Safran Sa Unspon/ Adr

Good morning everyone and thank you for joining us. Today we will review our 2025 results, share our 2026 outlook and briefly walk you through some of our updated 2028 assumptions. 2025 was an outstanding year for SAFON. Airlines carried more than 5 billion passengers and again that backdrop of strong demand and still low retirement levels, our aftermarket activities clearly outperformed expectations across both spare parts and services. We have also reached an all-time high in lead production, delivering more than 1,800 engines, up 28% versus 2024. Defense and space had a particularly strong year as well. In military propulsion, we accelerated M88 production, and we have secured a new Rafale export contract with the Indian Navy. In defense electronics, order intake reached a record level with a 1.6 book-to-bill ratio, reflecting very strong market demand. We have also signed several strategic partnerships, expanded capacity across multiple product lines, and we have achieved the first major export success for Safran AI, which is a new name we have given to the company we had acquired 18 months ago. In aircraft interiors, recent seats, commercial winds, and improved pricing conditions confirmed that the strategic shift presented at our last capital market day is being executed. Overall, we outperformed our initial expectation in 2025, delivering record financial results across all metrics. This despite tariffs. Margin improved by 150 basis points. and cash generation approach €4 billion. Reflecting this performance, we are proposing a 3.35 dividend per share, up 16% year-on-year. Finally, on portfolio management, the integration of Colin's actuation activities is progressing well. At the same time, we are moving ahead With the divestment of two non-core activities, the sale of Safran Passenger Innovation was completed last month, and the EZR transaction, where we are going to sell our share of the joint venture to our partner Embraer, is expected to close by mid-year. Turning to slide four, Civil Business Highlights. we invest to secure A320neo Red 75. And you can see that clearly in our recent industrial announcement with the new Leap 1A assembly line in Morocco. At the same time, we are continuing to expand our MRO footprint. Following the groundbreaking of our Leap MRO shop in Morocco, We have recently inaugurated Safran's largest LEAP engine MRO center worldwide in India. We are also pleased to mark another important milestone in CFM's longstanding partnership with Ryanair. With the announcement three days ago of a new material service agreement that covers the entire fleet of around 2,000 engines CF-156 and LEAP, and that will support two new Ryanair future maintenance, repair, and overall shops that they have decided to launch in Europe. This is a compelling illustration of our open MRO market strategy we presented at our last Capital Market Day. Commercial momentum remains very strong LEAP continues to be the engine of choice, as illustrated by the recent agreement with Pegasus in Turkey for 300 LEAP-1B engines, which also includes long-term maintenance services. Finally, at the Dubai Airshow, Riyadh Air ordered 120 LEAP-1A engines to launch its E321neo fleet and selected our wheels and electric carbon brakes for its 787 fleet, ultimately more than 70 aircraft. We have also announced a joint cooperation with Emirates to manufacture and assemble seats in Dubai. And Safran Seats was selected to supply new business and economy class seats to retrofit more than 100 additional aircraft across both the 777 and A380 fleets. Turning to slide five, momentum remains extraordinarily strong in defense. We announced the groundbreaking of the first M88 MRO shop outside of France in Hyderabad, India. At the same time, as we continue to ramp up M88 production, we have also announced a significant investment at our Le Creusot site in France, adding new production lines for complex rotating parts for the M88 engine. We have also signed an agreement with Bharat Electronics in India to create a joint venture to manufacture our Hammer guided bomb. Overall, in 2025, we have approved around €1.4 billion of industrial investment, mainly to expand massively capacity across both civil aerospace and defense. With that, I will now hand over to Pascal to walk you through the 2025 results in more detail.

Thank you, Olivier. Good morning, everyone. Today, I'll walk you through the adjusted accounts, and you'll find a bridge to the consolidated statements in the appendix. Let's start with FX trends, which are shown on slide seven. In 2025, our trading floor faced a really volatile environment. The dollar weakened against the euro the whole year, which wasn't easy to manage. Still, Altium did a great job protecting the portfolio, and we managed not to trigger any KO barriers. That said, at the end of Jan, the euro-dollar shot up past 120, and that caused us to lose less than $1 billion in edging volume, so less than 2% of the world portfolio. we reinstated the same age volume afterwards so that did not impact our goal of reaching 112 in 2026. Based on the actual figures for 2025 and to reflect our revenue profile now that we include the actuation and flight control business, we have increased our expected exposure to $16 billion in 2026 and $17 billion from 2027 onwards. As always, these numbers should not be seen as a medium-term business outlook. We are confirming the $112 hedge rate for 2026, and we'll do our best to secure that rate for 2027 and 2028. We've also started hedging for 2029, and as a first indication, we are targeting a hedge rate between $112 and $114, based on current market conditions. Now, if we look at slide eight, our 2025 revenue came in at 31.3 billion euros. It's $4 billion higher than last year, which is up 14.7%. That's actually 14.8% organic growth, and we saw steady growth quarter after quarter throughout the year. OECS went up by 11.3%, thanks to both higher volumes and better pricing. Services revenue was up 18%, showing just how strong airline demand was for MRO and spare parts. Changes in scope added a positive 3%, mainly because we brought in the actuation and flight control business. But the boost from this acquisition was completely offset by a weaker dollar, which dragged things down by 3.2%. Our recurring operating income reached 5.2 billion euros, so that's more than a billion higher than last year. The operating margin was also up by 150 basis points, hitting 16.6% of sales. The solid performance was mainly driven by strong results in the aftermarket, volume growth, and our continued focus on operational excellence and keeping SAFRAN competitive, even in such a fluid environment. If we move to slide nine, you'll see a summary of the income statement. Apart from sales and EBIT, which I'll get into in more detail later on, let's look at some of the other key P&L items. We had one of items totaling 479 million euros, which is a pretty big number. so most of that is in cash. About half comes from the 244 million euros pre-tax capital loss tied to the divestment of Safran Passenger Innovations. There's also 178 million euros in impairment charges and some programs, and then a few other cash costs like restructuring and M&A expenses, especially from the actuation and flight control acquisition. Looking at financial income, Our returns on cash investments actually topped our cost of debt, bringing in a net €116 million in financial interest. Our apparent tax rate was 32.3%, which was heavily influenced by the French corporate surtax, €370 million, which cut around 90 cents per share of our EPS. All in all, net income attributable to the parent was €3.2 billion, up 3% year-over-year, and that works out to €7.6 per share. Let's dive into our businesses, starting with slide 10 on propulsion. Revenue here reached €15.7 billion, which is a 17.6% organic increase. When we look at propulsion services, revenue was up 21% organically. For the civil electron market, Per-part sales climbed 18%, mainly thanks to the CFM56. That drove more shop visits, mid-single-digit growth, and a higher proportion of full-workscope shop visits. ISRF engines also did well, helped by growing wide-body traffic. LIP engines contributed too, with third-party shop visits making up about 15% of total shop visits in 2025. We saw a 30% jump in services overall, mostly because LEAP aftermarket activities expanded under rate per flight hour contracts. Both helicopter turbines and military engines also helped drive propulsion services growth. On the oil side, revenue grew by 12% organically. We delivered a record 1802 LEAP engines, so that's 28% growth compared to 2024, and well above our initial target. In Q4 alone, we delivered 562 engines, up 49% from Q4 last year. So we have surpassed 500 deliveries for two straight quarters now, which looks good for our 2026 goals. While M88 fighter engine deliveries were down year over year, production actually ramped up a lot in 2025, just as we had planned, to keep up with a strong backlog, especially for export customers. Recurring operating income was 3.6 billion euros, 28% organic growth. The operating margins stood at 23% of revenue at 2.4 points, which is a strong result and almost aligned with our initial guidance earlier in the year, even with some lingering tariff impact. This improvement was mainly driven by strong civil aftermarket activity and really robust performance from CFM56. both in volume and war scope. The LIP program also contributed with us starting to recognize profits on LIP1A RPFH contracts and a still high ratio of spare engines. Let's now move to slide 11 and talk about equipment and defense. Sales here is 12.3 billion euros, which is up 11% organically and 16% overall. That includes about 618 million euros from the current actuation and flight control business, which we consolidated for five months in 2025. OE revenue was up 11% organically, with growth pretty much across the board. So strong performance in 2025 was mainly driven by higher volumes in defense, especially for things like the hammer-guided bomb besides secures and navigation and timing systems. We also saw good momentum in primary electrical system and wiring, as well as nacelles and landing gears, especially for the A320. Aftermarket services benefited from the uptick in air traffic, going up by 12% organically, with growth everywhere, but especially landing gears, nacelle, and evacuation slide systems. Recurring operating income came in at 1.6 billion euros and our operating margin improved by 50 basis points or 90 basis points if you exclude Collins, showing that we are making steady progress toward our 15% margin goal for 2028. This strong performance was driven by a favorable business mix and our efforts to stay competitive. OE volume growth was especially robust for narrow-body platforms, as well as in avionics, defense, and space. Services also did well with strong demand for carbon brakes, landing gear, nacelles, and aero systems. One quick side note, as of Jan 1st, 2026, Safran ventilation system will move from aircraft interiors to equipment and defense, so we can create more synergies with our power electrical business. SVS is a profitable business. It brings in a double-digit operating margin with revenues slightly under €200 million. Finally, looking at slide 12, Aircraft Interiors continues to make real progress on its turnaround. Sales reached €3.3 billion, including Safran Passenger Innovations, our IFC business, which is a 14% increase and actually brings us back to 2019 levels. OECS went up by 15%, mostly thanks to higher deliveries in cabin, especially galleys, inserts, and water and waste systems for A320 and 737. Revenue also got a boost from our IFE activity, as well as from higher volumes and better pricing on business class seats. Services were up 13%, mainly on the back of demand for cabin spare parts, especially from customers in the Middle East, Asia, and the Americas, as well as from SVS, which I mentioned earlier would transfer over to equipment and defense in 2026. CITS also did well, both with spare parts and services, and passenger innovations helped out on spare parts and repairs. Recurring operating income crossed €100 million, with operating margin up 2.3 points. Cabin kept capitalizing and shifting production to best-cost countries like Mexico, the Czech Republic, and Tunisia, and also on renegotiating prices for the lower-margin programs. IFE activities helped lift profits overall, and seeds kept improving thanks to ongoing work on pricing and operational excellence. The strong performance ratios are focused on pass-through and price increases, which help offset the impact of tariffs. The very good news is that aircraft interiors have now reached cash break-even, with a noticeable €140 million improvement just over last year. Now if we look at slide 13, we generated €3.9 billion in free cash flow, which is up 23%. That gives us an EBIT to cash conversion ratio of 75%. The strong result came from a 17% increase in EBITDA, So higher earnings, less an impact from one of items, along with a positive impact from working capital changes. For the first time since COVID, we managed to reduce inventory DSOs by nine days. Also, we did increase inventories in dollar to support the ramp up that was more than made up for by a strong inflow of advance payments, which were higher than last year, especially thanks to the Rafa orders and other defense programs. We also paid an extra 1 billion euros in income tax, reflecting our higher taxable income and including the 377 million euros French corporate surtax. At the same time, we're still investing to support our growth and prepare for the future. Tangible capex was just under 1.2 billion euros, focusing mainly on expanding engine and marrow capacity and increasing production, especially for landing gears, smart weapons, and resilient P&T systems. On slide 14, you'll see that SAFRA ended 2025 net cash positive at pretty much exactly the same level as in 2024, right down to the nearest million. That's actually just a coincidence. This puts us at about 0.3 times EBITDA. In line with the capital allocation framework highlighted at our last capital market day, We made organic investment to sustain our growth and prepare for the future for about 1.8 billion euros in R&D and CapEx, as well as inorganic investment for 1.6 billion euros, the main cash outflow this year being the Collins Flight Control and Actuation System. We also returned 2.6 billion euros to shareholders with a balance between dividends and buybacks. We also redeemed our OCEAN 2028 bonds early using shares we purchased in 2023 and 2024, which helped cut out our net debt by 0.7 billion euros. Bottom line, Safran is still completely in the leverage, and we are in really good, solid position with a strong balance sheet. For 2025, we are proposing a dividend of 3.35 euro per share. That's a 16% increase compared to last year, and it does represent a 40% payout based on the adjusted net income, mainly restricted from the capital loss from the SPI divestment. This year, as part of the 5 billion euros share buyback program, we also bought back 5.1 million shares for consolation, which cost a total of 1.3 billion euros. In December, we went ahead and consoled all shares that were being held for that purpose, so 5.3 million shares in total, resulting in the capital ownership accretion of 1.6%. Although between 24 and 25, we canceled 8.9 million shares, which amounted to 2.1 billion euros and led to a 2.13% capital ownership acquisition. Looking ahead to 2026, we'll keep moving forward with our share buyback programs. The first range actually started early in mid-Jan. Just before we wrap up this session, let's quickly look at slide 16. It's a quick reminder of the goals we set for 2025 back in December 21. I'm happy to say that we met or even exceeded all our key targets for 2025, which really shows our commitment to operational excellence and our focus on delivering strong, two-digit profitable growth. Over this period, both our revenue and free cash flow more than doubled, well ahead of our original outlook, and EBIT grew even faster, nearly tripling while starting from a 10.2% operating margin in 2020 and landing at 16.6% in 2025, close to the middle of our 16% to 18% target. We achieved all this despite facing plenty of challenges, things like inflation, supply chain disruptions, tariff, and even the French corporate surtax. So it really highlights how robust our business model is. Now let's take a look at our outlook for 2026 and our ambitions for 2028 to see what's coming next. Olivier, over to you.

Thank you, Pascal. I'm now turning to slide 18 in our 2026 outlook. We expect to continue the live delivery ramp-up. with a further 15% increase. Operating in a still favorable environment, civil aftermarket should continue to expand, with spare parts up mid-teens and services up around 20%. In particular, Q1 should see a strong start in spare parts, helped by an easier comparison base. As a reminder, this outlook excludes Safran Passenger Innovation, which was divested on January 30. In more detail, for 2026, Safran expects revenue up low to mid-teens, recurring operating income between 6.1 and 6.2 billion euros. and free cash flow between 4.4 and 4.6 billion euros, including an estimated 470 million euros impact from the French corporate surtax. Let me now revisit some of the assumptions we shared at our capital market day 24. Starting with LEAP. On slide 19, our Q3 and Q4 delivery performance, more than 500 engines per quarter, reinforces our confidence in delivering another 15% increase in 2026. And in reaching around 2,600 engines by 2028. This is supported by continued supply chain improvements and the ongoing execution of our resiliency plan. On the performance side, LEAP continues to mature faster than the CFM56. For LEAP 1A, more than 1,450 kits of the new HPT blade have now been produced. this upgrade can more than double time on-wing in harsh environments, bringing shop visit intervals in line with the CFM56. In parallel, around half of the LIP1A fleet is now equipped with the reverse bleed system highlighted at the Capital Market Day 2024, which reduces on-wing fuel nozzle maintenance. And for LIP1B, Both the reverse bleed system and the HPT blade upgrades are expected to be certified in H1 2026, delivering the same durability improvements to the 737 MAX operators. Continuing with civil aftermarket on slide 20, we are revising our CFM56 assumptions upward. In line with our partners' comments last July, sustained maintenance, repair, and overall demand from operators, and as a result, very low retirement levels, supports a stronger outlook for CFM56 shop visits through 2028. We now expect a plateau of around 2,300 to 2,400 shop visits per year from 2025 to 2028. Compared with our capital market day 24 assumptions, this represents more than 750 additional shop visits over the 2025-2028 period. Beyond that, while shop visits are expected to start declining from 2029, We continue to see pricing and wear scope supporting CFM56 revenues through the end of the decade. On leap, our assumptions remain largely unchanged. We continue to see strong growth in shop visits with wear scopes expanding. And we still expect the share of external shop visits to double from around 15% in 2025 to about 30% by 2030. Moving to slide 21, the updated assumptions we've just discussed translate into around 15% additional revenue over the period compared with capital market day 24. As a result, the revenue annual growth between 24 and 25 is now expected to be in the low teens, up from mid to high single digits at the time of our capital market day 24. Profit growth is expected to follow a similar trajectory. Turning to margin at completion across the leap rate per flight hour portfolio, progress has accelerated since our last update. Compared with CMD24, we have delivered a further two points improvement, bringing the total margin increase to around seven points between 2021 and 2025. This reflects both more favorable terms on new contracts and our continued focus on optimizing existing agreements whenever possible. And just as a reminder, the majority of the profit from the Red Per Fly Tower contract portfolio will be recognized after 2030. As a result, on slide 22, you can see that we are raising our 2028 targets on revenue, both additional aftermarket activities and the consolidation of actuation supports higher growth. We are therefore increasing our outlook with a 2024 to 2028 revenue compared to annual growth now expected to be around 10%. On EBIT, we are raising our 2028 guidance by 1 billion euro. In propulsion, we are increasing our margin target from the low 20s to 22 to 24% despite tariffs and an accelerated OE ramp-up. In equipment and defense, we confirm a mid-teens margin in 2028, now including the actuation and flight control activities. In aircraft interiors, we now target a high single-digit margin in 2028, which only reflects the divestment of passenger innovation and the transfer of saffron ventilation systems from aircraft interiors to equipment and defense. On free cash flow, we now expect an additional 4 to 6 billion euros over 2024 to 2028, despite the higher impact of two years of French corporate surtax, around 850 million, compared to roughly 500 million at capital market day 24, and despite tariffs. To conclude, let me briefly highlight a few key priorities. we remain fully focused on meeting customer demand while managing the OE ramp-up. We will continue to improve competitiveness and strengthen our industrial resiliency. We will also keep customers flying by providing spare engines, spare parts, and by expanding our internal maintenance repair and overall network. In parallel, We expect to complete several divestments in 2026 in line with our portfolio training strategy. We will pursue our ambitious research and technology roadmap to prepare for the next single generation and to drive decarbonization. And finally, we remain firmly focused on our growth trajectory with the objective of increasing operating profit expanding margin, strengthening cash generation. Thank you for your attention. We are now happy to take your questions.