The 7.4% drop in sales revenue to €323.7m in comparison with 2009 is largely down to the aerospace sector alone, whose sales revenue fell by 15.1% to €281m; this trend was not entirely rectified by LISI MEDICAL’s growth to €42.7m (of which €21.2m came from LISI MEDICAL Orthopaedics alone) as compared with €18.7m in 2009.

Analysis of this trend shows in the aerospace division alone there were the beginnings of a recovery within the division by the end of the year: after a sharp drop in the first half of -24.5%, of which -29.2% in the US, the second half stabilized, down just -2.2%, with the last quarter showing a 6.5% increase. On the other hand with stable scope and exchange rates, total sales revenue fell by 16.2%. Exchange rate effects over the period made a positive impact of 5% in the analysis of falling US sales revenue, i.e. down -15.4% in euros and -20.1% in dollars. In Europe, sales fell by a similar margin, down -14.8% with an upturn in the final quarter of +5.4%, heralding the first rise in two years.

It was only towards the end of the financial year 2010 that there was an upturn in LISI AEROSPACE product orders from the major manufacturers.

Boosted by net increases in international air traffic (+8.2% for 2010 as a whole, after its historic collapse in 2009), airlines regained some room for financial maneuver with accrued profits of around USD15 billion¹. Commercial aircraft orders were therefore up, with 530 aircraft for Boeing (net of cancellations) and 574 for Airbus. Delivery schedules eased off slightly at Boeing with 462 aircraft (compared with 481 in 2009) and were up at Airbus with 510 aircraft (compared with 498 in 2009), the latter figure marking a record high.

On the other hand, certain issues continue to hamper the market:

• A380 schedules are running below target, with 18 aircraft in 2010, compared with a planned 20, and 24 scheduled for 2011).
• The B787 program is still pending approval with a concomitant delay which has stopped the entire supply chain in its tracks.
• Regional aircraft schedules remain slow;
• American fastener distributors are still experiencing falling stock levels.

For all products in the sector upstream of the assembly process, demand only picked up towards the end of the period, and only in Europe, while LISI AEROSPACE is yet to see any signs of an upturn in the US.

Orders in Europe were showing a book-to-bill ratio of above 1 for the fifth month running, much of which was significantly impacted by new products for the A350. Uncertainly still reigns in the US, with a stable book-to-bill ratio of 1 in Q4, although posting only 0.8 for the financial year 2010 as a whole.

The order book showed a net upturn in Europe with a subsequent rise at Airbus, although this trend was not felt in the US until the end of the period at Boeing. Certain aircraft manufacturers were still experiencing a significant downturn. The impact of this on orders was that those destined for Airbus were down -1%, those for Boeing -22% while those for regional aircraft manufacturers were down by as much as -30%.

The medical segment benefited from the rising market and from the acquisition of the Stryker Group’s Hérouville Saint-Clair plant (Calvados) which is now home to LISI MEDICAL Orthopaedics. This specialist hip-replacement prosthesis manufacturing unit was off to a flying start with the setting up of inventory with Stryker, a major customer at this stage. The existing structure of LISI MEDICAL, which is active in the dental, spinal and maxillary-facial segments, saw its sales revenue rise 13.3% over the financial year.

The division saw no alteration to its fixed costs (-4.5%) at the height of the drop in activity which, in manufacturing terms, fell by -7.3%. Variable costs, which should automatically have fallen, also show no obvious signs of adjustment under the inflationary pressures on wages, sub-contracting and commodities. With regard to wages, the division has maintained overcapacity potential in order to handle the predicted upturn.

In order to maintain its skills and knowledge base and to be able to offer customers the best possible service, LISI AEROSPACE recorded a -€32.4m fall in variable cost margins, of which €10.6m are due to the drop in manufacturing volumes and -21.8% to available overcapacity.

Current operating profit went from €47.6m (13.6% of sales revenue) in 2009, to €21.1m (6.5% of sales revenue). The fall in production volumes alone, at €55m, made a €27.9m impact on the fall in current operating profit. A breakdown of contributions by geographical area shows that Europe accounted for the greater part of income, completed by the Medical segment while the US merely broke even.

Cash flow of €34.8m allowed for the financing of investments of up to €20.2m, distributed as follows:

• €10.6m was spent on the European platform for developing new products for the A350;
• €6.9m in the US for the setting up of a performance screws production unit;
• €2.7m for the LISI MEDICAL division, mainly for the new plant in Neyron, Ain.

WCR variation was down €3.0m due largely to an increase in inventory (€1.5m) in anticipation of the upturn and certain advance manufacturing supplies (+€1.7m on commodities).

Free cash flow generation remained largely positive at €11.6m in 2010 (compared with €36.9m in 2009).

The weakness in the American market is set to continue as per the last quarter of 2010 right throughout 2011 while awaiting an upturn in the B787 program, improved schedules at Boeing planned to begin in August 2011 and early 2012 as well as the end of depletion with the suppliers.

In Europe on the other hand, things are looking brighter, as business is set to pick up from the start of the financial year 2011 with the scheduled delivery of a significant volume of components for the A350.

In 2011 the LISI MEDICAL segment will be an entirely separate division in accordance with accounting standard IAS 14, with a projected sales revenue of around €70m.