SAFRAN (EPA:SAF) - 2018 Capital Markets Day

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29/11/2018 07:30

PRESS RELEASE

2018 Capital Markets Day
Safran presents its strategic and financial ambitions

Paris, November 29, 2018

Paris, November 29, 2018
Safran has delivered and even exceeded its March 2016 ambitions.

Ideally positioned to capture growth from Aerospace & Defense markets thanks to
leading Tier 1 positions.

Strengthen market leadership by:
o Reinforcing its key leading positions as a full-fledged civil and military
  engine manufacturer
o Becoming the No 1 Aerospace Equipment supplier in the next 15 years
o Increasing investment in innovation to lead the future in the industry

High-quality execution and operational performance excellence:
o Extending LEAPùs success with best-in class OE and Aftermarket
o Restoring the performance of Aircraft Interiors businesses to rebuild
  customers' trust in a sector key for airlines
o Reinforcing Safran competitiveness with a particular emphasis on delivering
  commercial, technological and product synergies across the Group

Strong organic growth, further improved profitability and cash generation:
o Organic revenue growth in a mid-single digit range on average over the
  2019-2022 period, including civil aftermarket growing in a high single digit
  range
o Recurring operating income margin trending to a 16-18% range by 2022
o Strong cash generation driven by a 50% increase in EBITDA between 2018 and
  2022: EBIT to FCF conversion above 50% each year and trending above 60% in
  2022

Balanced and disciplined capital allocation policy:
o Growing self-funded R&D and CAPEX to fuel future growth
o Increased cash returns to shareholders:
o Full execution of the Euro 2.3 Billion buyback program initiated in 2018;
  intention to increase the share buyback program by a further EUR700M
o Practice to be reviewed by Board of Directors in 2020 in order to ensure
  growing and attractive return for shareholders

All figures in this press release represent adjusted data, except where noted
(for definitions see Notes)

Executive commentary

CEO Philippe Petitcolin commented:
"We have delivered and even exceeded all our March 2016 ambitions. Our focus on
execution and operational excellence, coupled with driving innovation and
investment in R&T, position the Group to set new ambitions and prepare the
future of our industry. Furthermore, the ramp up of LEAP production is
proceeding and the integration of Zodiac Aerospace is well underway"

Safran (Euronext Paris: SAF) is today hosting its 2018 Capital Markets Day at
Safran Campus with investors and financial analysts.

Ross McInnes, Chairman of the Board of Directors, will open the event, which
will be hosted by Philippe Petitcolin, Chief Executive Officer, with the
participation of members of Safran's Executive Committee.

Main topics to be covered by the Capital Markets Day are:

1. Perspectives and Strategy

Safran will leverage its leading positions in Aerospace & Defense to achieve
new ambitions.

Positive trends are expected in both the commercial aircraft and military
markets that will ensure a solid momentum of new aircraft deliveries and
retrofits. Safran has set clear objectives in all its businesses.

Safran's ambition is to remain a full-fledged engine manufacturer and a key
player in the future of propulsion by investing in new technologies, as well as
to capture the aftermarket upside through managing its large installed base of
civil engines.

Today, Safran is the second worldwide Aerospace Equipment supplier and its
ambition is to become the world leader in the next 15 years, notably by
increasing its competitiveness and acting as a key leader in equipment for more
electrical aircraft. The acquisition of Zodiac Aerospace will reinforce
Safran's Electronics & Defense /Electrical & Power activities and will leverage
fully Aerosystems' portfolio.

In Aircraft Interiors, Safran's priority is to turn around performance and to
rebuild customer confidence in order to reach former profitability levels.

2. Financial framework

Safran will continue on its path of strong and profitable growth.

Mid-single digit organic revenue growth (at an estimated average spot rate of
USD 1.25 to the Euro over 2019-2022) should be broad-based as all activities
should contribute positively, particularly civil engines OE, Aerospace services
and Aircraft Interiors.

Recurring operating income margin should trend to a 16% to 18% range by 2022
after the completion of the CFM56/LEAP transition, the recovery of Aircraft
Interiors activities, the full impact of the annual EUR200M pre-tax run rate
cost synergies and the benefits of stabilized hedged rates. In 2022, Safran's
operating margin ambition is expected to be:

above 20% for Propulsion
above 16% for Equipment
above 10% for Defense
around 15% for former Zodiac Aerospace activities including all synergies
accounted for in other Safran businesses (or 13% excluding part of the
synergies accounted for in other businesses).

R&D spending will enter a new cycle including assumptions for NMA developments
(if it is launched), targeted efforts on Zodiac and a 30% increase in R&T.
Total self-funded R&D will increase but will remain at around 6% to 7% of sales
over the period.

Free cash flow generation will remain a strong focus over 2018-2022 with EBITDA
growing by ~50%. Working capital is expected to increase over the period due to
a likely significant reduction of advance payments, a stability in stocks and
inventories and a gradual increase of the cash contribution to be received from
Rate Per Flight Hours contracts (RPFH).
Capex should represent around 4% of sales over 2018-2022 and be allocated
notably to build up LEAP MRO capacity as well as to upgrade and streamline
Zodiac Aerospace production facilities.
As a result, FCF is expected to grow every year. EBIT to FCF conversion should
be above 50% each year and trend above 60% in 2022.

Safran will maintain its disciplined capital allocation:

* The priority will focus on organic development. Safran does not currently
  expect to make any further major acquisitions
* Following the Zodiac Aerospace acquisition, Safran reaffirms its objective
  of maintaining a strong investment grade profile, and the intention to
  deleverage further going forward
* Safran will continue to increase cash returns to shareholders:
  - The EUR2.3bn buyback program, executed at 50% today, will be completed in
     2019
  - The intention is to increase the share buyback program by a further EUR700M
    to avoid the potential dilution from the outstanding convertible bonds
* As a result, over 75% of cumulated FCF is expected to be returned to
  shareholders over 2018-2022 through share buybacks and with the existing
  dividend practice
* The Board of Directors will review the practice in 2020 to ensure growing and
  attractive return for shareholders.

3. CFM56-LEAP : Transition and Aftermarket

Safran will complete the CFM56 to LEAP transition underway to reap the benefits
from the massive CFM56 and LEAP installed base.

Excellent progress has been made on the transition from CFM56 to LEAP:
* LEAP engine has been delivering on all its promises regarding performance,
   reliability and utilization, making it the engine of choice for airlines
* Top priority is meeting customers' demand by addressing the challenges of
   an unprecedented production ramp up. Safran has built up a strong
   production management system in order to achieve the production targets
   agreed with customers LEAP cost reduction is on target and continues to
   move forward as planned, withprogress coming from both the Group's plants
   and supplier base.

CFM56 and LEAP engines will remain the core drivers of the profitable and fast
growing civil aftermarket business of Safran:

* The T&M business model will continue to dominate for a long period, thanks to
  the significant fleet of CFM56 fleet in service
* The Rate Per Flight Hours contracts contribution will gradually increase
  driven by the LEAP ramp up reflecting the increased demand of customers
* Safran is well prepared for this gradual transition and will expand its MRO
  network
These trends provide a strong visibility for the expected high single digit
growth on average of the civil aftermarket of Safran from 2018 to 2022.

4. Integration of Zodiac Aerospace and Aircraft Interiors recovery

The integration process has successfully moved beyond the first steps and is
gaining momentum with regard to:
* Accelerating Zodiac Aerospace operational recovery notably by rolling out
  best practices
* Delivering the EUR200M of pretax run rate cost synergies by 2022. These cost
  synergies are fully confirmed and further upside has been identified

In Aircraft Interiors, the new management, together with all the teams, are
striving to rebuild customers' trust by transforming a segmented business into
an efficient engineering and industrial key player. Safran will realize the
full potential of Zodiac Aerospace former activities and deliver the expected
improved performance.

5. Innovation

Safran is already well advanced in preparing the future to embark on the next
generation Aerospace & Defense programs.

Key areas of focus are:
* Improving aerospace propulsion efficiency
* Leading the way towards the more electrical aircraft
* Driving innovation for the connected cabin
* Making additive manufacturing a broad based industrial reality
This acceleration of the innovation strategy will allow Safran to remain the
partner of choice of OEM and reinforce its growth potential for the next
decades.

9. A clear roadmap

Safran is the most successful Aerospace & Defense company and will remain focus
at the same time on both short and long term with:
* An extreme attention to execution and operational excellence
* Growing investment in R&T and innovation to prepare the future.

                              * * * * *

Live webcast and replay

The event will start at 13:00 CET in Vilgénis on November 29, 2018. It can be
watched on a live webcast at the following address:
https://www.safran-group.com/capital-markets-day-2018-live

A phone conference will be organized so analysts and investors may follow the
event and participate in the Q&A session. The dial-in numbers are: +33 1 76 70
07 94 (France), +44 207 192 8000 (United Kingdom), and +1 631 510 7495 (United
States). Participant code is: 3181737.

The presentations may be downloaded and subsequently a replay will be made
available at: www.safran-group.com/finance

                              * * * * *

Agenda

2018 annual results                February 27, 2019
Annual shareholders' meeting       May 23, 2019

                              * * * * *

Notes

Adjusted data
To reflect the Group's actual economic performance and enable it to be
monitored and benchmarked against competitors, Safran prepares an adjusted
income statement alongside its consolidated financial statements.

Safran's consolidated income statement is adjusted for the impact of:

* 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;

Safran has also applied these restatements to the acquisition of Zodiac
Aerospace with effect from 2018.

* 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.

Recurring operating income
Operating income before capital gains or losses on disposals /impact of
changes de contrôle, impairment charges, transaction and integration costs
and other items.

Civil aftermarket (expressed in USD)
This non-accounting indicator (non-audited) comprises spares and MRO
(Maintenance, Repair & Overhaul) revenue for all civil aircraft engines for
Safran Aircraft Engines and its subsidiaries and reflects the Group's
performance in civil aircraft engines aftermarket compared to the market.

Free cash flow
This non-accounting indicator (non-audited) is equal to cash flow from
operating activities less working capital and acquisitions of property, plant
and equipment and intangible assets.

Safran is an international high-technology group, operating in the aircraft
propulsion and equipment, space and defense markets. Safran has a global
presence, with more than 58,000 employees and sales of 16.5 billion euros in
2017. Working alone or in partnership, Safran holds world or European
leadership positions in its core markets. Safran undertakes Research &
Development programs to meet fast-changing market requirements, with total R&D
expenditures of around 1.4 billion euros in 2017. Safran is listed on the
Euronext Paris stock exchange, and is part of the CAC 40 and Euro Stoxx 50
indices.

In February 2018, Safran took control of Zodiac Aerospace, significantly
expanding its aircraft equipment activities. Together with Zodiac Aerospace,
Safran has more than 91,000 employees and has around EUR21 billion in adjusted
revenue (pro forma 2016).

For more information : www.safran-group.com / Follow @Safran on Twitter

Press
Catherine MALEK : catherine.malek@safrangroup.com / T +33 (0)1 40 60 80 28

Investors Relations
Cécilia MATISSART : cecilia.matissart@safrangroup.com /
T +33 (0)1 40 60 82 46
Frédéric LUCAND : frederic.lucand@safrangroup.com / T +33 (0)1 40 60 82 19
Jean-François JUERY : jean-françois.juery@safrangroup.com /
T + 33 (0) 1 40 60 27 26

IMPORTANT ADDITIONAL INFORMATION
This document contains forward-looking statements relating to Safran, Zodiac
Aerospace and their combined businesses, which do not refer to historical facts
but refer to expectations based on management's current views and assumptions
and involve known and unknown risks and uncertainties that could cause actual
results, performance, or events to differ materially from those included in
such statements. These statements or disclosures may discuss goals, intentions
and expectations as to future trends, synergies, value accretions, plans,
events, results of operations or financial condition, or state other
information relating to Safran, Zodiac Aerospace and their combined
businesses, based on current beliefs of management as well as assumptions
made by, and information currently available to, management. Forward-looking
statements generally will be accompanied by words such as "anticipate,"
"believe," "plan," "could," "would," "estimate," "expect," "forecast,"
"guidance," "intend," "may," "possible," "potential," "predict," "project" or
other similar words, phrases or expressions. Many of these risks and
uncertainties relate to factors that are beyond Safran's or Zodiac
Aerospace's control. Therefore, investors and shareholders should not place
undue reliance on such statements. Factors that could cause actual results to
differ materially from those in the forward-looking statements include, but
are not limited to: uncertainties related in particular to the economic,
financial, competitive, tax or regulatory environment; the ability to obtain
shareholder approval; failure to satisfy other closing conditions with
respect to the transaction on the proposed terms and timeframe; the
possibility that the transaction does not close when expected or at all; the
risks that the new businesses will not be integrated successfully or that the
combined company will not realize estimated cost savings and synergies;
Safran's or Zodiac Aerospace's ability to successfully implement and complete
its plans and strategies and to meet its targets; and the benefits from
Safran's or Zodiac Aerospace's (and their combined businesses) plans and
strategies being less than anticipated. The foregoing list of factors is not
exhaustive. Forward looking statements speak only as of the date they are
made. Safran and Zodiac Aerospace do not assume any obligation to update any
public information or forward-looking statement in this document to reflect
events or circumstances after the date of this document, except as may be
required by applicable laws.

USE OF NON-GAAP FINANCIAL INFORMATION

This document contains supplemental non-GAAP financial information. Readers
are cautioned that these measures are unaudited and not directly reflected in
Safran's financial statements as prepared under International Financial
Reporting Standards and should not be considered as a substitute for GAAP
financial measures. In addition, such non-GAAP financial measures may not be
comparable to similarly titled information from other companies.

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