Safran Sa Unspon/ Adr

Welcome to the SAFRAN half-year 2024 results. At this time, I would like to turn the conference over to your hosts, Olivier Andriez, SAFRAN's CEO, and Pascal Bontenay, Group CFO. Mr. Andriez, please go ahead.

Thank you. Good morning, everyone. Thank you for joining us to SAFRAN's first half 2024 call. I'm here with Pascal. Let us go straight to the key highlights for the quarter. we post today's solid H1 results. EBIT margin reaching 15.1%, a substantial expansion of 230 basic points with notably aircraft interiors reaching operating break-even and a remarkable cash generation close to 1.5 billion euro. Air traffic trends remain strong with at the end of H1, narrow body at 113% of 2019 level, and wide body getting close to their 2019 level at 6% below. It supports aftermarket demand across all our businesses. Civil aftermarket is up by close to 30%, boosted by services. Leave deliveries were down in Q2. as we are facing persisting supply chain constraints. Our primary objective is to manage continuously supplier performance in order to meet our customer commitment. We confirm today our full-year guidance with high confidence in EBIT guidance and some pressure on cash flow related to some customer advances. On M&A, We signed an agreement for the acquisition of a company named Préligence, a leader in artificial intelligence. Through this acquisition, we want to boost the adoption of AI within the group, thus optimizing our agility and efficiency. Besides, with multiple applications, it will represent a step change for our defense and space technology businesses, and will also allow us to deploy AI-enabled digital inspection methods to support our focus on flight safety and quality. Closing is expected in Q3 2024. A quick overview of Safran's financial performance in H1 2024. Revenue grew by 19% year-on-year at €13 billion. Recurring operating margin reached 15.1 percent up 2.3 points representing a 41 percent increase in recurring operating income two times sales growth free cash flow was 1.5 billion euro a good performance in an environment where cash is under some pressure i'm very pleased with the performance of our teams in the current environment turning to slide five Let me share with you some of our main business successes since we last spoke. On the 9th of July, I was honored to attend in French Guiana, the successful maiden flight of Ariane 6. This program enables Europe to maintain its sovereignty in space. During this first launch, the VNC engine demonstrated its capacity to restart using the novel auxiliary propulsion units. At Eurosatori 2024, we announced the launch of SkyJacker counter drone solutions. This technology was developed with Aurelia, the company we have acquired in 2022. SkyJacker is an effective response to the growing threat posed by drones in the battle space and at sensitive installations. SkyJacker is deployed for the Paris 2024 Olympics. On the commercial side, we enjoy a very strong momentum. In particular, we signed helicopter engine support contracts with Chinese group GDAT, with one of the largest air rescue organizations in Europe named DRF, Luftretung in Germany. Our Makita 2A engine was also chosen by the German Federal Police, Bundespolizei, to power their new fleet of 38 Airbus H-225 helicopters. Additionally, CFM announced last week at Farnborough the largest ever Leap 1A engine order from a lessor, Avalon, consisting of 150 Leap 1A engines. Safran celebrated the entry into service of the Gulfstream G700 in May. We have many equipment on board, and notably the nacelle for the Pearl 700 engines. In July, we achieved a significant milestone with a certification by EASA of the Leap Powered Airbus FE21XLR. Leap is the first engine certified on this aircraft, with an entry into service expected later this year. Last, we strengthen our footprint in Querétaro with new engine maintenance and production capacities, both dedicated to the LEAP engine. $80 million invested in the construction of the second MRO shop, which is scheduled to begin operation from 2026 onwards. Let me now hand over to Pascal for more details on H1 results.

Thank you, Olivier. Good morning, everyone. I will be commenting today the adjusted accounts. for which a bridge from consolidated statements is presented on page 7. The adjustments remain the same, either relating to FX or PPA. As usual, the number circled in the table represents a change in mark-to-market of instruments, edging future cash flows recorded in financial income in H1 2024. So pure accounting entry, no cash impact. More color on FX on slide 8. So the US dollar remains strong against the euro in the first half, ending the month of June slightly below 1.07, while the average spot rate was unchanged compared to H1 2023 at 1.08. The stronger dollar means more euro sales, and as a reminder, on a full year basis, one cent change is about 110 million euros impact on sales. Again, we took benefit of its favorable environment to further edge our exposure, And for 2024, our H-book will deliver a hedge rate of $112 per euro. Page 9 provides a summary of the income statement. One of items amounted to a small 24 million euros. It's 10 million of impairment on a capitalized R&D for one program in equipment to reflect some delays in the entry date in service. And we also booked a few expenses related to ongoing M&A transactions. Financial income, we benefited from a positive carry on cash invested compared to the cost of debt. Net, it generated 84 million euros of financial interest. On the other hand, the stronger dollar, the negative impact on the revaluation of some positions in the balance sheet. Tax rate came back to 23%, same as last year. And net income to the parents to that 1.4 billion euros. up 37%, representing €3.37 per share. Turning to page 10 on revenue, H1 revenue slightly exceeded €13 billion, representing a solid 19% organic growth, which is in line with our full year outlook. This is an incremental €1 billion revenue per quarter. despite fewer than expected OE deliveries in propulsion and equipment. OE was up 16% organic, mainly driven by equipment and defense and aircraft interiors. Service activities were up 22% with consistent growth across all our businesses. Also, the net impact in revenue is not material. Change in scope reflects the M&A activity with the divestment of non-core cabin activities and a couple of Bolton acquisitions in aircraft equipment. Turning to page 11, operating profit grew by more than half a billion euros to reach nearly 2 billion euros. EBIT has risen at twice the rate of revenues, leading to a 2.3 points improvement in margin, reaching 15.1% of sales. I'll come back to the main drivers by division in the next slide. I can here mention the efforts made by the teams to properly control overhead expenses, and we continue to increase investments in R&T to get prepared for future market opportunities. Moving now to performance by division and starting with aerospace propulsion. Revenue was worth 6.5 billion euros at 14% organic, almost no growth in OE revenues, We've delivered fewer leap engines than initially expected, with a substantial drop in Q2. On the other hand, engine deliveries have increased on wide-body and helicopter platforms. Services revenue grew by 23%, primarily driven by a 30% increase in seeded aftermarket. Again, this good performance has almost no EBIT impact. Let me provide some colors on the underlying trends. As you know, civil aftermarket reflects revenue trends in spare parts and services. So the performance in CFM 56 spare part sales came in line with expectations. Volume was good. We benefited from price increase and scope of work remained stable. The main reason for the good performance, again, as in Q1, fully relates to service contracts. We had stronger growth than expected in our LTSA contract, but this comes with no profit. And we are today raising our full year assumption to reflect that. EBIT margin came close to 20%, a strong improvement from last year. On a full year basis, we expect to be at 20% plus. Slide 13 on equipment and defense, sales of 5.2 billion euros, up 23%. On the OE side, we did enjoy strong growth compared to a soft H123. Of interest, I would mention a one-off item in NACELS. The certification of the Gulfstream 700 led to recognized revenues for all NACELS delivered since 2023. Once again, the carbon break activity came strong in line with the air traffic trends, and defense enjoyed significant growth with strong deliveries of guidance systems and electronics equipment. Services revenue grew by 18%. Recurring operating income at 657 million euros, up 35%. Operating margin of 12.7%, up by 1.3 points. Same drivers as for revenues. And on a full year basis, we still expect about one point of margin improvement year over year. Last on aircraft interiors. sales of 1.4 billion euros, up 27% organic, an impressive growth rate, but we are still 14% below 2019 revenue. I would highlight the recovery in business class seed deliveries, which is up 72% off a low base, with a strong scale-up in Q2. Be mindful that this is not an easy journey. Seeds still have to execute a strong step-up in deliveries in H2. Cabin activities enjoy solid growth as well, both OE, aftermarket, and retrofit activities. We reached an important milestone in the turnaround of this business. Profitability has finally been restored. Again, the work is not over, and we will continue our efforts to reach a decent level of margin in the coming years. The weak point today remains the excessive cash consumption resulting from engineering expenses and unfavorable effects of working capital requirements, and we are obviously working on that. Free cash flow is another positive news in this H1 report, which generated 1.5 billion euros of cash in a context of inventory buildup due to the lower deliveries and supply chain constraints. EBITDA grew by more than half a billion euros, replicating the EBIT performance, and cash capex was up by 160 million euros to further grow our industrial capacity in MRO and production. Some update now on share repurchase programs and liability management. In H1, we did repurchase 2.9 million of shares for a total amount of 560 million euros. We have now completed the edging of the potential deletion of the 2028 convertible bonds. We have launched the first range of the 1 billion euros program for share consolation, which we did announce in July 23, and which will be carried out across 24 and 25. We also repaid with cash on end two trenches of debt maturing in 2024, $505 million of USPP notes issued in 2012 and 200 million euros, EuroPP issued in 2014. And we also proceeded with the early redemption of 2027 convertible bonds. In that respect, Safran delivered 9.3 million existing treasury shares to bondholders who preferably exercised their conversion rights and paid back in cash 20 million euros. This soft call had a net debt positive impact of 961 million euros and no dilution impact on existing shareholders. Last on slide 17, we ended the first semester with a net cash position of nearly 900 million euros. Free cash flow was primarily used to pay dividends, 2.2 euros per share, and repurchase shares. The M&A activity led to a cash out of €171 million. Going forward in the year, we will execute on the share buyback plan about half of the €1 billion plan. And given the context of the Collins Actuation and Flight Control Acquisition, I would now expect the transaction to close more likely in 2025 rather than 2024. Olivier, back to you.