EADS surpasses 2003 profit target: EBIT* of EUR 1.54 billion

In 2003, EADS (stock exchange symbol: EAD), the world’s second largest aerospace and defence group, has again strongly exceeded its profit target. At EUR 1.54 billion, EADS achieved an EBIT* well above the previous target of about EUR 1.4 billion and up eight percent from 2002. EADS published its 2003 results and an updated 2004 forecast on Monday.

EADS has beaten its EBIT* forecast thanks to strong growth in its defence businesses and better than expected performance at Airbus. The EBIT* improvement benefited from a 40 percent growth at the Defence and Security Systems Division with strong contributions from Military Aircraft and MBDA, the turnaround of the Military Transport Aircraft Division thanks to better performance and a 21 percent increase at the Aeronautics Division following increased profitability of Eurocopter. The Space Division recorded, in line with plan, an EBIT* of EUR -400 million, after a restructuring charge of EUR 288 million. EBIT* also includes a higher contribution from the 46.03 percent shareholding in Dassault Aviation.

EADS Research and Development (R&D) expenditure increased, as planned, to EUR 2.2 billion in 2003 (2002: EUR 2.1 billion). Half of this was spent on R&D for the A380, the 555-seater Airbus aircraft due for first deliveries in 2006.

EADS Group revenues of EUR 30.1 billion slightly exceeded the forecast of EUR 29 to EUR 30 billion, and are above the 2002 figure of EUR 29.9 billion. At constant US-Dollar exchange rates, revenues would have even increased by 6 percent. Growth was mainly driven by an 18 percent rise at the defence businesses, with combined revenues rising across all defence segments from EUR 6 billion to EUR 7.1 billion.

Free Cash Flow before Customer Financing was strongly positive and was boosted from EUR 0.6 billion to EUR 2.1 billion thanks to better operating cash performance and working capital reductions due to higher customer advances.

The EADS CEOs Philippe Camus and Rainer Hertrich said: “EADS has now achieved commercial aviation leadership and reached a top position in the global defence market. Our 2003 figures are the result of the relentless actions taken to streamline and focus this company since its creation, as well as the keen market interest in our products. The market environment remained difficult in 2003, and yet we have again beaten expectations.”

On expectations for 2004, the CEOs commented: “The ramp-up of major defence programmes, such as Tiger and NH90 helicopters and missiles, and the turnaround of the Space Division provide the basis for operating results growth in 2004. For the Defence and Security Systems Division, which has been created in 2003, the current year will be characterised by the implementation of streamlining and efficiency improvement programmes with some associated costs and investments.”

“We are now at a turning point indicating stronger growth over the medium term”, the CEOs continued. “The expected 2005 commercial aviation market upswing is within reach. Space will reap the benefits from restructuring and the defence contribution will continue to increase.”

The EADS order intake doubled in 2003 to reach EUR 61.2 billion (end of 2002: EUR 31.0 billion), twice as high as revenues. The biggest successes were achieved at Airbus with net orders of 254 aircraft, including 34 A380, and with major defence contracts such as the Skynet 5 military satellite communications system for £ 2.5 billion, the EUR 19.7 billion A400M order, and a major missile contract for 1,400 Aster missiles received by a consortium led by MBDA.

The EADS order book increased to EUR 179.3 billion (2002: EUR 168.3 billion). At constant exchange rates, the increase would have been about 20 percent. The defence order book doubled to about EUR 46 billion, supporting the goal to grow defence revenues by more than 50 percent between 2002 and 2005.

Free Cash Flow before Customer Financing was boosted from EUR 0.6 billion to EUR 2.1 billion. This performance includes the high R&D and investment spending for the continuation of the A380 programme and the initial investment for the Paradigm project. Commercial aviation Customer Financing cash outlay remained under control at EUR 1.1 billion, despite the challenging situation of airlines (2002: EUR 0.9 billion).

At the end of 2003, the Net Cash position increased to EUR 3.1 billion, up from EUR 2.4 billion on a comparable basis. From 2003, the Net Cash position is reported after netting EUR 1.1 billion defeased deposit with corresponding financial liabilities.

EADS achieved a positive Net Income in 2003 of EUR 152 million (2002: EUR -299 million). As a result of the original industrial integration of the EADS Group, goodwill amortization has been regularly recorded in the EADS accounts since the year 2000. Thanks to better EBIT*, Net Income pre-goodwill amortization and exceptionals is up 10 percent to EUR 769 million (2002: EUR 696 million), or EUR 0.96 per share (2002: EUR 0.87).

Meeting of shareholders the implementation of an increased dividend of EUR 0.40 per share for 2003 (for 2002: EUR 0.30 per share).

The EADS Chief Financial Officer Hans Peter Ring commented: “This dividend proposal is based on our strong and solid performance in 2003 and it is proof of our confidence in the future.”

The proposed dividend was chosen taking account of a current European benchmark of payout ratios based on net income before goodwill amortization for comparable companies.

In anticipation of the legal requirement in the European Union to apply IFRS (International Financial Reporting Standards) rules strictly by 2005, EADS has changed its accounting policy regarding development costs to be fully compliant with IAS 38. Under this rule, costs that belong solely to the development phase of a project shall be capitalised as intangible assets, when certain conditions are met, while research costs are expensed in the Profit and Loss statement as incurred. The adoption of IAS 38 has no effect on the EADS Financial Statements as of 2003 and prior years. However, it is expected that approximately EUR 100 million of development costs will be capitalised in 2004.

Consequently, EADS is increasing its EBIT* forecast for 2004 to around EUR 1.8 billion from the previous guidance of EUR 1.7 billion.

The EADS Chief Financial Officer Hans Peter Ring commented: “Since IFRS will become a legal European Union requirement by 2005, we have chosen an early implementation to be fully compliant with the new regulation.”

In 2004, EADS expects to continue generating a positive Free Cash Flow before Customer Financing. Indeed, the EADS management will continuously strive to offset the cash outlays from the A380 investment and the Skynet 5 construction by ongoing cash preservation initiatives. Maintaining its financial discipline, EADS also intends to pursue its control of commercial aviation customer financing with gross exposure expected not to increase by more than approximately $ 900 million.

As was already announced, EADS expects 2004 revenues to remain stable, assuming an exchange rate of EUR 1 = $ 1.20. Airbus expects close to 300 aircraft deliveries in 2004. Regarding commercial activity, EADS expects to maintain a level of order intake above the level of revenues.

Airbus has become the world’s largest commercial aircraft producer. In 2003, Airbus delivered 305 (2002: 303) aircraft, slightly above the target of 300 and ahead of its competitor, and received 254 net orders (233 in 2002), representing a 52 % market share. As expected, the fourth quarter of 2003 was particularly strong with 106 aircraft deliveries. The Airbus Division EBIT* was stable at EUR 1,353 million (2002: EUR 1,361 million). This was achieved mainly thanks to a better aircraft model mix but was offset by the planned EUR 137 million R&D cost increase to reach a total of EUR 1,819 million R&D cost. Revenues slightly decreased by 2 percent to EUR 19,048 million, but would have been significantly higher at constant US-Dollar rates. At the end of 2003, the Airbus order book stood at 1,454 commercial aircraft (end of 2002: 1,505).

The Military Transport Aircraft Division recorded an EBIT* of EUR 30 million (2002: EUR -80 million, affected by a EUR 54 million non-recurring charge following the insolvency of Fairchild Dornier). The EBIT* turnaround in 2003 and the 78 percent increase in revenues to EUR 934 million reflect the EUR 19.7 billion A400M order. According to the EADS rules of segment reporting, the Airbus Military Company, conducting the A400M programme, is fully consolidated in the Military Transport Aircraft Division. Therefore, the full impact of the A400M programme in terms of order intake and revenues is reflected in this Division. All other parts of EADS contributing to the programme are considered as internal subcontractors.

EBIT* of the Aeronautics division increased 21 percent to reach EUR 217 million (2002: EUR 180 million), mainly following a further improved performance at Eurocopter. At EUR 3,803 million (2002: EUR 3,834 million), revenues remained on the same level as the year before. At the end of 2003, the Aeronautics order book amounted to EUR 9,818 million (2002: EUR 10,162 million). With 293 new helicopters ordered, Eurocopter once again confirmed its world market leadership with 45 percent of the market of new civil and military helicopter units.

The Space Division’s EBIT* of EUR -400 million – including 100 percent of EADS Astrium - (2002: EUR -268 million; 2003 comparable EBIT* figure with 75 percent of EADS Astrium: EUR -319 million) was impacted by restructuring charges of EUR 288 million, as planned. However, without the restructuring charges and the negative consolidation effect, the operational performance of Space improved compared to 2002. Revenues amounted to EUR 2,424 million (2002: EUR 2,216 million, comparable figure with 100 percent of EADS Astrium: EUR 2,617 million). Following some important commercial successes such as Skynet 5, the order book of EADS Space more than doubled to EUR 7,888 million (2002: EUR 3,895 million), with Skynet 5 representing the largest order.

The new Defence and Security Systems Division strongly improved its EBIT* by 40 percent to EUR 171 million (2002: EUR 122 million). Revenues grew by 8 percent to EUR 5,165 million (2002: EUR 4,770 million). Growth in revenues and EBIT is being driven by the ramp-up of the Military Aircraft business and missile programmes. The Division’s order book also increased to EUR 14,283 million (2002: EUR 13,406 million).

At EADS Headquarters, EBIT* includes a higher contribution from the 46.03 percent shareholding in Dassault Aviation. Part of this is due to the “catch up” impact of the IAS restatement of the 2002 Dassault Aviation contribution.

In 2003, EADS continued its dynamic growth in the international defence business:

Despite the difficult market environment, Airbus was awarded several major contracts:

In the Space business, EADS also achieved important commercial successes:

EADS is a global leader in aerospace, defence and related 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.

Certain of the statements contained in this press release are not historical facts but rather are statements of future expectations and other forward-looking statements that are based on management’ s beliefs. These statements reflect the EADS’ views and assumptions as of the date of the statements and involve known and unknown risk and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements.

When used in this press release, words such as “anticipate”, “believe”, “estimate”, “expect”, “may”, “intend”, “plan to” and “project” are intended to identify forward-looking statements.

This forward looking information is based upon a number of assumptions including without limitation: assumption regarding demand, current and future markets for EADS’ products and services, internal performance, customer financing, customer, supplier and subcontractor performance or contracts negotiations, favourable outcomes of certain pending sales campaigns.

Forward looking statements are subject to uncertainty and actual future results and trends may differ materially depending on variety of factors including without limitation: general economic and labour conditions, including in particular economic conditions in Europe, North America and Asia, legal, financial and governmental risk related to international transactions, the cyclical nature of some of EADS’ businesses, volatility of the market for certain products and services, product performance risks, collective bargaining labour disputes, factors that result in significant and prolonged disruption to air travel world wide, the outcome of political and legal processes, including uncertainty regarding government funding of certain programs, consolidation among competitors in the aerospace industry, the cost of developing, and the commercial success of new products, exchange rate and interest rate spread fluctuations between the Euro and the U.S. dollar and other currencies, legal proceeding and other economic, political and technological risk and uncertainties

Additional information regarding these factors is contained in the Company’s “document de référence” dated April 2, 2003.

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