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Hexcel’s 20% Sales Increase for 2004 Credited to Composite Aircraft Production

28 January 2005

Hexcel Corporation this week partly credited aircraft production with increased composite usage for its 19.8% increase in sales, which is expected to continue throughout 2005.

Hexcel reported results for the full year of 2004 with net sales for 2004 $1,074.5 million compared with $896.9 million in 2003, an increase of 19.8%. Gross margin increased to $229.1 million from $174.5 million. Operating income of $88.8 million in 2004 was $28.8 million higher than the $60.0 million of operating income achieved in 2003. Hexcel added that the recent dividends reflect the increase in commercial aircraft build rates as well as the ramp up of Airbus A380 production.

Hexcel stated that the improvement in 2004 reflects higher sales volumes, particularly from commercial aerospace and industrial market applications.

Included in full year 2004 operating income were $2.3 million of bad debt provision related to Second Chance Body Armour, Inc., a ballistics customer that filed for protection under Chapter 11 of the U.S. Bankruptcy Code, a $7.0 million charge related to a litigation settlement, a $4.0 million gain on the sale of land and transaction costs of $1.1 million related to the Company's secondary offering. Net income was $28.8 million for 2004 compared to a net loss of $11.1 million in 2003.

Commenting on the quarter and full year's results, Mr. David E. Berges, Chairman, Chief Executive Officer and President, said, ""After almost three years of uncertain markets and painful actions, we are thrilled with the trends in our markets as well as our resultant earnings progress in 2004. Revenue growth first came from the requirements of our body armour and military aircraft customers, and then, starting mid year, from the decisions of Airbus and Boeing to start increasing commercial aircraft production. More importantly, the long term prospects for composites in aerospace advanced dramatically in recent quarters. We have seen the rollout of the Airbus A380 super jumbo jet with 22% composite content by weight, more than double the percentage of all other current commercial aircraft. The next new Airbus aircraft will see the introduction of carbon fibre wings and move composite content to over 30%. The new Boeing 7E7 with carbon fibre wings and fuselage is expected to contain over 50% composite content. This increasing penetration of composites has the potential to create an acceleration effect to the aerospace rebound for years to come.""

Mr. Berges continued, ""The fundamental driver of our improving performance is revenue growth and our success in delivering good leverage through to the net income line. On increased revenues of $177.6 million in 2004, we generated $54.6 million of gross margin - a 30.7% rate on the incremental sales. Net income for the year increased by $39.9 million, despite a number of unusual items such as the carbon fibre litigation settlement, a bad debt provision and Sarbanes-Oxley costs which hurt our operating income leverage. But continued cash focus led to lower interest expense and we had improved performance from our joint ventures which helped us deliver net income in all four quarters. We continued to generate free cash despite investing in our growing businesses and we reduced net debt by another $67.5 million or 15.3% from the beginning of the year. The formula for success in 2005 will be the same. Our markets offer the continued potential for annual double digit revenue growth and our task is to use our operating leverage to deliver improved profitability as a result.""

Hexcel’s report also stated that the continued strength in industrial market sales reflects higher demand for reinforcement fabrics used in military body armour applications and increasing sales of products used in wind energy applications.

Commercial aerospace revenues were $453.8 million for 2004, an increase of $63.9 million, or 16.4%, over the revenues in 2003. The year-on-year increase reflects the benefit of higher aircraft build rates in 2005, a favourable change in mix of aircraft being produced, and the benefit of the new Airbus A380 program. We expect 2005 to show a continuation of these trends.

Industrial market revenues for the year in constant currency were $344.2 million, an increase of $69.3 million, or 25.2%, compared to revenues of $274.9 million in 2003. The largest portion of this revenue increase came from sales of reinforcement fabrics used in military body armor applications. Sales to wind energy applications also increased at a double digit rate year-on-year. In 2005, we expect ballistic sales to remain at current levels but growth in wind applications to accelerate and drive continued growth in this market.

Space & Defense revenues in constant currency of $187.8 million were up $8.5 million, or 4.7%, from 2003, despite the termination of the Comanche program which contributed $13.5 million of revenue last year compared to $4.4 million this year. The Company provides materials to a wide range of military programs. Over time, the revenues the Company obtains from these programs tend to vary based on customer ordering patterns and the timing and extent of program funding.






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