SAFRAN Leaner organization to deliver increased profitability
Organic revenue growth: 10+% CAGR 2021-2025 (at a EUR/$ spot rate of 1.20), including civil aftermarket revenue growing around 15% CAGR over the period,
Recurring operating income margin: 16-18% by 2025 (at a EUR/$ hedge rate of 1.16),
Strong cash generation driven by growing EBITDA and a good control of working capital needs: EBIT to FCF conversion of 70% on average during 2021-2025.
Priorities for capital allocation
Investing for organic growth with increasing R&T effort towards sustainable aviation and selective resumption of Capex spending,
Active portfolio management: assessment of
Keeping low leverage (net debt/EBITDA ratio) for full flexibility to fund development of any new programs and/or additional working capital needs,
Target to resume historical practice of 40% dividend payout ratio related to fiscal year 2022 (paid in 2023).
In addition and beyond 2023, the Board of directors will review its practice in order to ensure growing and attractive returns to shareholders.
All figures in this press release represent adjusted data, except where noted (for definitions see Notes).
Executive commentary
CEO
'
Main topics discussed during this event:
1. Perspectives and strategy
The roadmap set at Safran Capital Markets Day in 2018 was achieved despite the Covid crisis and the earlier grounding of the
In Defense and Space,
A portfolio review, conducted after three years of experience since their acquisition, concluded that 70% of the former Zodiac Aerospace businesses are core and 30% under assessment.
2. Research & Technology
Research and technology is at the core of
Transition to new energy sources and propulsion architecture will be key to enable aviation decarbonization, notably through the RISE disruptive technology program for a future narrowbody engine, an increase in drop-in fuels usage, hydrogen technologies, hybridization and electrification.
Materials and processes will bring differentiation in additive manufacturing, new metals, advanced ceramics and polymer composites.
Digital technology will allow increased productivity and enable more competitive and enhanced products and services.
3. Financial framework
Organic revenue growth over 2021-2025 is expected to reach 10+% CAGR (at a EUR/$ spot rate of 1.20) driven by higher OE build rates and a recovery in aftermarket activities. LEAP deliveries will ramp again up to 2,000 engines from 2023. Civil aftermarket revenue should grow at around 15% CAGR over the period.
Recurring operating income margin should reach 16% to 18% by 2025 (at a EUR/$ hedge rate of 1.16), representing more than 5 points margin expansion from 2021 mainly driven by growth in services across all divisions.
The margin profile will not be linear throughout the period with an accelerated margin expansion anticipated at the end of the period (2024-2025), notably thanks to LEAP OE gross margin breakeven and
By division,
above 20% for Propulsion,
around 15% for Equipment & Defense,
above 10% for Aircraft Interiors.
Free cash flow (FCF) generation should reach around
Tangible Capex should grow from 3% to 3.5% of sales over 2021-2025 and be allocated to areas generating growth and cost savings, as well as
R&D spending should increase with a strong uptick in R&T effort over 2021-2025 and growing support from government funding. Development expenses will stabilize and decrease from 3.5% to 2% of sales over the period. Overall, the impact of R&D expenses on P&L will represent an average of around 4.5% of sales from 2021 to 2025.
As a result, FCF is expected to grow every year with recurring operating income to FCF conversion rate of 70% on average for 2021-2025.
The portfolio review could lead to further divestments and bolt-on acquisitions,
Target to resume historical practice of 40% dividend payout ratio related to fiscal year 2022 (paid in 2023)1.
In addition and beyond 2023, the Board of directors will review its practice in order to ensure growing and attractive returns to shareholders.
4. Civil engines
4.1 Execute new LEAP engine ramp-up
With an undisputed reputation and reliability, the LEAP engine has a 72%2 market share of the entire narrowbody market.
The LEAP cost of sales will continue to decrease, reaching OE gross margin breakeven at the latest in 2025, after the first few years of ramp-up at negative margins.
4.2 A robust engine aftermarket outlook
CFM56 and LEAP engines will remain the core drivers of the profitable and fast growing civil aftermarket business of
Over 2021-25, civil aftermarket revenue (ie civil aftermarket index) should grow at around 15% CAGR.
On a longer term, over 2022-2030, the sole contribution of CFM56 and LEAP engines (excluding high thrust engines) to civil aftermarket index should grow at high single digit CAGR.
The aftermarket business model will gradually evolve from a predominantly Time & Materials (T&M) model, based on the CFM56 fleet in service, to a model based on rate per flight hour (RPFH) contracts for the LEAP. At this stage, as a matter of prudence,
5. Aircraft Interiors margin recovery
Within Aircraft interiors,
With strong market shares, innovation-driven growth and customer confidence restored, both businesses are ready to take advantage of the recovery of a severely hit market.
The successful transformation achieved in both businesses has allowed to drastically improve their breakeven points through site closures, an increased share of cost competitive countries and headcount reduction.
6. ESG
Decarbonize aeronautics, with a target of 30% reduction in
Be an exemplary employer, with a focus on an inclusive culture, gender diversity (target of 22% of women in senior management by 2025, from 15% in 2021) and skills development,
Embody responsible industry, with a commitment to a culture of ethics and integrity and a target to engage
Contribute to a safer world, thanks to
A dedicated governance led by the Executive Committee and monitored by the Board of Directors is in place to ensure that
* * * *
Live webcast and replay
The event will start at
The presentation and press release may be downloaded and subsequently a replay will be made available at: www.safran-group.com/finance
Agenda
FY 2021 earnings :
Q1 2022 revenue :
Annual General Meeting :
* * * *
1 Subject to Board's proposal and shareholders' approval
2 Based on net cumulative orders and commitments
Notes
[1] Adjusted revenue
To reflect the Group's actual economic performance and enable it to be monitored and benchmarked against competitors,
purchase price allocations with respect to business combinations. Since 2005, this restatement concerns the amortization charged against intangible assets relating to aircraft programs revalued at the time of the Sagem-Snecma merger. With effect from the first-half 2010 interim financial statements, the Group decided to restate:
the impact of purchase price allocations for business combinations, particularly amortization charged against intangible assets recognized at the time of the transaction and amortized over extended periods due to the length of the Group's business cycles and the impact of remeasuring inventories, as well as
gains on remeasuring any previously held equity interests in the event of step acquisitions or asset contributions to joint ventures;
the mark-to-market of foreign currency derivatives, in order to better reflect the economic substance of the Group's overall foreign currency risk hedging strategy:
revenue net of purchases denominated in foreign currencies is measured using the effective hedged rate, i.e., including the costs of the hedging strategy,
all mark-to-market changes on instruments hedging future cash flows are neutralized.
The resulting changes in deferred tax have also been adjusted
[2] Adjusted recurring operating income
Operating income before capital gains or losses on disposals / impact of changes of control, impairment charges, transaction and integration costs and other items
[3] Free cash flow
This non-accounting indicator (non-audited) is equal to cash flow from operating activities less change in working capital and acquisitions of property, plant and equipment and intangible assets
[4] Civil aftermarket (expressed in USD)
This non-accounting indicator (non-audited), comprises spare parts and MRO (Maintenance, Repair & Overhaul) revenue for all civil aircraft engines for
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