|
Article Excerpt
OPERATOR: Good morning ladies and gentleman and welcome to the EADS full year 2008 earnings conference call. (Operator Instructions). Let me now turn the floor over to your hosts Louis Gallois, Hans Peter Ring and Nathalie Errard.
NATHALIE ERRARD, HEAD OF IR AND FINANCIAL COMMUNICATION, EUROPEAN AERONAUTIC DEFENCE AND SPACE COMPANY EADS N.V.: Good morning ladies and gentleman. This is the EADS 2008 Earnings Conference Call. Louis Gallois, our CEO, and Hans Peter Ring, our CFO, will be presenting our results and answering your questions. This call is planned to last about one hour and thirty minutes. This includes Q&A, which we will conduct after the initial presentation.
It is also webcast on our website. Playback of this call will also be accessible on the website, but there is no dedicated phone replay service. The supporting information package which we mailed to you two hours ago with slides, which we will now walk through, and financial statements.
Throughout this call, we will be making forward looking statements. The packages you received contain a Safe Harbor statement which applies to this call as well. We believe you should read this carefully.
Now to Louis Gallois.
LOUIS GALLOIS, CEO, EUROPEAN AERONAUTIC DEFENCE AND SPACE COMPANY EADS N.V.: Good morning ladies and gentlemen. Thank you for joining us for this review of our 2008 performance. I come to this discussion with a combination of confidence and caution.
The confidence flows from my strong belief in what this Company, its management and employees can achieve despite difficult challenges. As you will see from our 2008 highlights, EADS has maintained a strong financial performance and achieved a number of significant accomplishments despite its program challenges. The caution you are not surprised, stems from the difficulty economic environment that faces most companies in most industries worldwide. Yet in our case I believe that we have learned in redesigning our Company in the past years, will help us weather the current downturn.
I think it is important to keep in mind several factors as we discuss our results. The first is that the commercial state of this Company is stronger than they were as our sales successes of 2008 indicates. Every division has contributed to a strong product backlog and we are creating new opportunities in services.
The second is that we are substantially more integrated, a more efficient company. This is a continuous, it's not finished, and challenging process, but we have come a long way as a business enterprise.
The third is that while we are managing the risk that we face and have spoken to you frankly about this in the past in past meetings, I believe that EADS should expect the cooperation of European governments in resolving some of these issues. Certainly this is the case with the critical programs such as the A400M.
With this in mind let me turn towards the highlights of 2008 on page four. Before that, have a close look please at our Safe Harbor Statement on page two.
Commercial success and strategy progress have delivered a solid set of results. Our record order book now at more than EUR400b with Defence activities at EUR55b provides stability and a certain level of visibility.
2008 was a year of ramp up activity. Airbus delivered a record 483 aircraft, 30 more than in 2007 including 12 A380. Substantial reorganization of production lines and the opening of a new facilities in Eurocopter enabled a 20% increase in deliveries. 588 helicopters were delivered in the year. Ariane 5 achieved six launches during the year. It has proved highly reliable, performing 28 successful launches in all.
This commercial performance intersects with solid financial results. Our underlying business has led to better than expected cash flow generation and a solid EBIT performance which was also boosted by significant currency impact.
Each of our divisions have made strategic advances during this year. For Airbus the mandate has been a resilient and far more integrated operation than can better -- that can better execute.
In the case of Eurocopter, I think you are seeing the template of EADS evolving business model. Substantial success on military helicopters involve the US and Brazil demonstrate progress in the move towards globalization. A focus on maximizing our high-margin services provides some protection against the commercial cycle.
Defence and Space activities are delivering profitable growth through a combination of efficiently and productivity initiatives as well as external growth.
So taken as a full picture, 2008 was a very solid year for our Company. Since efficiency is going to be critical for EADS in the years to come, let me walk you through the Power8 achievement to date.
Through a new organizational structure, leaner processes and careful cash management, Power8 has significantly reduced Airbus cost base for the long term. For the second year in a row it exceeded targets, delivering gross cost savings of about EUR1.3b compared to the projected baseline of the cost. This is more than half way to the EUR2.1b 2010 confirmed objective.
Reduced overhead costs have already delivered 50% of the original target of 10,000. Smart buying is delivering results and lean manufacturing has now been deployed in all plants, enabling tighter control on working capital. On top of Power8 and in case of further weakening in the market, we will review expenses in all areas.
The divestment of non core aerostructure sites has also progressed despite difficult financial climates. Laupheim and Filton sites have been sold to long-term Airbus partners, enabling Airbus to concentrate on its core business as aircraft architect and integrator in the future. I remind you that also the creation of Aerolia in France and Premium Aerotech in Germany from our aerostructure facilities.
Power8 PLUS and EADS [wider foot] leading to EUR1b additional savings in 2011 and 2012 will meet its target through cost reduction project and the focus on expanding industrial footprint and then increasing level of US dollar sourcing in the cost base.
Within the scope of the future EADS program, EADS has adopted a simpler and leaner organization. Our military transport aircraft division is now integrated within Airbus, maximizing synergies and reinforcing the management of the new MTD Airbus military inside Airbus. Space and Defence Divisions will develop a consistent approach towards common customers and develop commercial, technical and strategic synergies. Support functions are currently under review, real estate facility management and general procurement will be organized in a shared service to standardize processes and leverage economies of scale and efficiency.
Let me now turn to Hans Peter to discuss the financial picture in more detail. Hans Peter.
HANS PETER RING, CFO, EUROPEAN AERONAUTIC DEFENCE AND SPACE COMPANY EADS N.V.: Thank you Louis and good morning everybody. I am on page six. We have kept you regularly updated on the delay A400M program. You are aware of the new approach we made to OCCAR to solve the technical and contractual issues. We have recently strengthened the program management by integrated MTAD into Airbus, creating Airbus Military. This will optimize resources and streamline decision making.
For the full year 2008 financial statements, we have adopted a temporary accounting treatment, allowed under IFRS11. The high level of uncertainty leads us to maintain early stage accounting and suspend the milestone accounting. Therefore the net EBIT impact of minus EUR700m taken, does not reflect the complete new estimate of the loss at completion. Once the situation becomes clear, we will resume the milestone accounting and update the provision in its entire scope.
Obviously the magnitude of the final adjustment will be dependent on the outcome of the overall assessment of the A400M program and of negotiations with customers and suppliers. You will see in the press release that OCCAR has the right to cancel the contract and to recover all initial and pre-delivery payments. It requires unanimous consent from the different nations and we do not expect OCCAR to cancel the contract at this stage. Formal negotiations will begin in the coming weeks.
If we now turn the pages to page eight, to the financial highlights, 2008 results demonstrate a combination of top and bottom line growth across all divisions. Volume ramp up across all divisions provided positive contributions to revenue growth and more than compensated for the weaker dollar. Furthermore, the shift to early stage accounting for the A400M program increased revenues by EUR1.1b. We will expand on the EBIT explanation shortly and I will emphasize the good underlying performance.
Order intake over the full year remains strong containing considerable order inflow from Airbus Defence, Eurocopter and MTA for the tankers. Backlog remains at record levels, increasing 18% compared to 2007 figures. The backlog is now benefiting from a strengthening dollar rate, due to the revaluation impact at the closing spot rate of 1.39 dollar versus euro at the end of December, versus 1.47 at the end of December 2007, worth around EUR10b.
If we turn the page and come to page nine, this slide demonstrates the underlying EBIT trend in stripping out non-operational and non-recurring items. Firstly we have explained to you the impact on the accounts of the shift to early stage accounting and the resulting charge on the A400M. The business update of loss making contracts amounts to approximately EUR1b for 2008, mainly relating to the A380. The increase incorporates the latest change to the A380 production plan in 2009 and some higher recurring costs reflecting the ramp up challenges we are facing.
You are aware that as the dollar fluctuates, so do our loss making contract provisions that are revalued at the closing spot. This now includes two components, the effect from the dollar and the declining British pound. As a significant portion of our costs are denominated in pounds, the recent weakening of the pound against the euro has triggered another positive currency component. The combination of the dollar rebound and the pound decline has led to a positive revaluation of all loss making contracts amounting to around EUR900m.
The benefit from the temporary excess volume of matured hedges representing the hedges put in place before the A380 delivery shift in 2006 has now fully reversed as expected. During the year other one offs...
|
