EADS delivers solid performance – well prepared for further challenges

EADS (stock exchange symbol: EAD) successfully masters the difficult market situation and is well on track for 2003. “We have prepared EADS to weather a possible further deterioration of the business climate in 2003. Our ability to rapidly respond to changes in the business environment is proving a huge asset in the current circumstances”, the EADS CEOs Philippe Camus and Rainer Hertrich said when the company released its 2002 annual results on Monday. In 2002, EADS achieved solid results in both its commercial and defence businesses and maintained its strong Operating Cash Flow and Net Cash position.

While the Airbus and Aeronautics Divisions were the main contributors to EADS’ profitability, the Defence and Civil Systems Division achieved its planned turnaround, which was stronger than expected.

EADS is the second largest global aerospace and defence company, incorporating leading brands like Airbus, Eurocopter, MBDA, Eurofighter and Astrium.

In 2002, EADS achieved an EBIT (Earnings before interest and taxes, pre goodwill amortisation and exceptionals) of EUR 1,426 million (2001: EUR 1,694 million), slightly above its target. Before Research and Development (R&D) costs, EADS slightly improved its EBIT margin from 11.5 % to 11.8 %, despite lower Airbus deliveries. R&D costs increased, as anticipated, to EUR 2.1 billion (2001: EUR 1.8 billion), particularly due to the A380 programme.

“Despite the difficult environment, 2002 was another year of commercial and financial success. As in the previous year, we are proud to have again met or exceeded all our financial targets under these circumstances”, the EADS CEOs, Philippe Camus and Rainer Hertrich, commented.

“Looking forward, we have positioned EADS to master the new challenges ahead. We are continuously focusing on means to further improve management efficiency in order to generate cash and to reduce cost. In that respect, Divisions and Headquarters have all done their share in 2002”, the CEOs said. “In addition, as ever we continue to pursue new order opportunities based on our superior product portfolio. This means that all the levers we can influence are perfectly under control. And once the commercial aviation markets recover, which we now expect at the earliest by the end of 2004, EADS with its increasingly balanced business portfolio will be extremely well positioned to take full advantage of opportunities across the full spectrum of the aerospace, defence and space industry.”

Net Cash position of EUR 1.2 billion at the end of 2002 is better than originally anticipated. Cash Flow from operations, which does not include customer financing, remained at EUR 2.7 billion. Free Cash Flow without aircraft financing amounted to EUR 0.6 billion, after high capital expenditures particularly for the A380 programme, confirming the company’s ability to self-finance this programme.

The EADS Chief Financial Officer, Hans Peter Ring, said: “In 2002, EADS was very successful in containing at $ 0.6 billion the increase in Airbus and ATR customer financing gross exposure, which was substantially lower than expected.”

For 2003, EADS’ EBIT is completely hedged against currency fluctuations at an exchange rate of 1EUR = 0.96$. For the years 2004 to 2006, and even beyond, EADS has high volumes of hedging in place at about 0.94$ to 0.95$, greatly limiting the impact of US-Dollar volatility on results.

The EADS Board of Directors has proposed a dividend of EUR 0.30 per share for the business year 2002 (EUR 0.50 for 2001). This proposal will be submitted to the Shareholders’ vote at the Annual General Meeting in Amsterdam on 6 May 2003.

The EADS Chief Financial Officer, Hans Peter Ring, commented, “This proposal is consistent with our dividend policy to pay out about two percent of EADS’ market capitalisation, based on an average 2002 share price of about EUR 14. The utmost focus of management at this time is to maintain the highest standard of financial discipline.”

As reported on 10 February, EADS achieved 2002 revenues of EUR 29.9 billion (2001: EUR 30.8 billion), in line with its forecast.

At EUR 31 billion, order intake demonstrates sustained demand for the company’s commercial and defence products, thus further contributing to the order book. The strong order intake, which did not include the expected EUR 17.7 billion A400M programme, is strong evidence of EADS’ resilience to market changes.

The EADS order book remained strong at nearly EUR 170 billion, which represents more than five years of business and is still unparalleled in the global aerospace and defence industry. Its decrease, however, is mainly attributable to the revaluation of the order book based on a weaker exchange rate of 1EUR = 1.05$ at year-end, amounting to an adjustment of about EUR 14 billion.

Net Income in both 2001 and 2002 was significantly affected by goodwill amortisation and exceptional non-cash items. Net Income pre goodwill amortisation and exceptionals was EUR 696 million in 2002, after EUR 809 million in 2001. Earnings per share pre goodwill and exceptionals reached EUR 0.87 (2001: EUR 1.00).

Net Income after goodwill and exceptionals amounted to EUR -299 million. It was negatively impacted by goodwill depreciation of EUR 936 million, including an extraordinary (and not tax deductible) depreciation of EUR 350 million resulting from impairment tests at the Space Division, reflecting further deterioration of the space markets. On the other hand, the 2001 figure of EUR 1,372 million was affected by positive exceptional items mainly resulting from the creation of the integrated Airbus SAS.

The Airbus Division EBIT (Earnings before interest and taxes, pre goodwill amortisation and exceptionals) was EUR 1,361 million, compared to EUR 1,655 million in 2001. R&D cost increased by EUR 257 million to reach EUR 1,682 million, mainly due to the A380 programme. Therefore, the EBIT margin pre-R&D increased from 15 % to 15.6 % despite lower deliveries. Reflecting unrelenting efforts to adapt to changing conditions, Airbus has set an additional cost saving target of EUR 1.5 billion by 2006 in order to protect its long-term profitability even at lower US$-exchange rates. Airbus delivered 303 aircraft in 2002, slightly ahead of its 300 target. The order backlog of 1,505 aircraft at year-end 2002 was ahead of the competition for the third year. Major successes were the orders by FedEx for 10 A380F Freighters and by the UK low-cost carrier Easyjet for 120 A319 aircraft, as well as winning back a number of significant customers such as KLM and South African Airways. Overall in 2002, with a gross order intake of 300 aircraft, Airbus won a 54 % market share (both in terms of units and value).

The Military Transport Aircraft Division recorded an EBIT loss of EUR -80 million (2001: EUR +1 million). The Division’s result was impacted by an already reported one time charge from its investment as a subcontractor of the Dornier 728 programme of insolvent Fairchild Dornier amounting to EUR -54 million, by the lost margin for this project and also by the delay of the EUR 17.7 billion A400M order (90 % EADS share), which is now expected for spring 2003.

The Aeronautics Division EBIT amounted to EUR 261 million (2001: EUR 308 million). Eurocopter and Military Aircraft were the main profit contributors, with the other Business Units also performing successfully. However, the commercial aviation downturn impacted the civil maintenance and aerostructure businesses of the division. Major defence programmes, such as Tiger (military helicopters) and Eurofighter (combat aircraft) are now entering the delivery phase and will strongly contribute to future profitable growth.

The Space Division recorded a negative EBIT of EUR -268 million (2001: EUR -222 million), due to high provisions made in the context of further deterioration of the space markets, mainly for restructuring and investments depreciation, a satellite contract cancellation and losses on some programmes. The implementation of further restructuring at Space is now being facilitated by the full control of Astrium by EADS. The Space Division’s management is now implementing a comprehensive restructuring programme, which targets an additional staff reduction estimated at about 1,700 personnel. This reduction will be in addition to the previous plan from last year of about 1,600 employees, currently under implementation mostly in 2003. Savings will be generated through adaptations to market demand, overhead reductions, implementation of integrated cross national centres of competence, industrial reorganisation and savings in procurement. The target is to achieve EBIT breakeven by 2004.

The Defence and Civil Systems Division realised a strong turnaround and achieved an EBIT of EUR 40 million (2001: EUR -79 million). Major contributions to this positive development came from the continuously positive results at MBDA and EADS Telecom and from the strong improvements at Systems & Defence Electronics and EADS/LFK, the German missile company. Further strong EBIT growth is expected as a result of continued restructuring and programmes entering the delivery phase such as Storm Shadow/Scalp EG and PAAMS/Aster.

For 2003, the EADS management is setting prudent financial targets that preserve the company’s flexibility to respond to market changes. In this uncertain environment, EADS will continue to favour profitability and cash control over market share gains.

EADS presently anticipates 2003 EBIT in the same range as 2002, based on 300 deliveries by Airbus - currently backed by a higher order book - and taking into account the increase in R&D spending to peak levels in 2003.

The EADS 2003 EBIT target also includes a considerable provision for a significant re-engineering of the Space business in order to achieve profitability during 2004. The Space Division 2003 expected EBIT represents a further deterioration compared to 2002 due to ongoing restructuring and programme contingencies, and the first-time full consolidation of Astrium.

These negative effects will be offset by the expected improved performance of the Divisions which are now ramping up defence programmes (Aeronautics, Defence and Civil Systems, and Military Transport Aircraft).

Based on the current exchange rate (1EUR = 1.10$), EADS expects to maintain 2003 revenues in the same range as 2002. Free Cash Flow before customer financing is anticipated to remain positive in 2003, reflecting the continued ability to self-finance the A380 programme. EADS’ target for additional customer financing is lower in 2003 than last year’s target, and EADS will continue with its restrictive practice of keeping net additions at the lowest possible level.

In 2002, EADS again achieved major successes across its range of businesses:

EADS is a global aerospace and defence company, and is the world’s second largest in terms of revenues, having achieved EUR 29.9 billion in 2002. EADS maintains a workforce of more than 100,000 and is a market leader in defence technologies, commercial aircraft, helicopters, space, military transport and combat aircraft, as well as related services. Its family of leading brands includes the commercial aircraft maker Airbus; Eurocopter, the world's largest helicopter manufacturer; Astrium, the space company and MBDA, the world's second largest missile company. EADS is also the biggest partner in the Eurofighter consortium and heads the A400M military transport aircraft programme. EADS has more than 70 facilities in France, Germany, Spain and the UK. It is active in markets around the world, including the U.S., Russia and Asia.

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

1) Earnings before interest, taxes, depreciation and amortization
2) Earnings before interest and taxes, pre-goodwill amortisation and exceptionals
3) Reclassification of jigs and tools depreciation from R&D to cost of sales EUR 205 million in 2001
4) the difference to the previously reported EUR 936 million figure is due to a restatement of the 2001 figure caused by a partial reallocation of exceptionals to minorities amounting to EUR 127 million
5) proposed to AGM on 6 May, 2003
6) Order Intake and Order Book based on gross prices

1) Earnings before interest, taxes, depreciation and amortization
2) Earnings before interest and taxes, pre-goodwill amortisation and exceptionals
3) Reclassification of jigs and tools depreciation from R&D to cost of sales EUR 205 million in 2001
4) the difference to the previously reported EUR 936 million figure is due to a restatement of the 2001 figure caused by a partial reallocation of exceptionals to minorities amounting to EUR 127 million
5) proposed to AGM on 6 May, 2003
6) Order Intake and Order Book based on gross prices

1) Earnings before interest, taxes, depreciation and amortization
2) Earnings before interest and taxes, pre-goodwill amortisation and exceptionals
3) Reclassification of jigs and tools depreciation from R&D to cost of sales EUR 205 million in 2001
4) the difference to the previously reported EUR 936 million figure is due to a restatement of the 2001 figure caused by a partial reallocation of exceptionals to minorities amounting to EUR 127 million
5) proposed to AGM on 6 May, 2003
6) Order Intake and Order Book based on gross prices

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