DISMAL RESULTS FROM EADS – THALES ADVANCES
By Julian Nettlefold, Editor, BATTLESPACE
26 Jul 07. In a tale of two company results which could portend the future structure of the French, if not the European defence industry, EADS kicked off with a dismal set of results including the warnings much discussed in BATTLESPACE issues about A400M and NH 90 delays.
In contrast, Thales reported solid results and continued to develop its businesses. This may prove to be a turning point for the French Government’s support for EADS as the National Champion and could see President Sarkosy champion Thales and Dassault as a counter balance for the Franco/German EADS. The forthcoming Indian fighter contract could see Dassault receiving strong support in an area where we reported that Thales has engineered a JV to support the Mirage fleet. (See: BATTLESPACE UPDATE Vol.9 ISSUE 29, 20 July 2007, Thales will soon enter into a pact with HAL)
26 Jul 07. 2007EADS’ (stock exchange symbol: EAD) half-year results reflect the Group’s restructuring efforts and charges to move large programmes forward. The recent shareholder decisions on the Group’s governance and leadership structure set the stage for better management empowerment, clearer accountability and enhanced decision making ability.
Revenues were € 18.5bn (H1 2006: € 19.0bn), supported by strong commercial deliveries at Airbus, Eurocopter and EADS Astrium. Group revenues were lower due to the absence of an A400M milestone in the first half of 2007 and a negative US Dollar impact.
In the first six months of 2007, EADS recorded an EBIT* (pre goodwill and exceptionals) of € 367m compared to €1,654m in the same period of the previous year. The EBIT* was mainly impacted by Power8 restructuring and programme charges at Airbus, as well as by a charge in the NH90 programme.
“Airbus’ financial performance still shows the signs of well known challenges, but business is brisk and recent orders highlight how competitive our product range is,” said EADS CEOs Tom Enders and Louis Gallois. “Ultimately, profitability is the best measure of success. In our new roles and with a leaner structure, we will continue to do what is important for the Group – providing our customers with great products, and turning our vast order book into profits, which entails heightened focus on robust programme management.”
EADS registered a Net Income of € 71m (H1 2006: € 1,056m), or € 0.09 per share (Earnings per share H1 2006: € 1.32).
In the first six months of 2007, self-financed R&D expenses increased to €1,268m (H1 2006: € 1,139m). This followed from Airbus’ continuing aircraft development programmes and a higher Research & Technology (R&T) effort.
Free Cash Flow including customer financing dropped to € -40m (H1 2006: € 319m) reflecting lower contributions from customer financing sell downs and build-up of working capital. Inventories increased across Divisions but were compensated by advance payments received and a better operational performance. Free Cash Flow before customer financing has improved to € -2m (H1 2006: € -216m). At the end of June 2007, the Net Cash Position remained stable at € 4.2bn compared to year-end 2006.
Starting in the second half of 2007, EADS will implement a contractual trust arrangement (CTA) following the Board of Directors’ decision to fund pension obligations with an amount to be determined each year. Funds transferred into the CTA will only be available to cover spending of EADS’ future pension payments. The initial investment will be € 500 million in the second half-year, mirrored by a corresponding decrease of pension provisions.
The market environment for aerospace and defence remains supportive. Through its high-class portfolio EADS benefited from robust demand.
The Group’s order intake was boosted mainly by the market successes of Airbus and Eurocopter and reached €70.2bn (H1 2006: € 14.2bn). The growth was partly curbed by the weaker US Dollar