The LISI Group continues to pursue its strategy of strengthening relations with major customers, thereby following the existing trend towards concentration within its major markets. The Group’s top 5 customers represent 32% of the total and around 80% of sales revenue comes from its 90^th customer.

• External growth projects announced in 2009 were finalized in 2010 with the integration of:
  • 2 Acument Group sites on April 1, 2010, generating €34.6m of sales revenue over 9 months for the LISI AUTOMOTIVE division.
  • 1 Stryker Group site on September 1, 2010 which boosted LISI MEDICAL’s sales revenue by €21.2m (counted as part of the LISI AEROSPACE division).
• The continuation of an ambitious investment program. Maintained at almost €50m per annum during the two years of economic crisis, it was primarily aimed at improving manufacturing conditions and new projects:
  • The concentration of LISI AUTOMOTIVE manufacturing sites continues apace with the closure of the tooling plant at Grandvillars (Territoire de Belfort) (to be set up in Lure (Haute-Saône)) and the gradual move of the Bonneuil (ex Acument) site to Puiseux (Val-d’Oise).
  • With local municipal support, the materials preparation site at Grandvillars (Belfort) will be completely renovated in order to accommodate the significant increases in capacity as well as the headquarters of LISI AUTOMOTIVE in the 3^rd quarter of 2012.

Under the impact of increased sales, the absorption of fixed costs automatically improved the overall results, notwithstanding a sharp drop in the contribution from LISI AEROSPACE. EBIT was up 44.7% at €49.5m. The operating margin was also up 1.5 points as compared with 2009, with a marked improvement in the second half-year, 7.6%, as compared with 5.6% for the comparative period in the 2009 financial year. This favorable trend is explained by LISI AUTOMOTIVE's strong performance and the progress posted by LISI AEROSPACE from the low point reached in the first half. Notable were increased depreciation costs of €45.8m, as compared with €43.6m in 2009, which were more than compensated for by the drop in operating provisions (inventory, customers, etc).

Following very limited non-current charges (-€1.1m in 2010, compared with -€12.0m in 2009) and moderate net financial charges (-€0.9m in 2010, compared with -€5.3m in 2009) as a result of the Group’s complete clearance of debts, net income was 3.5 times higher than that for 2009 at €32.9m, i.e. 4.2% of sales revenue, compared with 1.4% the previous year.

Earnings per share in 2010 reached €3.19 per share, as compared with €0.92 in 2009.

The second half therefore showed rising net income at 5.3% of sales revenue, compared with 3.2% in the first half.

Cash flow in 2010 kept at 10.2% of sales revenues, at €79.5m (€76.7 in 2009). Rationalization of requirements for working capital continued, again in 2010 releasing €25.9m in resources, which was 9.7% more than in 2009. Working capital requirements as at December 31, 2010 represented €173m, which was 22% of the 2010 sales revenues as against €172m in 2009, which was 25% of sales revenues.

Industrial investments represented €50.6m, i.e. 6.5% of sales revenue in 2010 compared with €49.0m or 7.1% in 2009. The most significant projects were as follows:

• For LISI AUTOMOTIVE: The purchase of the Puiseux site (Val-d’Oise), the building of the Delle II logistics site, renovation and expansion of the plant in the Czech Republic, increased capacity in Germany and China and the successful deployment of the Movex ERP.
• For LISI AEROSPACE: Investments allocated for the development of new A350 components in Saint-Ouen l’Aumône (Val-D’Oise) the deployment of the new screws division in Torrance (USA) and the new LISI MEDICAL plant at Neyron (Ain) in France.

As a result the Group had a very high Free Cash Flow of almost €55 million for the second consecutive year: at €54.8m, it represented 7.1% of sales revenues, above the Group average, which is around 5%.

In this way the Group brought its net borrowings under the €20 million mark for the first time, while making €42.0m of strategic financial investments: the acquisition of the two LISI AUTOMOTIVE sites and the LISI MEDICAL site, which represent total annualized sales revenues of over €90m and goodwill of only €25.2m.

At €17.5m as at December 31, 2010, net borrowings did not represent more than 3.6% of shareholders’ equity, as against 6.3% in 2009.

Total capital employed by the Group therefore rose from €515.8m to €561.2m including the above-mentioned increase in goodwill. The return on capital employed was 10%, as compared with 6.8% at the end of 2009.

The Group therefore justifies its ambitious industrial and financial investment policy in an environment which, in spite of a gradual upturn in activity, remains tough.

The upsets encountered since the second half of 2008 and throughout the last two years have slowly diminished. During this period, the Group, on account of its organization and positioning, benefited from the counter-cyclical nature of the automotive and aerospace markets, which reduced the drop in sales. If a question mark remains as to developments in the USA, a gradual normalization is expected in 2011.

The automotive market has already recovered and should maintain a similar level to last year. JD Power predicts a stable European market (down 2%), ensuring gentle growth at LISI AUTOMOTIVE's clients in terms of production. These factors should benefit from a certain dynamism within the American markets which could see a rise of up to 10% and the Chinese markets whose predicted growth is set anywhere between 0 and 10%, as for all the other emerging markets (Russia, India, Brazil). LISI AUTOMOTIVE ought to also benefit from the increased impact of its new products. The current economic fragility, however, requires remaining vigilant, especially in light of the expected rise in raw material prices.

The outlook for the aerospace market remains mixed, with continuing uncertainty in the USA and a definite rebound in Europe. The overall level of orders placed with LISI AEROSPACE for the last few months of 2010 was generally above 1.0 but only for Europe, leading to speculation that 2011 marks the start of a sustained resurgence in this area in the wake of Airbus. On the other hand, US growth is not set to really take off until the relaunch of the B787 program and once distributors’ inventory hits lower levels.

The medical segment will from January 1, 2011 become an operating segment in the meaning of the IAS 14 accounting standard, following the incorporation of LISI MEDICAL Orthopaedics. The combined contribution should exceed the € 70M of sales revenues for the coming financial year.

Finally, on February 8, 2011, the Group announced that it had granted the POCHET Group exclusive negotiation rights for the disposal of LISI COSMETICS. This activity will therefore be accounted for as an asset held for sale, in accordance with financial standard IFRS5, as of January 1, 2011.

The 2011 financial year will still be one of transition while the Group awaits the full recovery of the global aerospace market. Nevertheless, the Group confirms its growth ambitions in each of its businesses and its wish to get back to the profitability levels prior to the 2008/2010 crisis.

With this in view, the management and investment efforts will be kept up.