Friday March 1, 2013

EADS closes merger saga as profit leaps

BERLIN: Airbus parent EADS formally buried its attempted US$45bil merger with UK defence contractor BAE Systems Plc and cheered investors with evidence that civil aviation growth continues unabated.

Shares in Europe's largest aerospace company reached a record high on Wednesday after it unveiled higher than expected 2012 earnings and raised its dividend despite charges at its defence and helicopter operations.

Chief executive Tom Enders said he was “comfortable” with defence providing only 20%-25% of overall group revenue, rather than the long-targeted equal split that would have resulted from a deal with BAE, which fell apart late last year.

Investors had largely opposed the deal because it would have diluted their exposure to strong demand from airlines in emerging markets a rare bright spot in an otherwise bleak climate for industrial goods made in Western economies.

While European arms spending has been hit hard by budget cuts, passenger jet production has largely ridden out the economic crisis thanks to brisk civil demand led by Asia.

“Maybe it is not a bad time to have a smaller rather than larger defence business,” Enders told a news conference.

Strategy chief Marwan Lahoud said the BAE deal was now “off the table,” dismissing lingering speculation that EADS was still harbouring hopes of reviving the deal.

EADS, which makes drones, fighter jets and missiles, would study defence activities and potentially stop some of them if they failrf to meet the group's criteria, he said in an interview.

But he emphasised that EADS remained in the defence business, which experts typically see as a hedge against civil cycles and a source of cash to finance new plane projects.

EADS operating profit rose 68% to 3 billion euros (US$3.92bil) in 2012 for an operating margin of 5.3% on revenue up 15%t to 56.5 billion euros.

Net profit grew 19% to 1.2 billion. Analysts had forecast EADS revenue of 54.88 billion euros and net income of 1.475 billion, according to Thomson Reuters I/B/E/S data.

For 2013 it targeted 3.5 billion euros in operating profit and earnings per share of 2.5 euros, up from 2.24 euros, before a planned share buyback linked to a shakeup of shareholdings.

EADS stock rose 6.5% to its highest-ever close of 37.14 euros, helping France's bluechip CAC 40 index gain 2%.

“The market is in a generous mood towards EADS,” said London-based Agency Partners analyst Nick Cunningham.

“It likes risky cyclicals now, and the (share) buyback adds about 15% to earnings in a full year. It is an earnings-driven equities market right now.”

However, he warned an extended civil aerospace cycle was finally running out of steam and other risks had not gone away. Reuters

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