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Defense Markets Summary
March 2007

Benefiting from the Market Surge for Heavy Protected Armored vehicles Force Protection (NASDAQ:FRPT) released its 2006 annual report Friday March 16, 2007 reporting revenues of US$196 million. Third of these revenues were received in the fourth quarter, which also contributed 93% of the annual net income.

Elbit Systems (NASDAQ: ESLT) is reporting today its 2006 results, reporting 42% increase in revenue to $1.52 billion, doubling the profit to $72.2 million (Earning Per Share (EPS): $1.72). By December 31, 2006 its backlog soared to $3.79 billion, a slight increase from $3.35 billion reported in 2005. "Our results were achieved despite the negative impact from Elisra's financial performance, and we intend to continue the Elisra turn-around in 2007, making it a contributor to our financial results, while maintaining our growth and profitability patterns“ said President and CEO of Elbit Systems, Joseph Ackerman.


Last week, European defense companies led last week's earning reports, beginning with an excellent report for 2006, presented by the Swedish Saab Group, followed by a positive report by Thales Group, ending the week with EADS presenting its a mixed view of growing defense sales amidst troubled commercial group Airbus in 2006. When examining all three companies from the defense perspective, all indicators were positive and all three reported strong gains in sales and profitability. Two niche players also reported last week: Tadiran Communications which improved its profitability despite reducing revenues, and AeroVironment which delivered upon an expected surge in sales in the third quarter.

The Swedish Saab group (SAABB.ST) continues to demonstrate strong performance; for five consecutive years, Saab has increased sales by an average of 6% per year. Anticipating a decline in its home market, Saab is planning to expand its life-cycle support services and penetrate further into niche markets, especially in Scandinavia, South, Africa and Australia, enhancing its activities there through business mergers and acquisitions.

Thales also reported a strong year. The report reflected mixed results yet demonstrated the company's solid management, which led the company to gain a 16% increase in net income despite flat growth in revenues. Following strategic changes in its holdings, Thales is bullish about 2007, forecasting revenues of about 12 billion euros, with an operating margin of 7.5%.

As expected, the effect of the troubled Airbus division affected EADS results, as reflected from its annual report published last Friday. These concerns shadowed an excellent year reported by the company's defense oriented divisions. At group level, the company's revenue totaled 39.4 billion euros increase of 15% over to 2005 but net income tumbled dramatically by 95% to 99 million (0.12 euros earning per share EPS). Military sales, which rose by 30% from 7.7 billion to 10 billion and maintained high profitability practically saved the day for the group.

Two smaller defense companies also reported their 2006 results last week. Tadiran Communications (TDCM.TA) from Israel reported annual revenues of $258.6 million, representing a slight drop of 4.9%, compared to 2005. Nevertheless, Q4 sales reached $63.3 million, a substantial increase over the same quarter of 2005. The company's orders backlog remains almost at the 2005 level, at $346 million, with slight reduction of export orders offset by increased sales in Tadiran's domestic market (Israel).

AeroVironment (Nasdaq:AVAV) expects to meet its target of increased revenue by 20 to 25% in 2007. For the past three quarters the company increased its sales to $123 million, representing a 13% growth over 2005. Most of the gain was due to the increase in orders for the company's unmanned systems. This growth was anticipated with the fulfillment of part of the company's backlog, which reduced disproportionally to 43.2 million, slightly lower than its January 2006 level and about half of the April 2006 level. AeroVironment maintained an operating margin of 15% - 16%.



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