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Lesser headwinds than expected and confirmed guidance
26 Oct 16
Airbus reported quite weak results in a quarter that is usually one of the smallest of the year. Actually, the top-line stayed stable compared to the previous year’s Q3 with a total revenue decline of 1% to €13.95bn. On the contrary, the company reported a quite weak EBIT before one-offs (bo-o). All three divisions being concerned by this relatively poor performance lead the total EBIT bo-o to decrease by 21% to €731m. This re-inforces the EBIT decrease this year because it was already down 11% in H1 compared to the previous year. The FY guidance appears at risk with this set of results, but the company has still maintained it.
A400M uncertainty lifted... but no financial improvement until Q4
29 Jul 16
Headline H1 figures: Airbus posted flat H1 revenues at €29bn, while EBIT before one-offs fell 11% to €1,684m from €1,883m. Reported EBIT was €172m higher at €1.86bn, impacted by a long list of one-offs, both positives and negatives. On the negative front, both the A400M and A350 programmes recognised negative charges to the tune of €1.026bn and €385m respectively. In addition, PDP and the balance sheet revaluation were negatively impacted by the dollar strengthening for -€509m. These negative items were, however, more than outweighed by the capital gain of €1,139m following the creation of the ASl 50/50 JV with Safran, the full disposal of the Dassault shares and other capital gains of €85m. Before one-offs, EPS came in at €1.41, just below €1.47 in H1 15 despite the 1.5% accretion from the share buy-back programme. On a reported basis, however, H1 16 EPS stood at 2.27. FCF generation was a negative €3bn, mainly due to the heavy H2 aircraft delivery profile at Airbus commercial but also almost certainly from the lack of deliveries of the A400 (just two in Q1 despite the original target of 20 for 2016).
Good and bad news to be delivered in H2
28 Apr 16
Headline figures: Airbus posted flat Q1 revenues at €12.18bn, up 1%, while EBIT before one-offs fell 23% to €501m from €651m. Reported EBIT was €136m lower, impacted by PDP mismatches/balance revaluations at Airbus commercial. FCF generation was a negative €3bn mainly due to the heavily H2 aircraft delivery profile at Airbus commercial but also almost certainly from the lack of deliveries of A400 (just two in Q1 despite the original target of 20 for 2016). Divisional standpoint: Airbus commercial saw a slow start to the year in terms of orders with 10 net orders (32 gross, 22 cancellations including 14 conversions from A320 Ceo to Neo), however the order intake is hardly ever linear. The underlying market remains robust with a very low level of deferrals; in fact customers are looking for earlier delivery slots if possible. Looking at revenues, Airbus commercial benefited from the stronger dollar, up 1.2% to €8.7bn despite lower deliveries over Q1 versus Q1 15. EBIT came in at €407m down 28.5% from Q1 15 despite a significant €168m decrease in R&D. The fall in margin to 4.7% from 6.6% is explained by the fall in volume of deliveries of A320s and A330s during Q1. A pricing impact on A330s during the transition phase to A330neos as well as the lack of pricing benefit from the undelivered A320neos. The dilution impact from the increase in A350 support costs is also a factor (200bp dilution impact on EBIT margin in 2016). The reduced R&D and the small FX tailwind have failed to compensate these factors in H1. Looking at the individual programmes: The A320ceo deliveries are unharmed but the pricing is certainly not as favourable as that of the A320neo. In 2016, Airbus expects the mix of A320 deliveries to be roughly 20/80 in favour of the ceo meaning that the pricing uptick will certainly have more of an effect in 2017. The backlog of A320neos sitting on the tarmac is expected to fall starting this summer as they are awaiting their new engines from Pratt & Whitney which has guaranteed that the fixes (hardware and software) will lead to deliveries in the summer. The CFM-engined test aircraft are going through certification but with a less innovative design, teething issues are not expected to be important. The A330 programme has ramped down to the 6/month rate announced and the pricing on these aircraft is certainly not as favourable as in the past, however Airbus will see some volume uptick in 2017 as the rate will increase again to 7/month before the transition to the A330neo in 2018. The A350 ramp-up is going well despite supply chain issues remaining challenging. The cabin interior issues (Zodiac among others) have apparently stabilised, allowing Airbus to maintain its 50+ delivery target for 2016. Airbus indicated that the focus is very much on reducing rework-associated costs and recurring costs but that support costs are increasing through the ramp-up as expected. The target for a rate of 10/month in 2018 is confirmed. The A380 programme is certainly a smooth one on an industrial basis with Airbus confirming that it would maintain the breakeven level on the programme in 2016 and that it was currently targeting 20-25 deliveries in 2017 while working to reduce the breakeven level to closer to 20 aircraft. Airbus Helicopters has seen a significant change in its mix/volume of deliveries with the weakened civil market being partially compensated by the growing defence deliveries but at a structurally lower margin. Revenues fell 10% to €1.15bn and EBIT by 36% to €33m (€52m in 2015, 2.8% EBIT margin vs. 4% in 2015) despite restructuring efforts. Airbus Defence & Space is seeing its portfolio adjustments payoff with the disposal to KKR of its defence electronmics signed and the JV with Safran on the launcher business set to be finalised in the coming months. Airbus should see a cash inflow from Safran of c. €800m once the JV is finalised. Revenues fell by 2.7% during the quarter to €2.53bn, however EBIT grew 21% to €109m (EBIT margin of 4.3%) as the greater focus of the portfolio in addition to the restructuring are paying off. The order from Kuwait for Eurofighter was certainly a highlight over the quarter. The big disappointment comes from the A400M programme which again made the headlines for gearbox issues. The gearbox is produced by AVIO (owned by GE) and, as a result of waiting for a fix, Airbus has only been able to deliver two aircraft while 20 deliveries were originally planned for 2016. The comments on the conference call highlight the uncertainty concerning the fix and the financial impacts. These are yet to be determined, however Airbus’s CFO suggested that the “impact on financial statements could be significant” but later admitting that the burden could be spread between the stakeholders of the programme. In addition, production would be stopped in order to avoid inventory build-up if a fix cannot be rapidly implemented. Management suggests that “cancellation risks from customers are remote”.
In it for the longhaul and the shorthaul
11 Apr 16
Airbus Group is now a much better-defined business and investment proposal as it increases its focus on its core aerospace actvities. Civil aerospace growth provides a solid foundation, with Airbus a clear leader in accessing it at present. Aided by favourable currency movements and an innovative product strategy, the company continues to move forward positively, coping with short-term trials and preparing for excess returns.
One year remaining in two-year transition period
02 Mar 16
h1. Headline figures: Airbus posted revenues up 6% to €64bn, roughly in line with guidance and consensus. EBIT before one-offs came in at €4.1bn, again roughly in line with guidance and consensus. Earnings per share increased 15% to €3.43. The proposed 2015 dividend stands at €1.30, up 8% from 2014. Free cash flow before M&A came in at €1.1bn, very much above the FCF breakeven guidance, demonstrating the solid cash control especially on working capital through the ramp-up. Overall, FCF came in at €2.8bn, including the €1.7bn proceeds from the Dassault Aviation stake sale. Record order backlog at €1tn, which supports the ramp-up. h1. Official guidance: “In 2016, Airbus expects to deliver more than 650 aircraft, and the commercial order book is expected to grow. Before M&A, Airbus Group expects *stable EBIT before one-offs* and EPS before one-offs compared to 2015. In 2016, before M&A, Airbus Group expects to deliver stable free cash flow compared to 2015.”
On track for 2015 with a cherry on top
30 Oct 15
Airbus is well on track to deliver FY guidance of an increase in revenues and a slight increase in EBIT as well as breakeven FCF before M&A. The company is launching a €1bn share buy-back programme which is expected to be completed by mid-2016. Airbus will raise the A320 production rate to 60/month in mid-2019 with details and deals in place with the supply chain. Financials: For the first 9M 15 group order intake was up 42% to €112bn (Book-to-bill of 1 target for FY easily achieved). Revenues increased 6% to €43bn with a solid increase in sales from Airbus commercial, up +8% at €31.1bn, thanks to the favourable currency environment despite and a slight increase in deliveries 446 units combined with a positive mix effect. Airbus Helicopters' revenues were up 3.8% at €4.42bn reflecting the ramp-up in military contracts despite lower overall deliveries (down to 237 units from 295 after 9M 14). Revenues in Defence & Space were up 2.3% to €8.4bn driven by A400M. EBIT before one-offs increased by 8% to €2.8bn with reported EBIT up 14% to €2.95bn. The positive €142m net one-offs after 9M 15 included the -€290m A400M provision, a -€360m $ PDP mismatch/BS revaluation, the positive €748m capital gain from the sale of Dassault Aviation shares and a €44m capital gain from other disposals in the Defence & Space portfolio. Looking at the EBIT contributions from the divisions: Airbus commercial increased its EBIT before one-offs contribution by 25.1% to €2.2bn resulting in a very solid EBIT before one-offs margin of 7.2%. Reported EBIT came in lower as a result of the PDP mismatch and BS revaluation at €1.9bn. The division is making good progress across all programmes with the A380 programme breakeven target being reached. Management highlighted that Q4 will be impacted by the higher R&D charges and A350 support costs as well as delivering the first A320neo before the end of the year, which explains why the FY EBIT guidance was not raised. Airbus Helicopters increased its EBIT over the first 9M at €241m, resulting in an EBIT margin of 5.4%. The improvement reflects the strength in services and the restructuring efforts in a difficult commercial environment and the shift in the delivery mix. Airbus Defence & Space increased its EBIT before one-offs contribution by 16.5% to €431m resulting in a very solid EBIT before one-offs margin of 5.1%. Reported EBIT came in lower at €149m as a result of the €290m charge on A400m taken earlier this year. For 9M 15, Airbus announced reported EPS up 35% to €2.42 from €1.79 after 9M 14 thanks to the growing EBIT contributions across the divisions as well as the sale of the Dassault shares. Before one-offs, EPS stood at €2.17, up 9% from €1.99 at 9M 14. As a reminder, the dividend policy is based on reported EPS signalling a sharp increase in the dividend for the FY. Free cash flow before M&A improved by c.€300m to a negative €1.8bn despite the substantial ramp-up effort which means working capital was negative €3.3bn after 9 months. Free cash flow after M&A (a positive €1.75bn contribution) was at breakeven at €5m, including the sale of Dassault Aviation shares. The 2015 guidance has been confirmed. Airbus still expects an increase in revenues and still targets a slight increase in EBIT before one-offs. The target of a breakeven FCF before M&A is also confirmed.
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Fighting the waves
25 Oct 16
Management action in response to a tough trading climate and falling profits should contribute to a sound recovery in profits next year. Following share price weakness, the group is valued at a substantial discount to both the broking market leader Clarkson and to other peers. Meanwhile, if the dividend can be held, the shares offer a well above-average yield, pending an eventual improvement in trading conditions.
21 Oct 16
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N+1 Singer - Morning Song 21-10-2016
21 Oct 16
Xaar has announced that its FD, Alex Bevis, will be leaving to pursue other opportunities after almost 6 years with the group. A search is underway for his replacement and Alex will remain with Xaar until 24th March 2017. While Alex’s departure is disappointing, Xaar’s strategy remains on track, with new product launches expected to drive near term organic sales growth and a target of £220m sales by 2020. This reflects stronger leverage of Xaar’s innovative technology into a broader spread of end products and markets, with the £220m expected to be composed of broadly equal contributions from ceramics, packaging & product printing, Thin film/P4, and partnerships/M&A. Prospects for the group are exciting, with positive news flow on product launches and end markets anticipated over the year ahead.
FY17 expectations unchanged. Interim dividend maintained
25 Oct 16
Interims reflect tough markets which impacted Technical. Shipbroking delivered a resilient result and Logistics has performed well. The interim dividend has been held at 9.0p. The group anticipate an improvement in H2. The Board’s expectations for the year are unchanged based upon the strength of the order book due in H2, its ongoing market coverage and the benefits of action taken previously. We have retained our FY2017 PBT forecast of £8.7m and a maintained dividend. We reiterate our Buy and adjust our TP to 450p.
N+1 Singer - Morning Song 20-10-2016
20 Oct 16
A highly disappointing update from Senior reports a number of issues adding up to the Group being behind expectations. Following the Flexonics issues over the past 12 months, there are now issues on the Aerospace side which are affecting the outlook. In a period when some stability was required, this is disappointing. We have downgraded FY16 EPS by 6.8% and, whilst we see Senior remaining a US takeover target, we move from Buy to Hold (target price down from 262p to 196p) until more clarity is available on the direction of the Group.