Outlook
Financial Outlook
Revenues
For 2004, the Company is targeting generally stable revenues of approximately € 29 to 30 billion for the fourth straight year in this general downturn of the industry. Defence business growth is expected to offset the decline of Airbus revenues attributable to the combination of the U.S. currency weakness and slightly lower deliveries.
The 2004 revenues target is based on the assumption of a weaker U.S. Dollar than in 2003 (€-U.S. $ 1.20, as compared to €-U.S. $ 1.10) for the calculation of the portion of revenues that is naturally hedged by U.S. dollar-denominated purchasing (amounting to approximately one third of overall EADS revenues).
Following a careful assessment of its order book, Airbus anticipates delivering close to 300 aircraft in 2004, compared to 305 in 2003. A conservative management of delivery slots gives Airbus flexibility to face unexpected events and to keep customer financing within strict limits.
The Space Division’s revenues are expected be stable in 2004, supported by a robust order book (including 10 civil telecommunications satellites). Major programs such as the £ 2.5 billion Paradigm contract (Skynet5 secure communication services for the U.K. MoD) and opportunities such as the design, delivery and operation of Galileo (European satellite navigation system) should fuel medium-term growth.
The ramp up of defence programs in the other Divisions (Military Transport Aircraft, Aeronautics, Defence and Security Systems) is expected to prompt revenue growth. The strongest drivers of growth in 2004 will be the A400M, the Tiger and NH90 helicopters and missile programmes.
EBIT Pre-Goodwill Amortisation and Exceptionals
Management expects an increase of operating results in the year 2004. Ahead of the commercial aviation market upturn expected in 2005, EADS targets earnings before interest and taxes, pre-goodwill amortization and exceptionals (“EBIT*”) result of approximately € 1.8 billion in 2004 (€ 1.5 billion in 2003).
With respect to the slow recovery of the airline industry which is still under pressure, EADS considers this guidance realistic and consistent with its emphasis on financial prudence and reliability. This target is a milestone on the road to double digit EBIT* margins in the medium-term, and supports EADS’ solid financial position.
In anticipation of the legal requirement to apply IFRS rules, EADS has changed its accounting policy regarding development costs, to be fully compliant with IAS 38. This change had no material effect in 2003, but it is expected that approximately € 100 million of development costs will be capitalised in 2004. This accounting change is included in the 2004 EBIT* target of € 1.8 billion.
The successful delivery ramp-up of missile programmes, Eurofighter, military helicopters and the acceleration of the A400M development revenues will contribute to the growth of EBIT*. At the same time, following the high level of defence contract acquisition, Management will focus on the profitable execution of these large programmes and to the performance of the overall defence business. 2004 EBIT* will include costs and investments associated with the efficiency improvement plans to be launched at LFK and the Defence and Communication Systems business units
While the potential slight decrease in Airbus deliveries in 2004 and the continuing A380 R&D effort are expected to hamper 2004 EBIT*, the anticipated turnaround of the Space Division should act as a significant source of increased profitability. The dramatic restructuring plan currently under implementation and a number of organizational improvements are the main drivers of the expected swing to breakeven EBIT* of the Space Division in 2004.
Cash
In 2004, EADS expects to continue generating a positive Free Cash Flow before Customer Financing. Indeed, the Company will continuously strive to offset the cash outlays for 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 not expected to increase by more than approximately U.S.$ 0.9 billion for 2004.
