Aerospatiale's final 1998 results impacted by a number of non-recurring items.
Meeting today, the Board of Directors approved Aerospatiale's financial statements for the fiscal year ended December 31, 1998. This past year saw a number of major strategic developments for Aerospatiale (in chronological order): - In June 1998, Aerospatiale transferred its satellite operations to Thomson-CSF in exchange for a 4% stake in Thomson-CSF, generating a capital gain of 666 million francs; it transferred other satellite operations to Alcatel Space, generating additional capital gains of 423 million francs. - Aerospatiale exercised its right to increase its stake in ATEV, the parent company of Sextant Avionique, from 33.34% to 50%, then sold its 50% stake in Sextant Avionique to Thomson-CSF; this sale took place in 1999. - A decision was made for a link-up between Aerospatiale and Matra Hautes Technologies, with Lagardère SCA transferring Matra Hautes Technologies to Aerospatiale in exchange for a 33% stake in the new company, followed by the privatization and listing of the company. This decision had no impact on the 1998 financial statements. - The French State transferred its 45.76% stake in Dassault Aviation to Aerospatiale, effective December 30, 1998. This stake was proportionally consolidated, and had no impact on 1998 results.
Financial highlights for the year included: - Exceptional sales performance across the board, as Aerospatiale booked orders worth 87.3 billion francs, an increase of 18% at constant size (excluding satellites). At year-end, the order book stood at 181.9 billion francs, equal to approximately 3.5 years of projected turnover. - Turnover rose by 7.5%, at constant size and dollar exchange rate. - Net income declined significantly, from 1,418 million francs in 1997 to 1,037 million francs in 1998, due to a sharp rise in operating provisions, of 1.4 billion francs, in particular for the Airbus and ATR businesses, a reorganization of hedging arrangements designed to increase room to maneuver in the future, involving costs of 699 million francs, and a loss on extraordinary items of 517 million francs (partly due to restructuring costs), despite capital gains of 1,089 million francs realized on the sale of satellite operations.
Orders Aerospatiale booked record orders for the second year in a row, at 87.3 billion francs, a rise of 18%. Orders were recorded with the dollar at 5.50 francs, and excluding the satellite business, which generated 5.5 billion francs in 1997. The record-breaking level of orders is driven by exceptional Airbus sales, as firm orders were booked for 556 Airbus jetliners in 1998, versus 440 the previous year. Aircraft orders advanced 27%, while Space and Defense orders increased by 16% on a comparable-structure basis. Tactical Missiles enjoyed an excellent year, booking orders worth 7.2 billion francs, and winning several significant export contracts, in particular for Aster missiles in Saudi Arabia, Eryx missiles in Turkey, Canada and Norway, and Milan missiles in Italy and Greece. Helicopter orders declined slightly to 12.2 billion francs, but still surpassed objectives and confirmed Eurocopter as the world's leading helicopter company. At year-end 1998, the order book stood at a new record of 181.9 billion francs, equal to approximately 3.5 years of sales.
Turnover Aerospatiale posted consolidated turnover of 54.9 billion francs in 1998, versus 56.3 billion francs in 1997 (52.6 billion on a comparable-structure basis). This turnover figure is based on a dollar at 5.22 francs, versus 5.54 the previous year. By using hedging, Aerospatiale was able to obtain a sales dollar at 5.51 francs. However, hedging was reorganized to increase management flexibility for the future, leading to overall costs of 699 million francs, which were allocated to the sales dollar, as specified by Aerospatiale's accounting principles, bringing it to 5.22 francs. At a constant dollar exchange rate and comparable size, turnover rose by 7.5%. Aircraft sales totaled 31.2 billion francs, versus 30.7 billion francs in 1997, a rise of 7% with a constant dollar. A total of 229 Airbus airliners were delivered, as planned, on time and with the quality expected by customers. This represents a volume increase of 26%. The lower growth in value is due to the distribution of sales, with a larger proportion of single-aisle aircraft being delivered. At constant size, Space and turnover increased by 9% to 9.4 billion francs, versus 8.6 billion in 1997. Increases were posted by both Missiles (3.4 billion, versus 3.2 billion in 1997) and the Ballistic Missile and Space Transportation business, which generated 6 billion francs in sales, versus 5.4 billion in 1997. Helicopter sales totaled 11.1 billion, compared with 10.2 billion francs in 1997, an increase of 9%. 1998 income Aerospatiale's operating income declined significantly, from 1,078 million francs in 1997 to 409 million francs in 1998. With a constant dollar, operating income would have increased slightly (to 1,154 million francs), reflecting the strong income contribution from helicopters (increasing from 4 million to 498 million francs) and space activities (from 191 million to 334 million francs). The missiles business, which benefited from 278 million francs in recoveries on provisions for customer risks, which proved groundless in 1997, posted a loss of 341 million francs, versus a loss of 196 million francs in 1997. Airbus's contribution decreased from a profit of 1,131 million francs to a loss of 68 million francs (or a profit of 677 million francs with a constant dollar), due to the sharp increase in operating provisions (650 million francs higher than in 1997), in particular for customer risks, and a very high level of independently financed R&D (600 million francs higher than in 1997), despite satisfactory growth in operating cash flow. Independently-financed R&D expenses for the entire Aerospatiale group came to 4,945 million francs, compared with 4,351 million in 1997. These expenses include 1,777 million in repayments of advances, versus 1,155 million francs in 1997. Capital gains on the sale of satellite operations, totaling 1,089 million francs and recorded under pretax income before extraordinary items, were partially offset by restructuring costs and various provisions, leading to a loss on extraordinary items of 517 million francs. Total net income excluding minority shares was 1,037 million francs, compared with 1,418 million francs in 1997. Debt Because of the consolidation of Dassault Aviation assets, the group posted cash flow of 44 million francs, versus net indebtedness of 939 million francs at year-end 1997. Aerospatiale's net indebtedness, excluding the consolidation of Dassault Aviation, increased by 2,287 million francs. Cash flow exceeded investments, less divestments, and reimbursements of government advances (less advances received) by 1 billion francs, but working capital requirements increased by 3.2 billion francs. This increase was primarily due to a 1.1 billion franc increase in Aircraft business inventories and work in process, a 1.1 billion franc decrease in advances and progress payments from customers in the Space and Defense sector, and a 700 million franc increase in inventories and work-in-process, as well as receivables, less debts, at Eurocopter.
Outlook The main events in 1999 will be the transfer of Matra Hautes Technologies to Aerospatiale, as Lagardère becomes the group's core strategic partner, with a 33% equity stake, and the subsequent privatization of Aerospatiale. This transfer will be carried out providing that the listing of the new group is successful, with the government's share falling under 50%. A privatization decree was published in the "Journal Officiel" of February 14, 1999. This merger will give birth to the fifth largest aerospace and defense company in the world, and the second largest in Europe. It should also accelerate the consolidation of the European aerospace and defense industry, in order to improve competitiveness and allow European industry to develop more balanced relations with their American counterpart.
The strategic priorities of the new group will be:
- to pursue the conversion of Airbus into a single corporate entity; - to form a world leader in missiles, by linking up Matra BAe Dynamics and Aerospatiale Missiles; - to strengthen the group's space business through continued European consolidation.
To enable the reorganization of the European aerospace and defense industry, Aerospatiale has also decided to spin off virtually all of its operations in four wholly-owned subsidiaries: Aerospatiale Airbus, Aerospatiale ATR, Aerospatiale Missiles and Aerospatiale Strategic Missiles and Launch Vehicles. The spinoff operations are slated for April 1, 1999, with retroactive effect to January 1, 1999.
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Aerospatiale's final 1998 results impacted by a number of non-recurring items.
