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Airbus, Thales and Leonardo Profits Fall

Airbus

27 Jul 17. Airbus profits lag amid engine issues, military challenges. Airbus’ first-half profits took a hit amid ongoing problems with its A400M military transporter and engine problems for its A320neo, and deliveries are down though orders are on the rise.

The company said Thursday that sales in the second quarter fell but were stable overall in the first half at €28.7bn (U.S. $33.5bn) compared with €28.8bn for the same period last year. Net income dropped to €1.5bn from €1.76bn in the first half last year.

“We are facing challenges due to ongoing engine issues,” CEO Tom Enders said, notably on the A320neo, blamed on supplier Pratt & Whitney.Airbus maintained its full-year forecast of delivering more than 700 planes but says it depends on engine makers meeting commitments to fixing problems. (Source: Defense News)

 Airbus SE (stock exchange symbol: AIR) reported half-year 2017 financial results and maintained its guidance for the full year.

“The commercial aircraft environment remains healthy while the robust order backlog continues to support our production ramp-up plans. However, we are facing challenges due to ongoing engine issues but we have a clear road-map in place and have maintained our full-year guidance. Achieving the aircraft delivery target depends on the engine suppliers meeting their commitments,” said Airbus Chief Executive Officer Tom Enders. “Our focus in the second half remains squarely on programme execution and delivering the ramp-up. In Helicopters, resolving the H225 situation while supporting our customers is a top priority and at Defence and Space we continue our efforts to de-risk the A400M programme. Over the longer term, Airbus will benefit from its strong focus on innovation and more efficient and integrated structure.”

Order intake(1) totalled € 37.2bn (H1 2016: € 39.1bn) with the order book(1) valued at € 981bn as of 30 June 2017 (year-end 2016: € 1,060bn). A total of 203 net commercial aircraft orders were received (H1 2016: 183 aircraft), with the order backlog comprising 6,771 aircraft at the end of June. During June’s Paris Air Show, 144 firm orders and 202 commitments were announced. Net helicopter orders increased to 151 (H1 2016: 127 net orders), including 30 H225Ms for Kuwait. Defence and Space’s order intake was impacted by the perimeter changes from portfolio reshaping and some slowdown in telecommunication satellites. Good order momentum was seen in Military Aircraft with orders for 19 Light and Medium aircraft booked.

Revenues were stable at € 28.7bn (H1 2016: € 28.8bn) despite the perimeter changes in Defence and Space. Commercial Aircraft revenues rose three percent with deliveries of 306(2) aircraft (H1 2016: 298 aircraft) comprising 239 A320 Family, 30 A350 XWBs, 31 A330s and six A380s. Helicopters’ revenues increased nine percent with deliveries of 190 units (H1 2016: 163 units). Revenues at Defence and Space reflected a negative impact of around € 1.2bn from the perimeter changes.

 EBIT Adjusted – an alternative performance measure and key indicator capturing the underlying business margin by excluding material charges or profits caused by movements in provisions related to programmes, restructuring or foreign exchange impacts as well as capital gains/losses from the disposal and acquisition of businesses – totalled € 1,099 m (H1 2016: € 1,679m).

Commercial Aircraft’s EBIT Adjusted was € 954m (H1 2016: € 1,269m), reflecting the aircraft delivery mix and phasing as well as transition pricing.

Good progress was made on the A350 industrial ramp-up with 30 deliveries compared to 12 in the first half of 2016. The A350 programme is on track to meet the monthly production rate target of 10 aircraft by the end of 2018. The level of outstanding work has improved in the industrial system and supply chain bottlenecks are improving. In the second quarter, Qatar Airways cancelled four A350 delivery slots. The focus remains on recurring cost convergence. On the A320neo programme, 59 aircraft were delivered compared to eight in the first half of 2016. The A320neo ramp-up remains challenging and customers are still experiencing a number of in-service engine issues. Engine supplier Pratt & Whitney has introduced some fixes but these improvements have not come through yet on a reliable basis under normal service conditions. Close to 200 A320neo deliveries are still targeted for 2017 but this objective is more challenging given these engine issues. Considering the current A380 order booking situation, 2019 deliveries will be adjusted to eight aircraft. Helicopters’ EBIT Adjusted totalled € 93m (H1 2016: € 144m), reflecting an unfavourable mix mainly from lower commercial flight hours in services as well as the impact from the partial H225 grounding. In July, UK and Norwegian aviation authorities lifted the

H225 flight ban. However, the implementation of enhanced safety measures will require a plan of checks, modifications and preventive inspections. Airbus will continue to support its customers, as and when required, to progressively bring the H225 fleet back into operations. Defence and Space’s EBIT Adjusted declined to € 248m (H1 2016: € 322m), reflecting the perimeter change and was broadly stable on a comparable basis. Eight A400Ms were delivered compared to five aircraft in the first half of 2016. Airbus has continued with A400M development activities toward achieving the revised capability roadmap shared with the customer. However, achievement of the contractual technical capabilities and associated costs remain highly challenging. Challenges also remain on securing sufficient export orders in time, on cost reductions, industrial efficiency and commercial exposure, which could all impact significantly the programme. Discussions to derisk the A400M programme are ongoing with the Nations and OCCAR.

Group self-financed R&D expenses declined to € 1,288m (H1 2016: € 1,309m).

EBIT (reported) of € 1,791m (H1 2016: € 1,851m) included Adjustments totalling a

net € +692m compared to net Adjustments of € +172m in the first half of 2016. The

H1 2017 Adjustments comprised:

*A net charge of € 70m on the A400M programme mainly reflecting price escalation;

*A positive impact of € 174m related to the dollar pre-delivery payment mismatch and

balance sheet revaluation;

*A net capital gain of € 560m from the divestment of the Defence Electronics

business in the first quarter;

*A net positive impact of € 28m related to other portfolio changes at Defence and

Space.

Net income(3) amounted to € 1,503m (H1 2016: € 1,761m) after the EBIT

Adjustments with earnings per share of € 1.94 (H1 2016: € 2.27). EPS and net income

included a positive impact mainly from the revaluation of financial instruments and balance sheet items. The finance result was € 66m (H1 2016: € -148m).

Free cash flow before M&A and customer financing improved to € -2,093m (H1

2016: € -2,649m), although its development has been impacted by the aircraft delivery

profile as well as the recently cancelled A350 delivery slots. Free cash flow of

€ -1,956m (H1 2016: € -1,119m) included net proceeds of around € 600m from

the Defence Electronics disposal in the first quarter. The net cash position on 30 June 2017

was € 7.9bn (year-end 2016: € 11.1bn) after the 2016 dividend payment of € 1.0bn in the second quarter with a gross cash position of € 19.3bn (year-end 2016: € 21.6bn).

Outlook

As the basis for its 2017 guidance, Airbus expects the world economy and air traffic to grow in

line with prevailing independent forecasts, which assume no major disruptions.

Airbus’ 2017 earnings and Free Cash Flow guidance is based on a constant perimeter:

*Airbus expects to deliver more than 700 commercial aircraft which depends on engine manufacturers meeting commitments.

*Before M&A, Airbus expects mid-single-digit percentage growth in EBIT Adjusted and EPS Adjusted compared to 2016.

*Free Cash Flow is expected to be similar to 2016 before M&A and Customer Financing.

The perimeter change in Defence and Space is expected to reduce EBIT Adjusted and Free

Cash Flow before M&A and Customer Financing by around € 150 m and EPS Adjusted by around 14 cents.

Thales

27 Jul 17. Thales first-half net profit slips.

French electronics company Thales reported on Wednesday a first-half net profit of €336m (U.S. $392m), which is down 12 percent from a year ago, reflecting last year’s gain from the sale of a stake in its joint venture with Raytheon.

With last year’s disposal of its 50 percent stake in ThalesRaytheonSystems, or TRS, the company gained €92m for the first half of 2016, Thales said.

TRS developed and built NATO’s Air Command and Control System, linking national radar systems of alliance members to provide overall coverage.

Operating profit rose to €551m, up 17 percent on a like-for-like basis, marking 8.8 percent of sales.

Turnover rose 5.9 percent to €7.2 bn. Sales in the defense and security segment rose 6.5 percent to €3.6bn, with “steady growth” in missile electronics and protected vehicles, the company said.

Combat aircraft systems saw a “high level of activity,” the company said.

Thales is a major subcontractor on the Rafale fighter jet, notably supplying the radar and onboard electronics.

Orders rose 10 percent to €5.9bn, with seven large orders booked in the second quarter compared to three a year ago. Large orders are worth more than €100m, Thales said. The order book stood at €31.9bn, an estimated two years worth of work.

Orders in mature markets rose 16 percent to €4.4bn, helped by a 51 percent increase in France and a 42 percent gain in North America. Orders from emerging markets slipped 2 percent to €1.58bn.

Among the large orders were Thales’ share of development and building five intermediate frigates for the French Navy, and building with partners Nexter and Renault Trucks Defense the first batch of 340 armored vehicles in the French Army’s Scorpion program, the company said.

There was also an order for Aeros reconnaissance pods to an undisclosed client, and systems and sensors for the navy of an emerging-market country, also undisclosed.

Secure communications and information systems saw a sales slow down, with a “positive dynamic” in military networks and infrastructure systems offset by falling sales in radio communication products.

Free operating cash flow jumped 380 percent to €216m from €45m, while net cash slipped by €72m to €2.3bn.

The 2017 operating profit was forecast to rise between 9 to 11 percent, between €1.48bn and €1.5bn, helped by continuing efforts to boost competitiveness.

Orders for 2017 were forecast to “remain brisk” at an estimated €14bn, below record highs booked in 2016 and 2015.

Sales were forecast to see “mid-single digit organic growth” compared to 2016.

Thales reported 2016 sales of €14.9 bn.

(Source: Defense News)

26 Jul 17. Thales 2017 Half year results

. Solid order intake: €6.0bn, up 10%

. Sales: €7.24bn, up 5.9% on an organic basis1

. EBIT2: €637m, up 16% (up 17% on an organic basis)

. Adjusted net income, Group share2: €424 m, up 15%

. Consolidated net income, Group share: €336 m, down 12%

. Very good level of free operating cash flow2 for a first half year: €216m

(H1 2016: €45 m)

. 2017 objectives confirmed

1 In this press release, “organic” means at constant scope and currency.

2 Non-GAAP measures, see definitions in the appendices. The definitions of EBIT and adjusted net income were adjusted as of 1 January 2016 to exclude expenses recognised in income from operations that are directly attributable to business combinations. In H1 2017, they impacted EBIT in an amount of €10 m and adjusted net income in an amount of €7m (€7 m and €5m in H1 2016).

3 The limited review of the financial statements has been completed and the statutory auditors’ report has been issued following the meeting of the Board of Directors.

Thales’s Board of Directors (Euronext Paris: HO) met on 25 July 2017 to review the financial statements for the first half of 20173.

Patrice Caine, Chairman and Chief Executive Officer, commented, “At the end of June, Thales is once again confirming its growth momentum, with a solid order intake and a 5.9% organic sales growth, ahead of the full year target. The Group’s profitability continues to increase, with EBIT and adjusted net income up by more than 15% for the third year in a row. At the same time, we are stepping up our R&D investments, which increased by more than 10% in H1 2017, in order to reinforce our technological leadership. These results reflect the strength of our business model and its ability to create value. In parallel, the Group is consolidating its leading position in the digital transformation of its markets. We are investing €150m over three years to set up a cross-functional ‘digital factory’ in order to capitalise on our unique portfolio of digital technologies. The strategic acquisition of Guavus, which is currently underway, will enable us to implement real-time big data solutions on an industrial scale across all of our businesses. The first half reinforces our confidence in Thales’s ability to achieve its full year targets and, as a result, record another year of growth in sales and profit.”

Key figures

H1 2017 order intake amounted to €5,972m, up 10% compared to H1 2016 (up 10% at constant

scope and currency). The commercial dynamics remained solid in all of the Group’s businesses. At 30 June 2017, the Group’s order book stood at €31.9bn, which represents almost 2.1 years of sales, improving visibility for the businesses in the coming years.

Sales in H1 2017 came to €7,241m, up 5.8% on a reported basis, and up 5.9% at constant scope and currency (“organic” change). Emerging market1 sales maintained a high level of growth (15% organic growth, after 14% in H1 2016), while sales in mature markets1 recorded moderate organic growth of 2.2%. Emerging markets thus accounted for 32% of the Group’s sales in the period, compared to 24% in H1 2014 and 29% in H1 2016.

1 “mature markets” include Europe, North America, Australia and New Zealand. “Emerging markets” include all other countries: Asia,

Middle East, Latin America and Africa.

2 At 31 December 2016.

In H1 2017, consolidated EBIT was €637m (8.8% of sales), compared to €551m (8.1% of sales)

in H1 2016. EBIT benefited in particular from the on-going operational recovery of the Transport segment as well as the solid performance of the Aerospace and Defence & Security segments. Adjusted net income, Group share rose 15% to €424m, lifted by the improved EBIT performance.

Consolidated net income, Group share was €336m. This figure was down 12% on H1 2016, during which the Group benefited from the sale of its interest in Thales Raytheon Systems LLC to Raytheon, resulting in a disposal gain of €92m.

Standing at €216 m, free operating cash flow was positive in H1 2017 as in the prior-year period,

driven by the good performance achieved in terms of working capital and by the temporary slowdown in operating investments. At 30 June 2017, net cash amounted to €2,294 m, down €72m compared to 31 December 2016, but up €855 m over the last 12 months (€1,439 m at 30 June 2016).

Order intake in H1 2017 stood at €5,972m, an increase of 10% year-on-year (10% at constant scope and currency2). The book-to-bill ratio was 0.82 for H1 2017 (versus 0.79 in the prior-year period), and 1.12 over the last 12 months.

In H1 2017, Thales booked 8 large orders with a unit value of over €100m (compared to 3 such orders in H1 2016), representing a total amount of €1,180m:

. 1 contract booked in Q1, covering the supply of a telecommunications satellite to an  emerging-market customer.

. 7 large orders booked in Q2:

o The supply of in-flight entertainment (IFE) systems to a major North American carrier

o The construction for Inmarsat of a very high throughput satellite (V-HTS) to offer on-board Internet connectivity (Global Xpress network)

o The operation and maintenance of critical security, information and communication systems at the French Ministry of Defence’s new Balard headquarters, which hosts more than 9,000 people

o A contract in the framework of the development and construction of five intermediate-sized frigates (FTIs) for the French Navy

o The contract to manufacture the first 340 armoured vehicles as part of the Scorpion programme, in partnership with Nexter and Renault Trucks Defense, for the French

Ministry of Defence

o The supply of AREOS reconnaissance “pods” to a military customer

o The delivery of several systems and sensors to an emerging-market navy

Orders with a unit value of less than €100m declined slightly by 2%.

From a geographical perspective1, order intake was broadly stable year-on-year in emerging markets (€1,571m, down 3%), while it was solid in mature markets, where it rose 16% to €4,401m thanks to performances in France (up 51%) and North America (up 42%).

2 Mature markets: Europe, North America, Australia, New Zealand. Emerging markets: all other countries. See page 14.

Order intake in the Aerospace segment stood at €2,238m, up 1% from €2,218m in H1 2016.

Commercial Avionics orders maintained their positive momentum. The In-Flight Entertainment and Connectivity business recorded solid growth, driven by the booking of a large order during the period. Despite the two contract wins listed above, order intake for the Space segment declined year-on-year. At €662m, order intake in the Transport segment was up 31% compared to H1 2016, lifted notably by the contract for the regional express train linking Dakar to the city’s new airport.

Order intake in the Defence & Security segment rose 14% to €3,035m, from €2,670m in

H1 2016, reflecting in particular the good momentum in equipment for military aircraft and vessels and in secure information and communication systems.

Sales for H1 2017 stood at €7,241m, compared to €6,846m in H1 2016, up 5.8% on a reported

basis1, and up 5.9% at constant scope and currency (“organic” change), driven by good momentum in all segments.

1 Taking into account a negative exchange rate effect of €16m and a net positive scope effect of €7m, mainly related to the consolidation of Vormetric on 16 March 2016 (Defence & Security segment) and to the disposal of the identity management business in Q2 2017 (same segment)

From a geographical perspective2, this sound performance reflected both a continued strong growth of 15.1% in emerging markets (14.2% in H1 2016) and moderate organic growth of 2.2% in mature markets (6.8% in H1 2016).

Sales in the Aerospace segment totalled €2,872m, a 7.7% increase compared to H1 2016

(7.2% increase at constant scope and currency). The Avionics and In-Flight Entertainment businesses maintained their positive dynamic, driven in particular by the increase in deliveries of avionics systems to Airbus. Only sales of tubes and imaging systems declined, reflecting the cooling of the world satellite market. Sales in the Space segment continued to grow strongly thanks to contracts signed in 2015 and 2016, notably with commercial and military customers.

In the Transport segment, sales totalled €711m, broadly stable compared to H1 2016 (down 0.9%, or down 0.1% at constant scope and currency). This performance can be attributed to an unfavourable basis of comparison, with H1 2016 benefiting from the combined effect of the start of invoicing on the three major urban rail signalling contracts won in 2015 and of the return to schedule for projects impacted by execution delays. When compared to H1 2015, sales for the segment have continued on a strong growth trajectory (up 29% at constant scope and currency).

Sales in the Defence & Security segment represented €3,631m, up 6.1% compared to H1 2016 (up 6.5% at constant scope and currency). Almost all businesses contributed to this momentum. The Land and Air Systems business recorded steady growth, notably in missile electronics and protected vehicles, with the ramp-up of the Hawkei vehicle supply contract with the Australian Defence Force. The Defence Mission Systems business benefited in particular from a high level of activity in combat aircraft systems. Only the Secure Communications and Information Systems business experienced a slowdown, with the positive dynamic in military networks and infrastructure systems offset by declining sales in radio communication products.

The Group continues to work on the implementation of IFRS 15 – Revenue from Contracts with

Customers and plans to provide an update on the impact of this standard when it will disclose its Q3 2017 order intake and sales.

The Aerospace segment posted EBIT of €263m (9.2% of sales), versus €239m (9.0% of sales)

for the same period in 2016. The segment maintained good margins, the increase in R&D expenses (up 17% year-on-year) being offset by lower sales and administrative expenses.

EBIT for the Transport segment continued to recover, amounting to €6 m (0.9% of sales) compared to a negative €12m (negative 1.6% of sales) in H1 2016. This performance demonstrates the business’ gradual return to profitability as earlier low- or zero-margin contracts are delivered.

In the Defence & Security segment, EBIT increased significantly to €374m (10.3% of sales) versus €334m in H1 2016 (9.8% of sales). The wider margins reflected the good sales dynamic as well as savings on fixed costs and lower restructuring charges.

Naval Group (formerly DCNS) contributed €27m to EBIT in H1 2017, compared to €20 m in H1 2016 Naval Group posted high sales growth of 18% during the period. In addition, the award of the contract for intermediate-sized frigates for the French Navy will increase visibility for the business in the coming years. For Full Year 2017, Naval Group expects net profit to grow by around 10-15% compared to 2016.

At €2m in H1 2017 versus €1m in H1 2016, net interest income remained very low. Other adjusted financial income (expense)1 amounted to a net expense of €20m in H1 2017, compared

to a net expense of €4m in H1 2016, primarily due to a less favourable foreign exchange

performance. Finance costs on pensions and other long-term employee benefits1 remained stable (€31m, versus €34m in H1 2016), with the rise in pension obligations offset by a decline in discount rates.

As a result, adjusted net income, Group share2 was €424m versus €367m in H1 2016, after an

adjusted tax charge1 of €139 m, compared to €117 m in H1 2016. The effective tax rate amounted to 27.0%, compared to 26.2% in H1 2016.

Adjusted net income, Group share, per share1 came out at €2.00, up 15% on H1 2016 (€1.74).

Consolidated net income, Group share amounted to €336m, down 12% on H1 2016, during which the Group benefited from the sale of its interest in Thales Raytheon Systems LLC to Raytheon, resulting in a disposal gain of €92m.

Financial position at 30 June 2017

For the first six months of 2017, free operating cash-flow amounted to €216m, up from €45m

in H1 2016. This sound performance primarily reflects the moderate increase in working capital during the period (€227m in H1 2017 versus €337m in H1 2016 and €697m in H1 2015) and a

temporary slowdown in operating investments.

At 30 June 2017, net cash thus amounted to €2,294m, compared to €1,439m at 30 June 2016

and €2,366m at 31 December 2016, after the distribution of €254m in dividends during the

half year (€212m in H1 2016) and net proceeds of €40m from acquisitions and disposals in the

period, mainly related to the sale of the identity management business, completed in May 2017.

Equity, Group share stood at €4,760 m compared to €4,640m at 31 December 2016, with

consolidated net income, Group share (€336 m) and the adjustment of foreign exchange hedges

offsetting the distribution of dividends and the increase in net pension obligations.

Outlook

The H1 2017 results are in line with expectations. In this context, the Group confirms all its objectives, as set out below.

Thales should continue to benefit from positive trends in most of its markets. Although below the highs recorded in 2015 and 2016, the order intake in 2017 should remain brisk, at around €14bn.

LEONARDO

27 Jul 17. LEONARDO Profits Down, Growing Orders

* New Orders at EUR 5.1bn, higher than 1H2016 net of the EUR 8bn EFA Kuwait contract booked in the second quarter 2016

* Stable revenues and solidly improving profitability with ROS at 9.0%

* Lower Group Net Debt at EUR 3.6bn, also thanks to receipt of the second installment of the advance payment on the EFA Kuwait contract in first quarter while also after outflows for strategic investments (overall 168 m) and dividends (81 m)

* 2017 Full Year guidance confirmed

The Board of Directors of Leonardo, convened today under the chairmanship of Gianni De Gennaro, has examined and unanimously approved the Half-Year Financial Report at 30 June 2017.

Alessandro Profumo, CEO of Leonardo, commented “The first half results confirm Leonardo’s solidity and everyone’s commitment in pursuing our challenging targets of cash generation, profitability and balance sheet robustness. The priority is to strengthen further our positioning in the international markets through a more effective commercial model, with the customer at its heart, leveraging on the quality of our technologies and products and on our people’s competences.”

In more detail, the first half of the financial year show:

* New Orders: amounted to EUR 5,061m, compared to EUR 12,867 m in the first half of 2016 (which had included the effect of the acquisition of the EFA Kuwait contract for an amount of €bn. 7.95). Adjusting for this, the amount of orders shows an increase of 3%. The book-to-bill ratio is equal to 0.95, showing an improvement (net of the effect of the EFA Kuwait contract) compared to 0.91 in 2016.

* Orders backlog: amounted to EUR 33,923 m (-3% compared to June 2016). This is increasingly solid as it is built on a more rigorous selection of orders. The backlog ensures more than 3 years of equivalent production.

* Revenues: amounted to EUR 5,326 m, -1.6% compared to the first half of 2016 due to the negative exchange rate effect deriving from the conversion of revenues in GBP.

* EBITA: amounted to EUR 482m, +2.1% compared to the 472m in the first half of 2016, supported by the results recorded in Aeronautics and Electronics, Defence and Security Systems which more than offset the drop in Helicopters. The ROS at 9.0% was 30 bp higher than the 8.7% in the first half of 2016.

* EBIT: amounted to EUR 400m, substantially unchanged compared to the 399m of the first half of 2016. The EBIT margin, at 7.5%, slightly increased compared to the 7.4% of the corresponding period of 2016.

* Net Result before extraordinary transactions: amounted to EUR 194 m, in line with the 200 m of the first half of 2016, which had benefitted for approx. €mil. 30, from particularly low financial charges due to positive foreign exchange differences, which were also reflected in the fair value of derivatives.

* Net Result: amounted to EUR 194 m, on account of the absence of extraordinary transactions. In contrast, the 210m of the first half of 2016 benefitted from the capital gain arising from the disposal of Fata, equal to €m. 10.

* Free Operating Cash Flow (FOCF): negative EUR 531m, materially improved (+33.0%) compared to the 793m negative of the first half of 2016 also thanks to the receipt of the second advance payment on the EFA Kuwait contract, still confirming the usual seasonality.

* Group Net Debt: amounted to EUR 3,577m, 656m (-15,5%) better than the 4,233 at 30 June 2016 thanks to a positive cash performance during the second half of 2016, partly absorbed by the outlay arising from the acquisition of Daylight Solution and of the additional stakes in Avio (for an overall amount of €m. 168) as well as by the payment of dividends (€mil. 81).

Outlook

Taking into consideration the results achieved in the first half of 2017 and expectations for the following months, we confirm the Group Guidance for the full year 2017 that was made at the time of the preparation of the financial statements at 31 December 2016.

 

 

 

 

 

 

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