Safran Sa Unspon/ Adr

Welcome to the SAFRAN half-year 2025 results. At this time, I would like to turn the conference over to your hosts, Olivier Andries, SAFRAN's CEO, and Pascal Bontenis, Group CFO. Mr. Andries, please go ahead.

Good morning, everyone, and thank you for joining us for SAFRAN's first half 2025 results call. I will go through the presentation together with Pascal. First of all, we are pretty excited with the current trends in our markets. Those of you who attended the Paris Airshow were able to witness the renewed dynamism of our commercial and defense customers and their appetite for our new technologies. At the same time, NATO members have agreed on planned increase in defense spending. which will translate ultimately into new market opportunities for Safran. We are also pleased to report some improvements in the supply chain for the first time in a long time. We welcome the progress made on a transatlantic agreement to remove tariffs on aerospace products, which is a positive step for the industry. In parallel, we continue to implement targeted mitigation measures to manage any potential impact. Once again, Safran delivered a record performance this semester with double-digit growth across all key metrics. Note that we delivered a 17% operating margin, which exactly represents the midpoint of our 16 to 18% guidance provided back in December 2021. Civil aftermarket continues to perform very well across the board. In light of this momentum, we raise once again our full year guidance. Two additional information from July news flow. First, on July 21st, we succeeded to close the acquisition of calling saturation and flight control activities after a long journey. This is a key milestone in strengthening our flight control offering. The teams are now focused to deliver the expected cost synergies by 2028 and grow the commercial momentum. And at last, as you have seen this morning, We have announced the location of our fourth carbon brake factory. It will sustain the strong demand both in original equipment and MRO on this segment. Turning to slide four, Safran enjoyed a strong commercial momentum across its businesses. Ryanair ordered 30 LEAP 1B spare engines. to reinforce operational resilience and support its expanding 737 MAX fleet. This marks another step in CFM's long-standing partnership with Ryanair. We unveiled the Room FX with All Nippon Airways, a new business class seat for the 787-9. It combines privacy, comfort, and sustainability setting a new benchmark in premium cabin design. In line with our decarbonization roadmap to support aviation electrification and hybrid electric propulsion, we set up a major partnership with SAFT to develop a high voltage battery system for aviation, and we launched a technology program together with Dyer, Collins, and ascendance to design an hybrid electric propulsion architecture for light aircraft. On the defense side now, there is a clear commitment to increase investment with global military expenditure reaching levels not seen since the end of the Cold War, particularly in Europe. As an example, Members of the NATO Alliance have agreed, committed on a significant defense budget increase. We are significantly raising our production capacity to meet the new demand and serve our backlog. The export momentum for the Rafale remains very strong. We signed a new contract for 26 Rafale for the Indian Navy. In the meantime, we decided to engage into the development of a more powerful evolution of our M88 engine, powering the Rafale, and design for the future F5 standard. This should help to grab new customers. We also build our strategy on external growth and key partnership. We have announced several new partnerships at the Paris Airshow with key players, such as Bombardier from Canada, Diehl in Germany, Babcock in the UK, Kongsberg in Norway. To name a few, these collaborations span air-to-ground munitions, compact optronic systems for UAVs, multi-sensor artificial intelligence for persistent geospatial intelligence, and Naval Strike Missile Propulsion, for which we received an order of several hundreds of turbojets from Kongsberg in Norway. We expanded our partnership with AvioAero and MTU to jointly develop Europe's next-generation engine for military helicopters. Recent acquisitions include Aurelia in positioning, navigation, and timing, At the Paris Airshow, we have launched Black Note and Skylight, two cutting-edge systems delivering resilient P&T, resilient positioning, navigation, and timing, designed to operate in GPS-denied environments. Préligence, now Safran AI, our AI factory, is expanding quickly. In the end, We aim to double our revenue base in defense and space activities by 2030. We have the right technologies. We have a clear roadmap to access new markets. We are building on partnership and external growth, and we are expanding our production capacities. Pascal, I'll leave you the floor to discuss H1 performance.

Thank you, Olivier. Good morning, everyone. As usual, I'll be commenting on the adjusted accounts for which a bridge from the consolidated statements is presented on page seven. The adjustments relate to FX or PPA. The 4.8 billion euros change in mark-to-market of instruments edging future cash flows has been adjusted in financial income in H1 2025. This is purely an accounting entry, no cash impact, as our virilative instruments edging future USD cash inflows. On FX slide 8, in Q2 we have faced the fastest move in the euro-dollar since the 70s with more than 15 cents euro-dollar appreciation in a few weeks' time. Despite this, our team successfully managed to protect our edging portfolio. As you all know, Our strategy is notably based on options with knockout barriers. None of them has been triggered to date. As we speak, the dollar has returned to $1.14, a more comfortable level. I can confirm our target edge rate of $1.12 for 2025 and the coming years. We strive to maintain an attractive edge rate for as long as possible in a constantly evolving environment. Once we have a better view on the recently acquired business of Collins, we will factor in the aging needs for USD and British pounds. Turning to slide nine, revenue for the first half of 2025 reached 14.8 billion euros, up 13% on an organic basis. The impacts of currency and scope are fully balanced out over the semester. Currency reflects a marginal appreciation of the euro versus the dollar. and scope reflects the contribution of CRT, the engine repair business required early 2025. Overall, Safran continues to deliver consistent, broad-based growth supported by favorable momentum in both services and OE across commercial aerospace and defense. The profits increased twice as fast as revenue at a rate of 27%, recurring operating income reached 2.5 billion euros, It is worth noting that the historically high margin level achieved in H1 at 17% exactly at the midpoint of the range provided during the CMD21. This is an improvement of over seven points compared to 2021. And I'll come back on the main drivers per division. Looking at the summary of the income statements beyond sales and EBIT, let me comment on other P&L items. One of items amounted to a negative 37 million euros, which includes an impairment charge on one program within aircraft interiors, restructuring costs, and I would say the usual M&A expenses. Financial income is a positive 32 million euros. The return on cash investment exceeded the cost of debt and translated into 77 million euros in net financial interest. The apparent tax rate is 34%. This includes a one-time contribution of €261 million, resulting from the 2025 Finance Bill in France. You must expect a €380 to €400 million impact on a full year basis, meaning an additional €140 million in H2. Net income to the parent stands at €1.6 billion, representing €3.8 per share, up 11% from last year. Let's now take a closer look at our businesses, starting with propulsion. Revenue reached 7.5 billion euros in H1, up 17% year-over-year. This performance was primarily driven by civil aftermarket, with third-part revenues up 21.6% in dollars, driven by strong demand for all engine families, CFM56, wide-body engines, and LEAP. Services were up 21.1%, led by the ramp-up in LEAP RPFH contract revenue. On the OE side, LEAP deliveries were up 10% versus last year. After a drop of 13% in Q1, production accelerated sharply in the second quarter. Q2 was up 38% year-over-year and 29% sequentially. We also enjoy revenue growth in helicopter turbines, mostly in services, and military engines with a favorable customer mix. Recurring operating income came at 1.8 billion euros, representing a record 23.3% of sales, a margin improvement of 340 basis points. This is a lot to get excited with. The strongest performance was driven by civil aftermarket, both spares and services, The start of margin recognition of LIP1A RPFH contracts, including a one-time margin catch-up from previous years, and third, a significant number of LIP spare engines in H1, and that ratio is due to decrease in H2. Moving on to equipment and defense on slide 12. Revenue reached 5.6 billion euros in H1, 8% organic growth, The growth rate of this division is lower than in proportion due to its exposure to programs with a slower ramp-up at this time. The defense business growth was led by guidance systems, including AMER and strong demand for resilient P&T solutions. We see more opportunities along the road. On the aircraft equipment side, aftermarket services increased across the board, especially in landing system, Nacelles, avionics and electrical systems. OE volumes slightly grew, notably on the H320neo and 787 landing gear. Recurring operating income came in at €703 million, up 7%, with a margin of 12.5%, almost stable compared to 2024. This reflects a high comp base. Indeed, in H1 2024, we saw a one-time profit recognition when the Gulfstream 700 Nacelle entered into service. On a full year basis, we still expect margin expansion by at least 50 basis points in that division. That said, the solid level of margin was supported by aftermarket growth, notably on landing gear, carbon brakes, and aero safety system. Finally, turning on slide 13, aircraft interiors, We are staying on track with our roadmap for continuous margin improvement year after year. We posted a profit of 27 million euros in the first half, up 17 million euros, lifting the margin by 100 basis points. While this remains modest, it reflects a solid level of services, particularly in cabin, and continued progress in OE, notably business class seats, galleys, and IFEs. Revenue reached 1.6 billion euros, organic growth of 15%. Both OE and services contributed to this performance. In cabin, OE growth was notably supported by higher deliveries of 737 MAX galleys, while services increased across the board. In seats, OE volume saw a strong increase, with business class seat deliveries up 65%, and aftermarket sales also contributing to growth. We did burn some cash in H1, also much less than a year ago, and we continue to strive to reach cash break-even at some point. Turning to cash, free cash flow generation reached a record level of 1.8 billion euros, up 25% year-over-year. The strong performance was driven by a 25% increase in EBITDA, which reached 3.2 billion euros. Change in working cap remained stable, The rise in inventories was partly offset by higher customer advance payments, notably on Rafale. We continue to invest to support growth and prepare for the future. CAPEX totaled nearly 800 million euros, with spending focused on expanding engine and marrow capacity, as well as production capacity on landing gears, smart weapons, resilient P&T systems, and low-carbon projects. This result reflects SAFRAN's ongoing focus on operational excellence and cash discipline. SAFRAN's net cash position remained almost unchanged with a balance of 1.9 billion euros. The cash generation in the semester was used to pay the 2.8 euro per share dividend and to finance the share buyback program. In the first six months, we bought back 2.9 million shares for consolation purpose for a total of 713 million euros. We also proceeded with the early redemption of the convertible bond, name is OSEAN 2028, resulting in a decrease of the net debt. We had a net cash out impact from acquisition of 133 million euros related to the engine repair company called CRT. This net cash situation does not yet include the acquisition of Collins Actuation Business, for a total of 1.8 billion dollars which took place on July 21st with cash on end. These are the proceeds from the electromechanical actuation business that we sold to Woodwall. On the share buyback front, at the end of July, we have repurchased for cancellation purpose 3.4 million shares for a total of 850 million euros. These shares will be canceled at year end together with the 0.2 million treasury shares that we reallocated for consolation in April for a market value of 50 million euros. Olivier, back to you.