Airbus Group SE (PA:AIR) delivered another robust performance in 2016, with Q4 results exceeding market expectations. The addition of a further provision of €1.2bn (FY16 total €2.2bn) for the troubled A400M military transport aircraft remains a burden on cash in 2017 and 2018. However, even allowing for this, it would appear that both underlying earnings and group FCF are set to start improving from this year, and likely accelerate as the civil aircraft ramp-ups deliver expected learning curve benefits with improved pricing.
Successful execution in 2016, despite issues
Airbus delivered Q416 sales ahead of market expectations by around 3%, some 10% higher than the comparable period. Nearly all of the surprise came from the commercial aircraft division, courtesy of very high December deliveries. That also boosted Q416 group-adjusted EBIT to €1.55bn, which was up 16% with margin increasing to 6.6% against a flat expectation. FY16 revenues of €66.6bn were up 3.3%, but adjusted EBIT was down almost 4% at €3.96bn. Adjusted margin fell to 5.9% from 6.4% in 2015. This resulted from continuing dilution of civil programmes due to new model transitions, together with adverse mix at Airbus Helicopters caused by a weaker medium/heavy market and lower flying hours.
Improvement to cash flow remains key
FCF of €1.4bn was generated in 2016 before M&A and customer financing. However, this was delivered despite a >€1bn outflow relating to the A400M, which will likely recur this year. The €2bn received from disposals and business restructuring, primarily the formation of the Airbus Safran (PA:SAF) Launchers joint venture and the sale of Dassault Aviation shares, left year-end net cash balances at €11.1bn (€10.0bn in FY15). Guidance is for a similar FCF in 2017 with a comparable burden from the A400M. We expect an improvement in FY18 to gather pace in FY19.
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