Aerospatiale Matra First-half 1999 : a period of transition

Meeting on September 21, 1999, the Supervisory Board of Aerospatiale Matra approved the financial statements for the first six months of 1999.

In a joint statement, Yves Michot, Chairman of the Executive Committee, and Philippe Camus, Chief Executive and member of the Executive Committee, said:

“As expected and previously announced, results for the first half of 1999 reflected both a transition period between major defense export contracts, in terms of operating income, and the integration of hedging costs, in terms of net income.

Furthermore, as in 1998, revenues during the first half of the year are less than those expected during the second half of the year. Because of the strongly seasonal nature of certain businesses (helicopters, systems, services and telecommunications), operating income for the second half of the year will be significantly higher than for the first half of the year. As expected and announced, our full-year operating income will be less than in 1998.“

Our fundamentals continued to improve during the first six months of the year, ensuring excellent long-term prospects for the group:

• Orders were booked at a sustained pace, far exceeding expectations. Following two exceptional years, this further expands our order book. Our market shares also continued to grow, particularly for Airbus.

• Savings plans have been launched, to achieve our goal of an 8 percent operating margin in 2003.

• We continued to consolidate our businesses within the scope of the consolidation of European industry. We are actively laying groundwork for changes in the status of Airbus, a European missiles company, and consolidation of space operations within Astrium. When these actions are completed, they will foster new synergies, although these are not currently integrated in our saving plans.

FIRST-HALF 1999 FINANCIAL HIGHLIGHTS

Sales

Operating income by business

Statement of income, first-half 1999

Orders

    1/ Change in scope

The main changes in the Group’s scope of consolidation during the first half of the year were as follows:

• The transfer of Matra Hautes Technologies by the Lagardère Group and privatization of the company; Lagardère becomes the core partner with 33 percent of the share capital, while the government’s share is reduced to 47.69 percent.

• Aerospatiale’s redistribution to shareholders Sogepa and the French government of Thomson-CSF shares received in 1998 as payment for the transfer of its satellite operations.

• Transfer of the 50 percent stake in ATEV to Thomson-CSF in February 1999.

    2/ Sales: Increase in line with projections, given the transitional period between major defense export contracts

Aerospatiale Matra posted consolidated sales of 5.749 billion euros for the first six months of 1999, compared with pro forma sales of 5,615 billion euros for the first half of 1998, including business by Matra Hautes Technologies and Dassault Aviation. Sales rose 2.39 percent.

The share of sales recorded in U.S. dollars for aviation activities was recorded at a rate of 5.50 francs/dollar, given available hedges, versus 5.54 francs during the first half of 1998. This difference accounted for 34 million euros of the change between the two periods.

Aerospatiale Matra generated 73.7 percent of total sales in markets outside of France.

Airbus sales advanced 26.6 percent to 2.681 billion euros at June 30, 1999, compared with 2.116 billion euros for the year-earlier period. This rise was due to an increase in deliveries to 140 aircraft (4 A300/A310, 104 A319/A320/A321, 32 A330/A340), versus 110 in the first half of 1998 (3 A300/A310, 87 A319/A320/A321, 20 A330/A340).

A total of 290 aircraft are expected to be delivered for the year, compared with 229 in 1998.

Helicopter sales rose 14.6 percent, totaling 682 million euros, versus 595 million euros in the year-earlier period.

Light aviation sales (Socata) grew 12 percent, while sales of maintenance services (Sogerma) rose 9.8 percent.

On the other hand, ATR sales decreased 32.6 percent, although deliveries of these aircraft during the first half of 1998 were exceptionally high.

On a comparable-structure basis, Dassault Aviation sales decreased 17.9 percent, due to the expected transition between major military contracts. Missile Systems sales dropped by 37.9 percent, essentially for the same reason.

Space sales decreased 10.9 percent, due to delays in Ariane 4 and Ariane 5 launches, caused by late deliveries of satellite payloads. Arianespace expects to at least partially catch up by the end of the year. 

    3/ Income: As expected, operating income showed a sharp decline, primarily due to defense business. Aerospatiale Matra posted a net loss as of June 30, 1999 because the entire cost of restructuring hedging arrangements was recorded under exceptional items.

Aerospatiale Matra posted operating income of 129 million euros for the first half of the year, compared with 220 million euros for the first six months of 1998.

Operating income generated by Airbus improved to 74 million euros, compared with 60 million euros at June 30, 1998, despite an increase in R&D expenses.

Helicopters posted a loss of 16 million euros, compared with a loss of 24 million euros at June 30, 1998. However, this is a very seasonal business, and the outlook for the second half of the year means that full-year earnings will exceed 1998 income of 76 million euros.

Missile Systems posted a slight loss, as expected, as this business experienced a transitional period between major export contracts.

Income generated by the space business also decreased in comparison with the first half of 1998. This trend will be confirmed and probably amplified by the end of the year, due to late deliveries of satellites, technical problems with solar panels, and possible delays in launch schedules.

Systems, services and telecoms is a highly seasonal business, and results for the year should be near the break-even point.

Operating income for the second half of the year will be significantly higher than in the first half, although, as announced, operating income for the year will be under that of 1998.

The net income figure for the period consolidated several very significant exceptional items:

• Capital gains on 229 million euros worth of equity shares (ATEV for 182 million, Nahuelsat for 12 million, and part of MDTV for 29 million).

• The cost of restructuring hedging arrangements, amounting to 401 million euros (343 million euros spent as of June 30, 1999, plus a provision of 58 million euros to cover expenses during the second half of the year), and 46 million euros in privatization costs.

Aerospatiale has in effect modified its hedging arrangements to ensure that dollar flows during the financial year 2000 will be sold at an exchange rate of 5.50 to 5.60 francs/dollar, while, for financial years 2001 and 2002:

• half will be sold at an exchange rate of 5.50 to 5.60 francs/dollar;

• the other half will be sold at a rate of 40 centimes over the market rate for the dollar, with a rate ceiling of between 5.50 and 5.60 francs.

Income for the first half of 1998 integrated both the capital gains on the sale of shares in satellite operations, worth 177 million euros, and the cost of restructuring hedging arrangements, a total of 27 million euros recorded under financial expenses.

Aerospatiale Matra therefore posted a net loss including minority interests of 112 million euros (105 million euros excluding minority interests), compared with net income of 275 million euros during the first half of 1998 (285 million excluding minority interests).

Debt increased sharply during the first six months of the year, reaching 636 million euros at June 30, 1999. This increase was due to the seasonal nature of our business, and certain delays in payments by major customers, which should be reduced by the end of the year.

    4/ Orders: Sustained level of orders, following record-breaking years in 1997 and 1998, and various “structural” orders (Airbus, Tiger, PAAMS, Rafale).

Orders booked for the first six months of the year, significantly higher than expected, were nearly identical to the year-earlier period, bringing the order book to 36.1 billion euros.

Airbus booked nearly twice as many orders as its main competitor. Over the first six months of the year it won two-thirds of the market in volume, and 57 percent in value.

Major “structural” contracts have been booked this year:

• The Rafale contract for the French air force.

• The PAAMS contract, awarded this summer, represents more than 1 billion euros for Aerospatiale Matra.

• The Tiger contract, worth some 2 billion euros, was also announced this summer.

Neither of these latter two contracts are included in the statements for June 30.

    5/ Outlook

Revenues during the second half of the year will outpace those of the first half, resulting in a very significant rise in operating income over the first six months.

However, as projected, operating income for the full-year 1999 will be less than in 1998.

To achieve its goal of an operating margin of 8 percent in 2003, the group has launched five large-scale initiatives designed to reduce costs by approximately 4 billion francs (600 million euros) by 2003. These plans cover all group businesses: Aircraft, Helicopters, Space, Defense, Systems, Services and Telecommunications.

In addition, discussions are under way with our European partners concerning the consolidation of Airbus, space and missile operations.