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By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

31 Jul 13. Half year results from EADS provide continuing evidence that this versatile, powerful and increasingly cost efficient international aerospace and defence group continues to move from strength to strength. Brilliantly managed and yet for too long easily misconceived due to its complicated and rather unusual structure EADS has at long last come in from the cold deciding to change its name to Airbus Group.

First a quick look at EADS half year numbers which show a 6% rise in H1 revenue to EUR26.3bn plus a 31% rise in net income to EUR759 million. Order intake of EUR96bn pushed the total order backlog up 12% to a very healthy EUR634bn at half year end. Noting that net cash, in part adversely impacted by a EUR1.8bn share buy-back fell to EUR5.9bn CEO Tom Enders emphasised that cash generation along with programme execution will be key management priorities over the next year.

First half earnings performance was also negatively impacted by foreign exchange revaluation of EUR170m. Nevertheless, the improvement in Group EBIT margin before one-off technical costs rose to 6.1%. This is a significant improvement on the level achieved just a few years ago and is a direct result of continuous and ongoing efficiency improvements. EADS management reaffirmed key performance indicator guidance although it raised commercial order expectation guidance to around 1,000 units this year (net orders of 722 aircraft already received) with deliveries targeted to be in the region of 600 to 610 units.

In summary of H1 suffice to say that despite poor numbers from Eurocopter these are a very good set of first half results from EADS. Importantly with the various large new programmes such as the A350 and A400M all now appearing to be moving forward very satisfactorily it seems to me that in terms of market sentiment EADS risk profile has now been significantly reduced. Moreover, the reorganisation and restructuring announcement that accompanied the results announcement today is a clear demonstration that EADS is not only readying itself for the next phase in its international development strategy particularly with regard to defence but also that it is in no mood to rest on its laurels.

The reorganisation and divisional integration of Airbus Military, Astrium and Cassidian into a single entity called Airbus Defence & Space is not only to be welcomed but it is hugely significant. This divisional integration and consolidation move brings together 40,000 employees across the group worldwide into one single division and will provide a basis of around EUR14bn annual revenue. Headquartered in Munich the new Airbus Defence & Space division will work within a more simplified and more cost efficient working structure. In part this move recognises that competition in the industries served by this division has never been greater than it is today.

Importantly the new Airbus Defence & Space division will in my view be far more easily recognised in the international community that it serves. However, the proposed restructuring and rebranding of EADS and part divisional integration does not end there. The future is to be about one company, one name and three divisions meaning that after thirteen years existence the name of EADS as the overall holding company will soon disappear in favour of this being changed to ‘Airbus Group’. This is an excellent decision and one that recognises changes in the EADS shareholding structure that have occurred over the past year.

In welcoming the various internal strategic integration changes announced today I am sure that others will share a sense of relief that this more simplified and efficient structure will remove much of the confusion that has dogged EADS and various subsidiaries since the company was founded in its present form in July 2000. These change are significant but nonetheless they should be

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