Hans Peter Ring Managing for Long Term Growth

Transcription

1 MANAGING FOR LONG TERM GROWTH - At the bottom of the aerospace cycle Hans Peter Ring CFO of EADS Global Investors Forum Munich 28 th /29 th April Managing for Long Term Growth 1. Financial Flexibility 2. Managing for Efficiency 2

2 Financial Flexibility Our policy: Optimizing cost of capital and ensuring financial flexibility by using diversified funding alternatives: Equity markets Debt market Refundable governmental loans Governmentally funded defence programmes Cash flow from operations 3 Equity markets Organic growth mostly financed by operational cash flow At the moment, no concrete M&A intentions Therefore, no immediate need to issue new equity Meanwhile, we maintain a strong level of communications with the markets to keep them up-to-date on our progress and maintain interest in our shares 4

3 Debt market Strong rating secures debt funding potential 7 February 2003 Senior unsecured: A3 outlook stable Leading worldwide market positions held by several of its businesses Strong balance sheet which should remain solid during the current severe downcycle in the commercial aircraft market (which is expected to last through at least 2004) Stable outlook is predicated on the favourable long-term outlook for the commercial aircraft business, and the expected gradual improvement in its defence and space businesses 5 February 2003 Senior unsecured: A outlook negative Maintenance of strong financial measures underpin rating Very strong backlog, increasing market share, gradual growth in defence activities Very conservatively leveraged balance sheet. The management has publicly pledged to maintain a strong balance sheet Liquidity should remain very satisfactory despite an increase in leverage 5 Debt market New additions to diversified range of debt instruments Available EIB Loan Syndicated Loan Euro Bond 1.0 bn (committed but undrawn) Maturity: up to 15 years 2.85 bn (committed but undrawn) Maturity: 0.85 bn up to 1 year revolving Maturity: 2.00 bn up to 5 years 1 bn (drawn) as part of EMTN program Maturity: bn (committed but undrawn) 1.0 bn (drawn) Next steps ECP Programme considered 6

4 Debt market Wide maturity spread of financial debt 5,976 1,000 Inaugural Bond Issue in Feb Maturity profile of financial debt [as of inaugural bond] all amounts in m 1,000 4,976* 1,185** ,165 Financial Liabilities as of Dec up to 1Y 1up to 2Y 2 up to 3Y 3 up to 4Y 4 up to 5Y >5Y * Thereof 1146M backed by deposits recorded under other financial sssets 749M backed by loan/lease contracts with 3rd parties recorded under property, plant & equipment or other financial assets ** thereof 540M with MBDA and Astrium as counterparty expected to be renewed and rolled over to next year 7 Refundable governmental loans Risk Mitigation A380 risk-sharing example (based on a total of US$10.7 bn) Cash impact of governmental loans Received Reimbursed 2002/2003 (only Airbus) US$ 3.1 bn Risk sharing partners (e.g. suppliers) [in m] US$ 2.5 bn Repayable Government Loans for 33% of R&D cost 52% US$ 5.1 bn Financing by Airbus (EADS 80%, BAe Systems 20%) 48%

5 Governmentally funded defence programmes Commercial programmes R&D and investment phase needs to be funded by EADS cash burden for EADS Value creating phase after R&D and investment phase depending on market success Margins according supply/demand Defence programmes R&D and investment phase funded by governmental customers value creating phase During production phase profitability secured but limited through pricing regulations Risk and opportunity sharing of fixed price contracts to be reconsidered EADS is growing its defence portfolio to balance financial risks and opportunities 9 Operational Cash Flow - Securing Organic Growth [in m] 5000 R&D net of tax** = 1197 R&D net of tax** = Capex = Capex = Cash from Operating Activities* before self-funded R&D and before industrial Capex Cash from Operating Activities* after self-funded R&D and before industrial Capex Cash from Operating Activities* after self-funded R&D and after industrial Capex Strong firms are those that invest during the downturn *) includes Change in Working Capital Requirements and Launch Aid Variation **) assumed tax rate of 35% 10

6 Managing for Long Term Growth 1. Financial Flexibility 2. Managing for Efficiency 11 Centralization of Treasury Functions Treasury centralization allows us to better control risk and save cost Centralization concerns three areas: Centralized foreign currency hedging Cash pooling Funding 12

7 Centralization of Treasury Functions Foreign Currency Hedging Roughly US$10 bn net exposure per year Enables realistic margin analysis during contract negotation phase/protects margin after contract closing Enables short and mid term planning reliability and to smooth short term currency fluctuations All hedging is performed in close cooperation with the business units Policy (approved by EADS Board of Directors) is to hedge only firm contracts But management has flexibility to hedge less than 100% of firm exposure to adapt to the business cycle 13 Centralization of Treasury Functions Central Cash Pooling In order to leverage the significant cash position of the EADS group and its subsidiaries, all cash is pooled daily and invested centrally Provides an actual view on the cash position of the group, enabling control of cash consumption and cash generation Centralized Funding All debt funding activities are managed centrally on a group level Full control on debt profile and conditions - avoidance of structural subordination 14

8 Processes and Organisation The EADS process is geared toward transparency and providing the necessary facts for informed decision making Risk Management Main task of finance function throughout EADS Enhanced internal audits and disclosure control Compliance with EU commission recommendations on corporate governance M&A and Commercial Committees Chaired by the CFO, reporting to the Executive Committee and the CEOs The M & A Committee focuses on the fit with the group s strategic and financial objectives The Commercial Committee reviews all major binding offers, focusing on the Group s financial requirements and provides financial and marketing support (e.g. Paradigm) 15 Processes and Organisation Planning and Target Setting Monthly actuals reporting, forecast reports and 12-month rolling cash flow planning enables quick management response in terms of cost and cash control Steering operative (3 years horizon) planning process Basis for variable renumeration of EADS management (up to 50% of salary) Products Markets, Regions Portfolio/M&A Renumeration Controlling/Reporting process Products Markets, Regions Portfolio/M&A (Co-)Steering the strategic (10 years horizon) Portfolio management 16

9 Portfolio Management with CVA metric CFROI CFROI Value Eroders BU 6 Value Creators DIV 1 CVA WACC (12,5%) DIV 2 BU 7 BU 3 BU 2 WACC (12,5%) BU 5 Value Value Destroyers Catch-Ups CVA < 0 CVA > 0 0 CVA Gross assets CVA > 0 Value is created CVA < 0 Value is destroyed Positive CVA can be achieved with profitable growth and/or rise in profitability Target: All Divisions and Business Units need to beat hurdle rate = WACC and to generate positive CVA over operative planning period (3 years) 17 Company-Wide Cost and Cash Controls Cash and cost-improvement programs are set up throughout the group acording to targets set by corporate finance based on competitors benchmark and internal analysis Airbus Large scale efficiency program (1.5 M recurring cost savings by 2006) Strict control of customer financing Aeronautics Extended Merger Integration Targets for Aerostructure Business and Military Aircraft Efficiency programs launched for ATR, EFW and Sogerma (Aeroframe JV) DCS Reorganization (Know-how transfer and synergies DCS/EADS-wide) Site restructuring and concentration Shared capabilities (e.g. for sales and marketing or R&D) 18

10 Company-Wide Cost and Cash Controls Space Full control of Astrium clears the path for restructuring actions Plan initiated in 2002 (M 210 recurring cost saving by 2004) Additional 2-step plan under implementation (M 285 recurring cost savings by 2005) Procurement Increased value creation targets Enhanced implementation of make-or-buy Sourcing reorganization 19 Appendix 20

11 Appendix CVA metric definitions CVA = Gross Cash Flow Capital Charge = Gross Cash Flow (Gross Assets * WACC) = Return beyond the mimimum return demanded by the equity and debt holders for their Investment in EADS Gross Cash Flow = Return generated by EADS in absolute terms Capital Charge = Minmum return demanded by the equity and debt holders for their investment in EADS expressed in absolute terms Gross Assets = Represents the capital of equity and debt holder invested in EADS WACC = Weighted Average Cost of Capital - Minimum return demanded by the equity and debt holders for their investment in EADS expressed in relative terms = 12,5% p.a. 21