The following explanatory comments and analyses are derived from the audited MTU consolidated financial statements for the financial years ending December 31, 2009, 2008 and 2007. The consolidated financial statements are drawn up in accordance with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB), to the extent that these have been adopted by the European Union.
In accordance with IFRS requirements, certain new or revised/amended standards and interpretations were applied for the first time in the financial statements for 2009. Their application did not give rise to any changes with a significant impact on the group’s financial situation, net assets or operating results. Consequently, no changes in the financial reporting principles or in management judgements with respect to the application of the accounting standards had an effect on the group’s business performance in the reporting period.
MTU became an independently controlled company as from the 2004 financial year
MTU Aero Engines Holding AG, Munich was created in 2004 as a result of MTU Aero Engines Erste Holding GmbH’s transformation into a joint stock company, shortly before the IPO. Prior to the IPO, the company was owned by funds managed by one of the world’s leading private equity firms, Kohlberg Kravis Roberts & Co. Ltd. (KKR). The funds had acquired the company at the end of 2003. Until that time, it had been a wholly owned subsidiary of the then DaimlerChrysler AG. Additional amortization expenses on intangible assets and depreciation expenses on property, plant and equipment arose as a result of the acquisition with effect of January 1, 2004 and through the subsequent purchase price allocation. These expenses are recognized in the income statement. To facilitate comparison, adjustments for these depreciation and amortization items are applied when determining earnings before interest and tax (EBIT). Because the long-established MTU only became an independently controlled company again as from the 2004 financial year, the comparative presentations at the end of this Annual Report are limited to the years 2005 to 2009 (5-year presentation).
Information on exchange rates
The financial data presented herein are stated in euros, U.S. dollars, Canadian dollars, Chinese yuan renminbi, Malaysian ringgit, Polish zloty or British pounds. The table provides information on the exchange rate parity between the euro and the above-mentioned currencies for the years as listed.
This information was compiled on the basis of the official exchange rates published by the European Central Bank.
MTU Aero Engines Holding AG, Munich in its present form was created with effect of January 1, 2004, when Kohlberg Kravis Roberts & Co. Ltd. (KKR) purchased 100 % of the company’s shares from the then DaimlerChrysler AG. In the context of the acquisition, assets, liabilities and contingent liabilities were identified according to IFRS 3 and measured at fair value. Since then, the identified intangible assets, in particular, have led to considerable scheduled amortization expenses each year. In the following text, they are referred to collectively as ‘effects of the purchase price allocation’ and corresponding adjustments have been applied to eliminate them from the indicators presented below, to facilitate comparison. Explanatory comments on business performance and a presentation of the non-recurring items contained in the consolidated income statement are provided below.
MTU successfully held sway against the growing adversities of the general economic climate. Group revenues were 4.2 % down on 2008 at € 2,610.8 million. Operating profit (EBIT adjusted) amounted to € 292.3 million (2008: € 331.0 million) and the adjusted EBIT margin came to 11.2 % (2008: 12.1 %). As a result of the good operating profit, however, earnings after tax (EAT) which amounted to € 141.0 million (2008: € 179.7 million) were slightly over the forecast level for the financial year 2009.
For explanatory comments on depreciation/amortization and nonrecurring items, please refer to the table later in this section showing the reconciliation of the consolidated income statement.
Changes in margins
The gross profit margin in 2009, at 17.6 %, remained virtually unchanged compared with the previous year (2008: 17.7 %). The adjusted EBIT margin amounted to 11.2 % (2008: 12.1 %) while the EBIT margin increased by 0.4 percentage points to 9.5 % (2008: 9.1 %). The ratio of earnings after tax (EAT) to revenues (return on sales) was reduced by 1.2 percentage points to 5.4 % (2008: 6.6 %).
Changes in MTU group margins in %
Order backlog and value of MRO contracts (order volume)
MTU’s order backlog consists of firm customer orders which commit the group to delivering products or providing services. Orders for maintenance work to be performed under the contractual terms of long-term service agreements are not included in the order backlog for the commercial maintenance business. In order to obtain a fair picture of the economic value of the total contracted order volume and the corresponding degree of capacity utilization, the figures for the contractual value of service agreements in the commercial maintenance business (MRO) are stated in a separate line of the financial statements, in addition to the conventionally defined order backlog for the commercial and military engine business (OEM) and for the commercial maintenance business (MRO). Further information on the valuation of contracts in the commercial maintenance business (MRO) is provided in Section 3.1.4. (MRO segment).
Order backlog and value of MRO contracts in € million (before consolidation)
The group’s total order backlog amounted to € 8,843.1 million at the end of 2009
At December 31, 2009, the group order volume (total order backlog including the value of commercial MRO contracts) amounted to € 8,843.1 million, which is a reduction of € 402.6 million (4.4 %) compared with the previous year’s figure of € 9,245.7 million. The majority of orders in the commercial engine business and in commercial MRO are priced in U.S. dollars. If translated at the exchange rate in effect on December 31, 2008, the group order volume would have been € 260.8 million (2.9 %) higher, at a total of € 9,103.9 million. Adjusted to eliminate the effect of the U.S. dollar exchange rate, the reduction in the group order volume would thus have amounted to 1.5 %.
The group order backlog, which excludes the value of commercial MRO contracts, amounted to € 4,150.9 million, or € 135.2 million (3.4 %) higher than the previous year’s level. Applying the exchange rate parity prevailing at December 31, 2008, the group order backlog would have been € 95.9 million higher, at a total of € 4,246.8 million. This would have equated to an increase in the group order backlog of 5.8 % compared with the previous year.
Orders in the military engine business are priced in euros. The corresponding order backlog at year-end 2009 had fallen by € 44.7 million (3.0 %) to € 1,422.9 million (2008: € 1,467.6 million).
Altogether, the total volume of book orders (order value plus value of contracts) represents a workload of approximately three years.
MTU achieved revenues of € 2,610.8 million in the financial year 2009
Group revenues decreased in the financial year 2009 by € 113.5 million (4.2 %) to € 2,610.8 million. Compared with the previous year, revenues in the commercial and military engine business (OEM) fell by € 57.2 million (3.5 %) to € 1,585.7 million, while revenues in the commercial maintenance business (MRO) fell by € 55.4 million (5.0 %) to € 1,057.6 million.
Revenues by segment in € million
Cost of sales and gross profit
Cost of sales decreased by € 88.6 million (4.0 %) to € 2,152.2 million. Due to the fact that cost of sales decreased to a lesser extent than sales revenue, gross profit fell to € 458.6 million (2008: € 483.5 million), a year-on-year decrease of € 24.9 million (5.1 %). The gross margin remained virtually unchanged at 17.6 % (2008: 17.7 %). For the income statement effects of risks and uncertainties linked to the TP400-D6 engine program and the measurement of contingent liabilities arising from business combinations, please refer to Section 3.3. (Net assets), and to Note 24. (Construction contract receivables) and Note 33. (Other provisions) to the consolidated financial statements.
Research and development expenses
Research and development costs recognized in the income statement amounted to € 105.6 million, which is € 10.7 million higher than the equivalent figure in 2008. A more detailed description of the composition of these expenses and their allocation to the respective operating segments is provided in Section 1.4. (Research and development).
Selling and general administrative expenses
As a member of risk- and revenue-sharing partnerships (RRSP) with the world’s leading engine manufacturers, MTU does not have any actual marketing expenses for new products or services because only the leading partner in the relevant consortium for an engine program (General Electric or Pratt & Whitney) has direct contact with customers in the marketplace. Recognized selling expenses include expenses in connection with trade shows and exhibitions including notably the company’s presence at the Paris Air Show in Le Bourget, France, media relations expenses, and valuation allowances and write-downs on trade receivables. In 2008, under the terms of the risk- and revenue-sharing agreement with the General Electric Company (GE), MTU acquired sales and supply rights amounting to € 27.6 million.
General administrative expenses are expenses incurred in connection with administrative activities unrelated to development, production or sales activities.
Depreciation and amortization
In 2009, total depreciation and amortization expenses included in the costs by function amounted to € 126.4 million (2008: € 125.0 million). This includes € 45.4 million resulting from the purchase price allocation (2008: € 47.5 million).
The costs by function for the financial year 2009 do not include any impairment losses (2008: € 35.2 million). Explanatory comments and a more detailed breakdown of the total amount can be found in Section 3.1.1. (Group operating results).
Adjusted EBIT margin of 11.2 % reported for the financial year 2009
EBIT adjusted and EBIT margin
Adjusted earnings before interest and tax (EBIT adjusted) are determined by adding the effects of purchase price allocation arising from the company’s acquisition (described below) to earnings before interest and tax (EBIT). Operating profit (EBIT adjusted) decreased by 11.7 % to € 292.3 million (2008: € 331.0 million). The adjusted EBIT margin narrowed by 0.9 percentage points to 11.2 % (2008: 12.1 %).
Group EBIT (adjusted)
Reconciliation of adjusted performance indicators
Examples of adjusted performance indicators include EBIT adjusted, and adjusted EBIT margin. The International Financial Reporting Standards (IFRSs) do not stipulate any requirements concerning adjusted performance indicators. Since other companies do not necessarily employ the same calculation methods as MTU Aero Engines Holding AG, Munich to obtain the adjusted performance indicators presented in their financial statements, the adjusted figures presented by MTU Aero Engines Holding AG, Munich can only be compared with similarly named items in the statements of other companies to a limited extent.
The adjusted performance indicators should not be viewed in isolation as an alternative to the presented figures for EBIT, earnings after tax (EAT), cash flow from operating and investing activities, nor to the liabilities and other indicators presented in the consolidated balance sheet for MTU Aero Engines Holding AG, Munich in accordance with IFRSs.
Performance indicators can also be adjusted to exclude nonrecurring items.
Adjusted EBIT for the operating segments and the group as a whole is derived from earnings before interest and tax (EBIT). In the reconciliation of the consolidated income statement, adjusted EBIT is obtained by applying adjustments to eliminate the effect of depreciation/amortization and impairment losses on intangible assets and property, plant and equipment arising from the purchase price allocation.
The main reason why adjustments are applied is to eliminate the effect of nonrecurring items which are superimposed on the results of operating activities and thus obscure the true comparability of EBIT and other performance indicators for the group and the individual operating sectors with the figures for previous years. Starting out from the unadjusted earnings figures, the respective adjusted values are obtained by adding (expenses) or subtracting (income) the nonrecurring items.
The adjustments are applied regardless of whether the income and expense items are presented as part of EBIT, the financial result, or tax expenses. The income and expense items to which the adjustments are applied are those immediately affected by the circumstances under which the nonrecurring items arose.
The table below shows the reconciliation between individual lines in the consolidated income statement and the equivalent items adjusted for nonrecurring effects. The reconciliation table presents comparative data for previous annual periods in addition to the data for the year under review.
In the financial year 2009, no impairment losses were recognized on intangible assets or on property, plant and equipment.
In the financial year 2009, no impairment losses were recognized on intangible assets or on property, plant and equipment.
The impairment losses recognized in the 2008 consolidated financial statements, totaling € 35.2 million, comprise impairment losses on the fair value of old GE engine programs amounting to € 34.3 million and of old military engine programs amounting to € 0.9 million. In each case, the fair value was compared with the recoverable amount. The recoverable amount was found to be below the fair value of the program, necessitating an impairment charge on the recoverable amount.
The impairment loss on intangible assets in the financial year 2007, amounting to € 14.7 million, related to a license for CF34 repair techniques employed in commercial engine maintenance. Because comparison of the license’s carrying amount with its recoverable amount revealed that the latter was lower, an impairment loss was recognized to reduce the carrying amount to the level of the recoverable amount.
Depreciation/amortization resulting from the purchase price allocation
The subject of depreciation/amortization resulting from the purchase price allocation is dealt with in the introductory paragraphs at the beginning of this Section.
MTU’s financial result improved by € 11.1 million in 2009 to a net expense of € -39.4 million (2008: € -50.5 million). The deterioration in the interest result for 2009 compared with that for 2008 is attributable to lower interest income. The financial result on other items improved in the financial year 2009, with a net expense reduced by € 13.9 million to € -24.8 million (2008: € -38.7 million). The factors responsible for this change were gains on forward commodity sales contracts for nickel amounting to € 4.6 million (2008: losses of € 11.7 million), fair value gains on currency derivatives and interest rate derivatives amounting to € 2.9 million (2008: € -1.3 million), and the effect of discount reversals and changes in the discount rate for other provisions and contingent liabilities.
Earnings before tax (EBT)
In addition to the good business operating performance, the improved financial result also had a positive impact on earnings before tax (EBT), which increased by € 9.7 million to € 207.5 million (2008: € 197.8 million).
Income taxes in the financial year 2009 amounted to a total of € 66.5 million (2008: € 18.1 million). The effective group tax rate, relative to earnings before tax, amounted to 32.0 % (2008: 9.2 %). A table showing the reconciliation of the expected tax expense to the actual tax expense can be found in Note 15. to the consolidated financial statements (Income taxes).
Impact of tax field audit
The tax field audit covering the period 2000 to 2003 was completed in the financial year 2008. Since tax pooling arrangements had been in place during that period with the company that is now Daimler AG, an additional tax expense was taken into account in tax assessments at the level of Daimler AG. Due to the contractual terms and conditions agreed by MTU and Daimler AG, this additional tax expense triggered a retrospective adjustment to the purchase price (originally agreed in 2003) for the MTU group. On the basis of the tax audit findings, a financial liability amounting to € 15.0 million was provisionally recognized at December 31, 2008. After further evaluation and consultation, the final amount of the retrospective adjustment to the purchase price was established by agreement with Daimler AG at € 12.1 million. This liability was settled in full in the third quarter of 2009. The amount of the payment is recognized in cash flow from financing activities. All claims by either party arising from the sale of MTU by Daimler AG are thereby settled.
The corresponding reductions in MTU’s tax expense for the financial years 2004 to 2008 were recognized in 2008 with a positive tax effect of € 33.0 million.
Treasury shares revalued in 2009 to original acquisition cost
Impact of tax-effective write-ups/write-downs on treasury shares
Unlike for IFRS accounting purposes, treasury shares acquired by MTU Aero Engines Holding AG, Munich, are required to be presented for German accounting (HGB) and tax purposes within current assets measured at their average acquisition cost. Such assets are required to be written down to their ‘fair value’ (for HGB purposes) or their ‘Teilwert’ (for tax purposes) if lower at the end of the reporting period. MTU Aero Engines Holding AG, Munich is classified for tax purposes as a finance company. In the financial year 2008, the fall in the MTU share price as a result of the financial and banking crisis made it necessary to write down the group’s holding of treasury shares by an amount of € 36.9 million. In the financial year 2009, as the markets began to revive, the MTU share recovered to such an extent that it became necessary to reverse the previous year’s write-down on treasury shares of € 36.9 million, restoring their measurement to their original acquisition cost. Reference is made to Note 30.6 to the consolidated financial statements (Treasury shares) for the calculation of the average purchase price of treasury shares.
Earnings after tax (EAT)
Despite the satisfactory business performance in 2009, earnings after tax (EAT) were reduced by € 38.7 million (21.5 %) to € 141.0 million (2008: € 179.7 million) owing to the positive tax effects included in the previous year’s results.
Earnings after tax (EAT) in € million
Net profit available for distribution
The net profit available for distribution to the shareholders of MTU Aero Engines Holding AG, Munich, as determined in accordance with the German Commercial Code (HGB), amounted to a total of € 61.3 million for the financial year 2009. The Board of Management and Supervisory Board’s proposal to the Annual General Meeting is to allocate an amount of € 15.8 million from this net profit to revenue reserves and to distribute the remaining € 45.5 million to shareholders as a dividend (2008: dividend payment € 45.4 million). At December 31, 2009, 48,921,808 shares (2008: 48,770,945) were entitled to receive a dividend.
Earnings per share
Undiluted earnings per share amounted to € 2.89 (2008: € 3.64). Potential common shares from the convertible bond and the Matching Stock Program diluted these earnings per share. Inclusive of these effects, diluted earnings per share amounted to € 2.80 (2008: € 3.54).
The Board of Management and Supervisory Board of MTU Aero Engines Holding AG, Munich, will propose a dividend of € 0.93 per share
High dividend payment
In view of the group’s continuing good business performance, the Board of Management and Supervisory Board of MTU Aero Engines Holding AG, Munich will propose to the Annual General Meeting on April 22, 2010 that an unchanged dividend of € 0.93 per share (2008: € 0.93) should be paid out to shareholders. The total dividend payment amounts to € 45.5 million (2008 at the time of the Annual General Meeting’s resolution: € 45.4 million), after deduction of the proposed allocation to revenue reserves. The net dividend yield for 2009, based on the share price of € 38.19 at December 31, 2009, thus amounts to 2.4 %. The dividend is expected to be paid on April 23, 2010 – on condition that the proposal is approved by the Annual General Meeting. A table showing the reconciliation of group earnings after tax (EAT) as defined in the IFRSs to the net profit available for distribution of MTU Aero Engines Holding AG, Munich, can be found in Part VII. of the notes to the consolidated financial statements (Reconciliation of group earnings after tax (EAT) to the net profit available for distribution of MTU Aero Engines Holding AG, Munich).
The performance data for the operating segments developed as follows in the financial year 2009:
The order backlog for the commercial and military engine business (OEM) is reported on the basis of list prices. Given that orders for spare parts for commercial engines are generally fulfilled within a short time of their receipt, the order backlog does not contain a substantial volume of such orders.
Commercial engine business
The invoiced value of MTU’s order book for commercial engines, expressed in U.S. dollars, stood at U.S. $ 3,662.3 million at December 31, 2009, and therefore U.S. $ 298.7 million (8.9 %) higher than in 2008, when it stood at U.S. $ 3,363.6 million.
The order backlog translated into euros at the 2009 year-end closing rate increased by € 125.3 million (5.2 %) to € 2,542.2 million (2008: € 2,416.9 million).
In purely arithmetical terms, the order backlog represents slightly over two years’ production capacity.
Military engine business
In the case of military programs, the customer typically places an order for a fixed number of engines at the time the production agreement is concluded. The full value of the contract flows into the order backlog when the contract is signed. This order backlog reduces over a prolonged period of time, in line with deliveries.
The backlog of orders for military engines, which are priced in euros, totaled € 1,422.9 million at the end of 2009. This is € 44.7 million (3.0 %) below the previous year’s amount of € 1,467.6 million.
In purely arithmetical terms, the order backlog represents slightly less than three years’ production capacity.
The OEM segment generated revenues of € 1,585.7 million in 2009
The company generated revenues of € 1,585.7 million in the OEM segment. This is € 57.2 million (3.5 %) less than the result achieved in 2008.
During the reporting period, revenues from the commercial engine business decreased by € 92.6 million to € 1,053.7 million. The main contributing factors were the slump in demand for business jets (Pratt & Whitney Canada programs) and lower requirements for spare parts, particularly for legacy programs, due to the decline in the volume of air traffic. Adjusted for the effect of the U.S. dollar exchange rate, revenues decreased by around 12.8 %.
Revenues in the military engine business increased by € 35.4 million (7.1 %) from € 496.6 million in 2008 to € 532.0 million in 2009. The ongoing entry into service of the Eurofighter Typhoon assures a steady flow of revenue from the EJ200 engine, and revenues generated by other military programs have also remained stable.
In the OEM segment, the adjusted EBIT margin is 14.5 %
EBIT adjusted and EBIT margin
Adjusted earnings before interest and tax (EBIT adjusted) in the OEM segment reflected the difficulties of operating in a depressed economic climate, reducing from € 279.9 million to € 229.2 million. The adjusted EBIT margin fell from 17.0 % to 14.5 %.
OEM EBIT (adjusted)
Order backlog and value of contracts
The order backlog for commercial maintenance consists of orders for work on engines that have been delivered to the maintenance shop and where failure analysis has been completed. When revenues are recognized from the orders, the order backlog is reduced accordingly.
Future orders under long-term service agreements, even though they form part of the contract volume, are not included in the order backlog. Consequently, the order backlog in the commercial maintenance business is relatively low. For this reason, in addition to the narrowly defined order backlog, MTU also discloses in its statements the expected value of orders for work on engines for which maintenance agreements are in place.
The order backlog fort he commercial maintenance business amounted to U.S.$ 267.7 million at the close of 2009
The short- to medium-term workload can be estimated by adding together the order backlog and the value of contracts. On a purely arithmetical basis, the sum total of order backlog and value of contracts represents a workload of slightly less than five years. The majority of contracts in the MRO segment are priced in U.S. dollars. The order backlog for the commercial maintenance business in 2009 amounted to U.S. $ 267.7 million, which is U.S. $ 84.8 million or 46.4 % higher than the equivalent figure for 2008 of U.S. $ 182.9 million. The value of orders for work on engines for which maintenance agreements are in place decreased by 7.1 % to U.S. $ 6,759.6 million in the year under review.
Translated into euros, the order backlog and value of contracts decreased by € 483.2 million (9.0 %) to € 4,878.0 million (2008: € 5,361.2 million) at the end of 2009.
Revenues in the MRO segment totalled € 1,057.6 million in 2009
MTU’s revenues from the commercial maintenance business in 2009 amounted to € 1,057.6 million (2008: € 1,113.0 million), despite cutbacks in seat capacity by the airlines. The revenues reported by MTU Maintenance Zhuhai Co.‚ Ltd., Zhuhai, China, stabilized at an overall positive level, increasing slightly from € 125.9 million in 2008 to € 128.9 milion in 2009. Revenues generated by MTU Maintenance Berlin-Brandenburg, Ludwigsfelde also moved upwards, due to improved revenues from work on stationary industrial gas turbines. Adjusted to eliminate the effect of the U.S. dollar exchange rate, revenues would have decreased overall by roughly 9.9 %.
EBIT adjusted and EBIT margin
Adjusted earnings before interest and tax (EBIT adjusted) in the MRO segment increased by € 10.7 million (19.6 %) to € 65.3 million, reflecting the stabilization of process costs. The EBIT margin increased correspondingly to 6.2 % (2008: 4.9 %).
MRO EBIT (adjusted)
Principles and objectives of financial management
The main objectives of financial management are to ensure the constant availability of adequate liquid reserves, avoid financial risks, and diversify sources of financing in the interests of flexibility. Measures to safeguard liquidity are based on forward financial planning with integrated liquidity planning spanning a period of several years. All consolidated group companies take part in this planning process. The business operations of the operating segments and the resulting cash inflow represent the group’s main source of liquidity. Longer-term liquidity forecasts are based on operative planning. Short-to-medium termforecasts are updated once a month. MTU utilizes cash flow surpluses generated by individual group companies to cover the funding requirements of other companies in the group (cash pooling). This reduces the need for external loans and optimizes net interest expenses. MTU also makes use of a variety of internal and external funding instruments to assure its future liquidity, including long-term financing via pension provisions, the convertible bond with a term to maturity of five years issued in 2007, the raising of four promissory notes in 2009, and credit arrangements covering short-to-mediumterm financing needs. These sources of financing are supplemented by off-balance-sheet operating lease agreements. The financing measures introduced by MTU in the financial year 2009 provide the company with a sound basis on which to meet its future financing requirements.
Corporate-level departments control financing in accordance with the group structure
The factors considered when choosing financing instruments include flexibility, credit terms, the profile of maturity dates, and borrowing costs. The corporate-level departments control financing in accordance with the group structure. In keeping with standard banking practice, the main sources of financing include covenants requiring the company to ensure that its performance indicators remain within defined limits. MTU has complied with the contractual obligations arising from such convenants both at December 31, 2009 and at the end of every quarter. Further information on agreed covenants is provided in Note 34. to the consolidated financial statements (Financial liabilities). Significant agreements relating to change of control subsequent to a takeover bid are dealt with in Section 7. (Other disclosures).
In Section 6. (Risk report) of the group management report and Note 42. to the consolidated financial statements (Risk management and derivative financial instruments), information is provided on MTU’s approach to financing and valuation risks, methods used to hedge risks associated with interest rates and foreign currencies, and methods of dealing with price-change, nonpayment and liquidity risks.
The prescribed procedures for dealing with banking policy, the approval of banking relationships, loan agreements, worldwide liquidity and asset management, the management of currency and interest risks and the management of the group’s internal cash flow are laid down in the treasury principles. It is a basic principle of the group that its lines of credit are administered at corporate level. Certain of these lines of credit are passed on to affiliated companies and, if necessary in individual cases, guaranteed by the parent company. By centralizing the liquidity management function, the group is in a position to allocate resources efficiently within the organization. As a rule, the group’s financial liabilities are not secured by collateral.
The group maintains good business relationships with a number of different partner lending banks, and in this way avoids being too strongly dependent on a single institution. The banking partners with whom the group and its affiliates conduct business are required to have a long-term credit rating of at least ‘investment grade’.
MTU’s credit rating has been monitored by leading rating agencies on a regular basis since 2005
Issuer ratings facilitate access to the international capital markets. Issuer ratings for MTU have been published by the rating agencies Standard & Poor’s (S&P) und Moody’s since 2005.
The table below shows a year-by-year comparison of the respective credit ratings for the group (corporate) and for the convertible bond:
S&P continues to affirm a corporate credit rating for MTU of BB+ with stable outlook, while Moody’s rates the company at Ba1 with positive outlook (2008: with stable outlook).
S&P has been evaluating MTU’s convertible bond since June 2007. Its rating in 2009 remains the same as in 2008, namely BB+.
The banking and financial crisis had no impact on the group’s overall financial situation.
MTU does not expect any significant effects to arise from the level of interest rates nor from possible changes in lending conditions, given the hedging measures initiated in the financial year 2009. A sensitivity analysis of risk concentration based on credit, market and liquidity risks is presented in Note 42. to the consolidated financial statements (Risk management and derivative financial instruments).
The group has not engaged in any transactions involving off-balance-sheet financial instruments, such as the sale of receivables in connection with asset-backed securities, sale-and-leaseback agreements, or obligations toward special-purpose entities not included in the consolidated financial statements, neither in 2009 nor in any prior year. The group does not make use of government grants to meet its financing needs, and does not plan to do so in the future.
As at 31 Dec. 2009, net financial liabilities decreased to a total of € 142.4 million
Net financial liabilities
Net financial liabilities is used as a performance indicator by leading capital market analysts, and is a common reference in MTU’s market sector. MTU defines net financial liabilities as the difference between gross financial liabilities and current financial assets. It serves as an indicator of the MTU group’s overall liquidity. Total net financial liabilities decreased by € 112.3 million (44.1 %) to € 142.4 million compared with the amount of € 254.7 million reported at December 31, 2008. Factors contributing to this decrease include fair value gains on financial assets and financial liabilities classed as derivative financial instruments, totaling € 41.0 million (2008: fair value losses of € 63.5 million), the settlement of liabilities arising from the retrospective purchase price adjustment, and a significantly higher level of cash and cash equivalents.
The components of net financial liabilities changed as follows in the financial year 2009:
The € 180.0 million convertible bond issued in the financial year 2007 is an important financing instrument that serves as a supplement to conventional bank loans. The convertible bond has a par value of € 180.0 million (divided into 1,800 units each with a par value of € 100,000) and a term to maturity of five years. The units of the bond are scheduled for repayment on February 1, 2012 (date of final maturity) at par value plus interest accrued up to that date, unless they are repaid, converted, or repurchased and invalidated prior to the date of final maturity. The units of the bond can be converted into registered non-par value common shares of the company corresponding to a proportionate amount (€ 1 per share) of the company’s total share capital.
At a conversion price of € 49.50, the conversion ratio at issue date was 2,020.20 shares. The coupon rate is fixed at 2.75 %, payable yearly on February 1. The issuing company is Amsterdam-based MTU Aero Engines Finance B.V., which is wholly owned by MTU Aero Engines Holding AG, Munich. The funds raised through this bond issue were used by MTU in the financial year 2007 to pay outstanding liabilities in connection with the high yield bond, including penalties for early repayment and accumulated interest.
In the period from September 17 to October 31, 2008, MTU repurchased units of its own convertible bond on the market with a total nominal volume of € 27.2 million (approximately 15.1 % of the original nominal volume of € 180.0 million) prior to their final maturity. The average total price paid for these securities amounted to € 21.9 million (including transaction costs but excluding interest at the coupon rate), which corresponds to an average of 80.7 % of the bond units’ nominal value. This amount was divided into an equity portion and a liabilities portion. The outstanding units of the convertible bond with a total nominal value of € 152.8 million (2008: € 152.8 million) are recognized at amortized cost. More detailed comments, including the calculation of the equity and liability components of the repurchased units of the bond, are provided in Note 34. (Financial liabilities) to the consolidated financial statements.
Financial liabilities to banks
In 2009, MTU issued four promissory notes for a total nominal note amount of € 65.0 million
On June 3, 2009 MTU placed four promissory notes for a total nominal note amount of € 65.0 million. Through these promissory notes, consisting of four tranches with fixed maturity dates as listed below, the group aims to further diversify its sources of financing:
The cash inflow from the promissory notes was used to reimburse existing liabilities to banks in connection with the revolving credit facility (old RCF). The promissory notes were recognized at their fair value on the date of acquisition, which corresponds to the nominal note amount, less transaction costs amounting to € 0.4 million. The promissory notes are measured at amortized cost.
Other liabilities to banks
At December 31, 2009, MTU had not drawn down any funds under bilateral banking credit facilities (2008: € 61.2 million). The other liabilities to banks amounting to € 14.6 million (2008: € 21.3 million) relate to third-party loans provided to subsidiaries. In total, financial liabilities to banks decreased by € 2.5 million to € 80.0 million (2008: € 82.5 million).
Finance lease liabilities
Finance lease liabilities represent obligations under finance lease arrangements that are capitalized and amortized using the effective interest method. For information on the accounting treatment of lease assets and a summary of capitalized lease assets, please refer to Note 5.7. (Leasing) and Note 20. (Property, plant and equipment) to the consolidated financial statements.
Loan from the province of British Columbia
The loan from the province of British Columbia to MTU Maintenance Canada Ltd., Richmond, Canada, is recognized at amortized cost. The change compared with 2008 is mainly attributable to movements in the exchange rate parity between the euro (€) and the Canadian dollar (CAD). The interest-free loan was originally due for repayment on December 31, 2009. However, in a supplementary agreement between MTU Maintenance Canada Ltd., Richmond, Canada, and the province of British Columbia, the lending period was extended by just short of a year, to November 2, 2010.
Retrospective purchase price adjustment
The financial liability amounting to € 15.0 million that was provisionally recognized in 2008 in respect of the retrospective adjustment of the purchase price in favor of Daimler AG was settled in the third quarter of 2009 after completion and evaluation of the tax field audit for the period 2001 to 2003, through payment of € 12.1 million to the beneficiary. The amount of the payment is recognized in cash flow from financing activities. All claims by either party arising from the sale of MTU by Daimler AG are thereby settled. Further explanatory comments are provided in Section 3.1. (Operating results).
80 % of the surplus income denominated in U.S. dollars was covered by hedging transactions in 2009
Derivative financial assets and liabilities
In the financial year 2009, 80 % of the surplus income denominated in U.S. dollars with respect to expenses denominated in U.S. dollars (dollar exposure) was covered by hedging transactions. At December 31, 2009, hedging transactions were in place for the financial years 2010 and 2011 covering 69 % and 34 % respectively of the surplus U.S. dollar income.
The reduction in derivative financial liabilities by € 36.2 million to a total of € 12.2 million (2008: € 48.4 million) mainly related to the fair value measurement of forward foreign exchange transactions used to hedge cash flows and forward commodity sales contracts for nickel.
The currency derivatives item mainly represents the fair values of forward foreign exchange transactions used to hedge cash flows. Derivative financial assets increased by € 4.8 million to € 16.6 million (2008: € 11.8 million) as a result of market-related changes in the exchange rate parity between the euro and the U.S. dollar.
For further details on credit and market risks arising from derivative financial assets and liabilities, please refer to Note 42. to the consolidated financial statements (Risk management and financial derivatives).
Cash and cash equivalents
The cash and cash equivalents of € 120.8 million (2008: € 69.9 million) comprise checks, cash in hand and the balance on current bank accounts.
Relative indebtedness improved to 48.7 %
The indicator ‘relative indebtedness’ represents the ratio of net financial liabilities to EBIT (adjusted to eliminate the effect of nonrecurring items). It improved by 28.2 percentage points to 48.7 % (2008: 76.9 %) compared with 2008, due to the signifcant decrease in net financial liabilities due to changes in the fair value of derivative financial instruments, settlement of the retrospective purchase price adjustment, and the increase in cash and cash equivalents.
The group’s medium-term flexibility is assured by unused lines of credit amounting to € 72.3 million at the end of the financial year 2009 (2008: € 171.9 million). MTU continuously monitors the need for available lines of credit on the basis of the volume of financial liabilities at any given time as well as future financing requirements.
Any credit actually utilized is subject to interest at the usual market reference rates plus an additional margin. MTU does not expect to see any major changes in lending conditions at the present time. As of December 31, 2009, MTU and its affiliates had met all loan repayment and other obligations arising from financing arrangements. The availability of unused lines of credit increases the scope and flexibility of the group’s financing opportunities.
MTU is not a party to any off-balance-sheet transactions which might in any material way affect the company’s present or future financial situation, operating results, liquidity, capital expenditure, assets or capital resources.
Capital expenditure by segment
Capital expenditure in the financial year 2009 amounted to € 143.3 million (2008: € 293.7 million). Of this total amount, € 104.7 million concerned the OEM segment (2008: € 260.5 million) and € 38.6 million concerned the MRO segment (2008: € 33.2 million).
Capital expenditure by class of asset
Capital expenditure on assets of all categories was divided up as follows: € 24.6 million (2008: € 193.8 million) on intangible assets, € 115.7 million (2008: € 99.9 million) on property, plant and equipment, and € 3.0 million (2008: € 0.0 million) on financial assets.
Total capital expenditure decreased to
€ 143.3 million in 2009
The charts illustrate the changes in capital expenditure on assets of all classes:
Capital expenditure and depreciation/amortizion by class of asset 2009 in € million
Capital expenditure on intangible assets
MTU acquired a 6.65 % stake in the GEnx engine program for the Boeing 787 and 747-8 through a cooperation agreement dated December 19, 2008 between the General Electric Company and MTU Aero Engines GmbH, Munich. The investment in this new engine program in 2008 is included in the capital expenditure of the OEM business as an intangible asset valued at an amount of € 126.1 million.
MTU’s participation in General Electric’s GE38 helicopter engine development project has enabled the company to acquire an 18 % stake in the engine program for the Sikorsky CH-53K heavy-lift helicopter in 2008. Additional development costs amounting to € 8.3 million (2008: € 2.8 million) arising from this program share in 2009 are included in the intangible assets for the OEM business.
The commercial maintenance business has developed special repair techniques to reduce the cost and increase the efficiency of engine maintenance, and thereby further consolidate its technological and competitive lead. The recognition criteria for these technologies were met in the financial year 2009, allowing capitalized development costs amounting to € 4.8 million (2008: € 3.4 million) to be recognized within intangible assets.
A detailed analysis of capital expenditure on intangible assets, which amounted to a total of € 24.6 million (2008: € 193.8 million) is provided in Note 18. to the consolidated financial statements (Changes in intangible assets, property, plant and equipment, and financial assets).
Capital expenditure on property, plant and equipment
The capital expenditure on technical equipment, plant and machinery totaling € 21.9 million (2008: € 14.7 million) relates mainly to the purchase of various CNC lathes and milling machines, vacuum furnaces, and one used engine.
One leased engine owned by the group is furthermore recognized in property, plant and equipment; four engines and one stationary gas turbine were disposed of in the financial year 2009. For the remaining engine, the company may be required to recognize an additional expense at the end of the leasing period if the proceeds from the disposal of the lease asset are lower than the carrying amount. The liabilities arising from all lease assets are recognized at the present value of the minimum lease payments and amortized on a yearly basis.
Additions to advance payments and work in progress in the financial year 2009, totaling € 46.4 million (2008: € 59,8 million) relate to work in progress on technical equipment, plant and machinery for new engine programs at the German sites.
Capital expenditure on property, plant and equipment amounted to € 115.7 million in 2009
A full presentation of capital expenditure on property, plant and equipment is provided in Note 18. to the consolidated financial statements (Analysis of changes in intangible assets, property, plant and equipment, and financial assets).
MTU uses free cash flow as the indicator of its liquidity. MTU defines free cash flow as cash flow from operating activities less capital expenditure on intangible assets, property, plant and equipment, and financial assets. This cash surplus is principally utilized for the dividend payment, the share buyback program, and the repayment of financial liabilities.
Cash inflow and outflow 2009 in € million
Cash flow from operating activities
Cash flow from operating activities in 2009 amounted to € 252.7 million, or € 153.1 million (37.7 %) lower than the previous year’s level of € 405.8 million.
Cash flow from investing activities
Cash flow from investing activities decreased by € 149.7 million (53.0 %) to € 132.5 million (2008: € 282.2 million) as a result of the expenditure described in Section 3.2.2. (Analysis of capital expenditure). Cash flow from investing activities includes proceeds from the disposal of assets amounting to € 10.8 million (2008: € 11.5 million).
Free cashflow in 2009 amounted to € 120.2 million
Free cash flow
Free cash flow, i.e. cash flow from operating activities less cash flow from investing activities, amounted to € 120.2 million in 2009 (2008: € 123.6 million). In the financial year 2009, the majority of the free cash flow was used to cover the dividend payment of € 45.4 million for the financial year 2008 (€ 46.3 million for the financial year 2007), for repayment of a part of the current liabilities, and to settle the retrospective purchase price adjustment through a payment of € 12.1 million to the beneficiary. Further explanatory comments on the repayment of financial liabilities is provided in Note 34. to the consolidated financial statements (Financial liabilities).
Further information on free cash flow is provided in the consolidated cash flow statement.
At December 31, 2009, the composition of cash and cash equivalents was as follows:
Total assets decreased year-on-year by € 47.0 million (1.5 %) to € 3,149.1 million (2008: € 3,196.1 million), while the equity ratio increased as a result of the operating results to 23.2 % (2008 19.3 %).
Changes in balance sheet items
The table below shows an overview of the changes in assets, equity and liabilities, giving separate figures for current and non-current items:
Assets and capital structure 2009 in € million
Assets and capital structure 2008 in € million
A valuation allowance on trade receivables was recognized in respect of the TP400-D6.
On the assets side, intangible assets and property, plant and equipment increased by a total of € 4.9 million or 0.3 % to € 1,804.9 million (2008: € 1,800.0 million). Intangible assets decreased by € 26.7 million, due to the fact that scheduled amortization charges exceeded additions. Property, plant and equipment increased by € 31.6 million as a result of capital expenditure.
In 2009, inventories fell by € 12.7 million or 1.9 % to € 648.7 million (2008: € 661.4 million). Inventories of raw materials and supplies decreased by € 2.7 million to € 308.8 million (2008: € 311.5 million) and work in progress, at € 306.0 million, was € 16.2 million lower than the previous year’s amount of € 322.2 million. Advance payments increased by € 6.2 million to € 33.9 million (2008: € 27.7 million). In total, inventories accounted for 20.6 % of net assets, virtually unchanged from the 2008 figure of 20.7 %. Inventory turnover expressed as a percentage of revenues decreased only slightly from 4.4 to 4.0. Trade receivables, construction contract receivables (after deducting advance payments) and other assets including advance payments decreased year-on-year by € 108.5 million (16.9 %) to € 534.7 million. Of these, trade receivables fell by € 69.2 million (15.0 %) to € 391.2 million. The basic premises underlying the measurement of the TP400-D6 military engine program for the A400M military transporter had to be entirely reviewed in 2009 due to uncertainties arising from delayed deliveries and the uncertain technical status on the one hand, and the general uncertainty surrounding the future of the program. As the result of the reassessment of the time schedule undertaken by MTU at the end of the year, taking into account all recalculated premises, the amount of construction contract receivables for the TP400-D6 in excess of advance payments received, namely € 51.9 million, was written down and recognized in the income statement. More detailed explanatory comments concerning the remeasurement of the engine program are provided in Note 5.22. (Discretionary scope, measurement uncertainties and sensitivity) and in Note 33. (Other provisions) to the consolidated financial statements. In total, construction contract receivables, net of the corresponding advance payments, shrank by € 40.5 million (29.2 %) compared with the previous year to € 98.4 million.
Cash and cash equivalents amounted to € 120.8 million (2008: € 69.9 million) at the balance sheet date. Expressed as a percentage of total assets, this item thereby increased to 3.8 % (2008: 2.2 %).
In terms of the structure of assets, the proportion of non-current assets increased by 1.6 percentage points to 58.6 % (2008: 57.0 %). The chart below compares the relative proportions of current and non-current assets at the end of 2009 and the two previous years:
Structure of assets in %
The next table shows details of the changes in group equity:
Group equity increased by € 113.3 million as at 31 Dec. 2009 to a total of € 730.7 million
Positive changes in group equity
The overall increase in group equity in 2009 of € 113.3 million (2008: increase of € 55.4 million) is mainly attributable to the earnings after tax (EAT) generated in the financial year, which amounted to € 141.0 million (2008: € 179.7 million). Individual positive changes in equity include an amount of € 1.4 million relating to the fair value measurement of the Matching Stock Program (MSP) share-based payment scheme and an amount of € 4.4 million relating to shares sold to employees under the MAP stock option program. A more detailed description of the components of the share-based payment arrangements is provided in Note 30.4. to the consolidated financial statements (Capital reserves). A further positive change in group equity was the amount of € 14.2 million from fair value gains on cash flow hedges (2008: negative change of € 29.1).
Negative changes in group equity
Negative changes in group equity include an amount of € 45.4 million for the dividend payment to shareholders of MTU Aero Engines Holding AG, Munich for the financial year 2008 (€ 46.3 million for the financial year 2007) and the negative balance of currency translation differences recognized in equity amounting to € 2.3 million (2008: positive balance of € 3.4 million), which is mainly attributable to MTU Maintenance Zhuhai Co. Ltd., Zhuhai, China.
The following chart illustrates the changes in group equity in the financial year 2009:
Changes in group equity
2009 in € million
Changes in the fair value of derivative financial instruments recognized under other comprehensive income (OCI)
At December 31, 2009, the nominal amount of the outstanding portfolio of hedging instruments classified as cash flow hedges in accordance with IAS 39 amounted to U.S. $ 700.0 million, serving as a hedge against changes in the exchange rate parity between this currency and the euro. Measurement of the fair value of the MTU cash flow hedge portfolio at the end of 2009, based on the €/USD exchange rate of 1.44 prevailing at the balance sheet date, resulted in a positive change in the fair value recognized under other comprehensive income (OCI) of € 14.2 million compared with December 31, 2008. In the previous year, the measurement based on the €/USD exchange rate of 1.39 prevailing at the balance sheet date had resulted in a negative change in the fair value recognized under OCI of € 29.1 million. Positive changes in the fair value (net of taxes) of cash flow hedges are recognized under financial assets, whereas negative changes in the fair value (net of taxes) of cash flow hedges are included in financial liabilities. Changes in the fair value of cash flow hedges at the end of the financial year are recognized directly in equity as an adjustment to OCI. These adjustments are applied net of the corresponding changes in deferred tax assets (for cash flow hedges with a negative change in fair value) or in deferred tax liabilities (for cash flow hedges with a positive change in fair value).
The following chart illustrates the changes in the fair value of cash flow hedges recognized under other comprehensive income (OCI) over the past three years.
Change in fair value in € million
The positive change in the fair value of cash flow hedges in 2009 resulted in an increase of € 14.2 million in the fair value of the net assets (after deduction of taxes) recognized under other comprehensive income (OCI), whereas in 2008 the fair value of these net assets had been reduced by € 29.1 million.
Mediumto long-term debt capital increased in 2009 to € 943.7 million
Medium- to long-term debt capital increased by € 32.9 million (3.6 %) to € 943.7 million. Their proportion of total equity and liabilities rose by 1.5 percentage points to 30.0 % (2008: 28.5 %). This figure includes pension provisions amounting to € 389.9 million (2008: € 371.7 million), which had increased as expected by € 18.2 million (4.9 %). In particular, delays in the delivery of engines had an impact on the measurement of contingent liabilities for certain engine programs in the financial year 2009. Due to the significant change in the schedule of payments, income of € 70.5 million was recognized in the income statement for the engine programs in question in the financial year 2009, in addition to the utilization of other provisions. Effects of price escalations were taken into account when measuring contingent liabilities due to the delay in engine production corresponding to the increases in output stipulated each year by the engine consortium. Furthermore, the change in the interest rate applied to discount non-current obligations, which was recognized in the financial result, had an impact on related earnings. Non-current provisions were reduced to € 159.1 million (2008: € 224.0 million) at December 31, 2009, mainly as a result of the measurement of contingent liabilities arising from business combinations. Changes in contingent liabilities are presented in more detail in Note 33. to the consolidated financial statements (Other provisions).
Non-current liabilities totaling € 394.7 million (2008: € 315.1 million) principally comprise financial liabilities amounting to € 93.8 million (2008: € 58.9 million), and deferred tax liabilities amounting to € 266.9 million (2008: € 227.6 million).
Non-current financing funds increased in the financial year 2009 to € 1,674.4 million
Non-current (i.e. medium- and long-term) financing funds increased in the financial year 2009 by € 146.2 million (9.6 %) to € 1,674.4 million (2008: € 1,528.2 million). This means that 90.8 % (2008: 83.9 %) of the company’s non-current assets are matched by financing funds available on a medium- to long-term basis.
Current (i.e. short-term) financing funds decreased by € 193.2 million (11.6 %) to € 1,474.7 million, including a reduction in provisions and income tax liabilities of € 0.7 million (0.2 %) to € 296.2 million. These provisions include pension provisions amounting to € 21.7 million (2008: € 18.5 million). Current liabilities decreased by € 192.5 million (14.0 %) to € 1,178.5 million. These include obligations towards employees totaling € 37.2 million (2008: € 40.6 million), financial liabilities amounting to € 186.0 million (2008: € 277.5 million), trade payables amounting to € 320.9 million (2008: € 495.7 million), accounts payable for construction contract after deduction of the corresponding receivables amounting to € 607.0 million (2008: € 520.6 million), and sundry other identifiable obligations. Current provisions have remained virtually unchanged. On account of uncertainties arising from delivery delays and the uncertain technical status on the one hand, and the general uncertainty surrounding the future of the program, all basic premises underlying the measurement the TP400-D6 engine program had to be reassessed in the financial year 2009. As a result, a provision over and above the carrying amount of the construction contract receivables was recognized in the income statement. Detailed comments on the risks and uncertainties linked to the TP400-D6 engine program are presented in Note 33. to the consolidated financial statements (Other provisions). The chart below shows a comparison of the relative proportions of equity, non-current and current financing funds in 2009 and the two previous years:
Structure of equity and financial debt in %
Within the structure of equity and financial debt, the equity ratio increased by 3.9 percentage points to 23.2 % (2008: 19.3 %) compared with the previous year, while current liabilities decreased by 5.4 percentage points. Overall, there has been a shift in the structure away from current and towards long- andmedium-term financing funds.
The ratio of net financial liabilities to equity (gearing) improved by 21.8 percentage points
The ratio of net financial liabilities to equity (gearing) dropped by 21.8 percentage points to 19.5 % (2008: 41.3 %). While net financial liabilities decreased by a total of 44.1 % compared with the previous year (€ 112.3 million), principally as a result of the reduction in liabilities arising from derivative financial instruments (€ 36.2 million) and the increase in cash and cash equivalents (€ 50.9 million), equity increased by 18.4 % (€ 113.3 million) relative to the previous year.
The chart below illustrates the changes in the ratio of net financial liabilities to equity (gearing) over the past three years.
The value added statement reflects the wealth created by MTU in the course of the financial year after deduction of purchased materials and services. The net method of calculating value added considers depreciation/amortization, cost of materials and other expenses as purchased materials and services. Under the incomes received method, the part of the value creation process attributable to each party is made visible. The gross value added method regards depreciation/amortization as a component of the value chain, which would otherwise be accounted for as internal financing under the incomes received method.
Net value added increased in 2009 to € 739.2 million
In 2009, MTU’s gross value added decreased by 1.5 % to € 865.6 million (2008: € 878.4 million). This decrease compared with 2008 is mainly attributable to the reduction in revenues of € 113.5 million, against which it was necessary to offset a corresponding reduction in the cost of purchased materials and services amounting to € 77.5 million. On balance, the decrease in the cost of purchased materials and services was more pronounced than the decrease in value created by company activities. This had a positive impact on gross value added. Depreciation and amortization expenses fell by € 33.8 million. As a result of this effect, net value added increased by 2.9 % to € 739.2 million (2008: € 718.2 million).
The company’s employees were the beneficiaries of the major part of the net value added, namely 69.8 % (2008: 70.1 %). The portion received by lenders fell by 0.3 percentage points to 2.1 % (2008: 2.4 %). The public sector received 9.0 % (2008: 2.5 %), including deferred tax liabilities. The shareholders’ portion of the net value added was slightly lower than the previous year’s level, at 6.2 % (2008: 6.3 %). The remaining 12.9 % (2008: 18.7 %) of the net value added has been retained by the group for the financing of future business activities.
MTU value added statement 2009 in %
Earnings for the financial year 2009 were not affected by any significant nonrecurring factors. Fluctuations in the U.S. dollar exchange rate, and its more recent recovery, did not have a significant impact due to the fact that MTU had hedged the larger part of its U.S. dollar surplus with the aid of forward currency transactions.
In the comparison of actual and forecast business performance, actual revenues were € 189.2 million lower than the forecast made in the early part of the financial year. The cause of this was the deterioration of the exchange rate parity between the U.S. dollar and the euro in the course of the financial year 2009. Compared with the revised forecast issued on October 26, 2009, actual revenues of € 2,610.8 million exceeded expectations by a slight 0.4 %. Despite the unfavorable development of exchange rate parities in the course of the business year, operating profit (EBIT adjusted), at € 292.3 million, either met or exceeded the forecasts, as did the adjusted EBIT margin which reached 11.2 %. As a result of the good operating results, earnings after tax (EAT) also exceeded the forecast by 0.7 % to reach € 141.0 million. Free cash flow in the financial year 2009 amounted to € 120.2 million, which is 20.2 % higher than was predicted.
In the outlook for 2009 presented by the Board of Management in the Annual Report 2008, it was anticipated that it would be possible to generate revenues on a slightly higher level than in 2008 (€ 2,724.3 million), based on an expected U.S. dollar exchange rate of 1.35 to the euro.
In its third-quarter interim report issued on October 26, 2009, MTU published a revised full-year estimate of the revenues it expected to generate in 2009, with a forecast of € 2,600 million. The main reason for this lower forecast was the deterioration in the exchange rate parity between the U.S. dollar and the euro. At year-end, MTU had exceeded this forecast by approximately 0.4 %, having generated revenues of € 2,610.8 million.
Earnings forecast for operating profit (EBIT adjusted)
During the presentations on September 30, 2008 in connection with the publication of the third-quarter interim report, MTU forecast that operating profit (EBIT adjusted) would rise 3.6 % higher than the originally planned result to € 290.0 million, producing an operating margin of 11.0 %. This forecast was moderately exceeded, with a year-end EBIT adjusted of € 292.3 million.
Earnings after tax (EAT) amounted to € 141.0 million, which was slightly higher than expected
Earnings forecast for earnings after tax (EAT) / net income
The forecast presented by the Board of Management in the Annual Report 2008 expected earnings after tax (EAT/net income) in the financial year 2009 to amount to around € 140 million, on condition that it would not be necessary to take significant measures involving derivatives to reduce exposure to U.S. dollar exchange rate risk. This forecast was reaffirmed in the third-quarter interim report at September 30, 2009. At December 31, 2009, earnings after tax (EAT) actually amounted to € 141.0 million. This was slightly higher than expected, and based on the achieved operating results resulting from a good business performance.
Free cash flow
Free cash flow in 2009 was forecast to lie in the region of € 80 to 100 million, both in the group management report in the Annual Report 2008 and again in the third-quarter interim report at September 30, 2009. The actual result of € 120.2 million for the financial year 2009 was higher than expected, and due to a stable business performance.
MTU has not engaged in any transactions such as sale-and-leaseback agreements, factoring, ABS structures of transactions in or with non-consolidated special-purpose entities (SPEs). For information on discretionary decision-making with respect to the use of accounting and measurement methods and necessary estimates, see Note 5.22. (Discretionary scope, measurement uncertainties and sensitivity) and Note 41. (Sensitivity analysis of goodwill) to the consolidated financial statements.
2009 was marked by the worst economic crisis since the end of the Second World War. The global economy shrank by 2.2 %, passenger air traffic by 3.5 % and the volume of air freight by as much as 10.1 %. In this economic climate, MTU’s revenues decreased by 4.2 % (or 8.2 % if the effect of the U.S. dollar exchange rate is eliminated). Operating profit fell to € 292.3 million (2008: € 331.0 million). This reflects not only the effect of the weaker market but also additional expenditure on new engine programs, and hence active measures to safeguard the company’s future. Despite all of these negative factors, MTU nevertheless produced an operating margin of over 11 %. Free cash flow has once again developed very positively, reaching around € 120 million, which has helped to further reduce net financial liabilities. Overall, the group’s performance indicators surpassed the forecasts made in the course of the year.
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