aircraft manufacturer Airbus, the world's largest helicopter supplier Eurocopter and the joint venture MBDA, the second largest missile producer in the global market. EADS is the major partner in the Eurofighter consortium, is the prime contractor for the Ariane launcher, develops the A400M military transport aircraft and is the largest industrial partner for the European satellite navigation system Galileo. EADS has over 70 sites in France, Germany, Great Britain and Spain and is active in many regions worldwide, amongst them America, Russia and Asia.

Eckhard Zanger
EADS Communications Finance
Tel. +49 89 607 27961

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