SAFRAN (EPA:SAF) - Safran: Adapting to an unprecedented situation

Transparency directive : regulatory news

29/04/2020 17:45

PRESS RELEASE

Safran: Adapting to an unprecedented situation

Paris, April 29, 2020

Covid-19

* Impact started to materialize in March on Safran?s businesses;
* Adaptation plan ongoing to deal with the sharp drop in activity and the
  prospect of a gradual recovery;
* Sufficient liquidity and healthy balance sheet.

Adjusted data

* Q1 2020 revenue at Euro 5,383 million, down (6.9)% on a reported basis;
* Organic growth down (8.8)% in Q1 2020 mainly driven by Propulsion and
  Aircraft Interiors.

Consolidated data

* Consolidated revenue was Euro 5,485 million in Q1 2020.

Foreword

* All figures in this press release represent adjusted [1] data, except where
  noted. Please refer to the definitions and reconciliation between Q1 2020
  consolidated revenue and adjusted revenue. Please refer to the definitions
  contained in the Notes on page 7 of this press statement;
* Organic variations exclude changes in scope and currency impacts for the
  period.

Executive commentary

CEO Philippe Petitcolin commented:
"Over the past year, Safran has successfully managed the impact of the 737MAX
crisis. The situation we are facing today is of a different order of magnitude,
although it remains difficult, at this point, to measure precisely its
far-reaching consequences.
The actions which my fellow managers and I have launched are timely, tailored
to each particular situation and indeed in some instances quite radical. In
acting in this manner, we kept in the forefront of our mind the health of each
one of our employees and the future prospects of all our businesses. Thus,
being both nimble and responsible, Safran will demonstrate that we are a world
leader in aerospace".

Update of the Covid-19 impact on Safran

As of today, the central scenario is a gradual recovery as new aircraft
deliveries are likely to be lower for a period of time, exceeding 2020. In the
short run, airlines and the aerospace industry are likely to benefit from
government support. In the long run, prospects remain good for Safran, notably
because of a young and efficient fleet less likely to suffer early retirement
and part out after Covid- 19 grounding: approximately 57% of CFM56-5b/-7b are
below 10 years old and only 7% above 20 years old. The main thrust of the
Group's strategy remains. Safran is committed to green aviation, which will
emerge from the crisis as a major trend. R&D and CAPEX efforts will resume when
the brunt of the crisis is over.

1- Impact on Safran's businesses

Safran's performance was in line with the initial guidance until the end of
February with 1.7% organic sales decrease year on year:

* Slight decrease in Propulsion due to a drop in LEAP-1B deliveries and despite
a growing aftermarket;
* Expected growth trend in Aircraft Equipment, Defense and Aerosystems
activities and decline in Aircraft Interiors as anticipated due to the 737MAX
impact on Cabin and to a strong 2019 comparison base for Seats.
During the first two months of the year, operations were practically unaffected
by the Covid-19 crisis. The first measures of the 737MAX adaptation plan were
implemented and the cash generation has been positive thanks to operations at
the start of the year and favorable cut off effects between end of 2019 and
beginning of 2020.

The first impacts started to materialize in March across all businesses (20.4%
organic decrease year on year). Services (notably aftermarket for civil engines
and carbon brakes) and Aircraft Interiors retrofit business declined in line
with the sharp fall in air traffic, airlines preserving their cash and
operations punctually and locally disrupted.

The Covid-19 crisis now affects most of Safran's activities, both in terms of
OE and services.

* Propulsion:
- Decrease of civil aftermarket revenue (both spare parts sales and services)
  due to the postponement of orders and shop visits by airlines;
- Resilience of helicopter turbines and military activities.
* Aircraft Equipment, Defense and Aerosystems:
- Impact of the decrease in air traffic on carbon brakes activities;
- Impact on OE activities due mainly to widebody;
- Resilience of Electronics & Defense activities.
* Aircraft Interiors:
- Significant pressure on Aircraft Interiors' sales due to widebody and
retrofit activity exposure.

Those trends intensified in April and the drop in Q2 revenue could be similar
to that of April.

CFM International's assumption is to manufacture around 1,000 LEAP engines
(incl. spare engines) in 2020 consistent with the most recent production rate
updates made by airframers. Civil aftermarket revenue could decrease
significantly in 2020.
Current impacts for Aircraft Equipment, Defense and Aerosystems and the
significant pressure on Aircraft Interiors are expected to continue in the
coming months.

2- Update on liquidity

Free cash flow generation was positive each month over Q1 2020. As of March 31,
2020, the Group's cash and cash equivalents position was at EUR3.2 billion
(unaudited data).

As of March 31, 2020, Safran's commercial paper program (NEU CP) outstanding
was EUR2,052 million maturing end-April to mid-May 2020 and EUR419 million
subscribed by a corporate mutual fund of the Group savings plan.

Safran has an undrawn Revolving Credit Facility of EUR2,520 million available
until December 2022. This facility is a backup to the NEU CP program. The
maximum size of the NEU CP program was increased from EUR2.5 billion to EUR3.0
billion.
On March 26, 2020, the Group announced the setting up of a bridge loan of
EUR3.0 billion available for up to two years, which was successfully finalized
on April 22, 2020. The oversubscription demonstrated strong confidence in
Safran.

At the end of March and based on these elements, the Group's liquidity position
is strong with sufficient liquidity to fund the continuity of operations and
reimburse its debt maturing in July 2020. Safran is aiming to maintain positive
cash generation over the full year despite significant potential headwinds in
Q2 and Q3.

3- Actions taken to deal with the crisis

Safran is adapting as quickly as possible to this new environment while
protecting all of its employees. After the temporary shutdown of sites (45 over
250 sites as of April 22, 2020), Safran is implementing the plan announced on
26th of March.

* Adaptation of its workforce to customer needs using all available means
notably furlough (35% on a worldwide basis and 45% in France as of April 22,
2020);

* Update of purchases in line with activity;

* Reduction in investments (CAPEX) of close to 60% compared to 2019;

* Reduction of R&D expenses of 30% compared to 2019;

* Safran will reduce its operating costs (OPEX) by more than 20% compared to
2019(1).

Key business highlights

1- Aerospace Propulsion

Narrowbody engine deliveries

At the end of March 2020, combined shipments of CFM56 and LEAP engines amounted
to 326 units, compared with 577 in Q1 2019.
Year-to-date, orders and commitments were recorded for 117 LEAP engines
bringing the total LEAP backlog to 15,065 engines.

LEAP program

CFM International delivered 272 units LEAP engines in Q1 2020 compared with 424
units in the year ago period.

LEAP-1A: 59 airlines are operating 671 aircraft powered by LEAP-1A engines
totalling over 6 million flight hours so far.

LEAP-1B: We are prepared and ready to support a return to service of the
737MAX.

LEAP-1C: More than 2,100 engine flight hours on C919 flight tests logged to
date.

(1) Excluding purchasing and including R&D expenses.

CFM56 program

The production of CFM56 engines is ramping down as planned: 54 units were
shipped in Q1 2020. Last year, 153 engines had been delivered at the same
period.

Civil aftermarket(2)

Q1 2020 civil aftermarket revenue was down (3.3)% in USD terms mainly due to
lower spare parts sales for the latest generation of CFM56 engines and MRO
activities. In January and February civil aftermarket revenue grew in line with
initial guidance. In March, the Covid-19 impacts started to materialize which
resulted in a drop in civil aftermarket revenue by around (20)% compared to
March 2019.

M88 program

In Q1 2020, 10 M88 engines were delivered compared to 8 in Q1 2019.

Helicopter turbines

Safran recorded a new contract with the Portuguese Air Force to support
Portuguese RTM322-powered EH101 Merlin fleet. Over 38 engines will now be
covered for 10 years by Safran's Global Support Package (GSP).

2- Aircraft Equipment, Defense and Aerosystems

In January and February, the divisions continued to enjoy good level of
activity and several contracts were signed during the period.

On February 14, 2020, Gulfstream's G700 went airborne with Safran's newest
nacelle for large-cabin business jets.
Safran also signed a contract with Aegean to provide carbon brakes for its
A320neo and has been selected by EasyJet to provide landing gear maintenance
and overhaul (MRO) services on its Airbus A320 family fleet. The selection is
an extension for a further three and a half years of a previous contract signed
in 2017.
Regarding Aeroystems activities, Safran has signed a maintenance contract for
the emergency flotation system of the US Coast Guard HH-65 helicopter fleet.

3- Aircraft Interiors

Despite the impact of Covid-19 on Aircraft Interiors OE activities since March,
some contracts were won at the beginning of the year.

Safran recorded new contracts for Cabin with a major European airline to
provide the galleys and the supply of trolleys for 5 years of their future
Boeing 777-9 and with United Airlines to retrofit the overhead bins for A319.
Regarding Seats activities, Safran also recorded new contracts, one with a
major Asian airline to provide business class seats for its A330 and another
with a major European airline to provide economy class seats for its A350.
For Passenger Solutions, Safran's RAVE In-Flight Entertainment (IFE) product
has been selected, notably for A321neo, A330-900 and A350 line fit, and for
Boeing 777-300 retrofit from various airline customers.

(2) 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.

First-quarter 2020 revenue

Q1 2020 revenue amounted to Euro 5,383 million. This represents a decrease of
(6.9)%, or Euro(398) million, compared to the year-ago period. The net impact
of currency variations was Euro 119 million.
The average EUR/USD spot rate was 1.10 in Q1 2020, compared to 1.14 in the
year-ago period. The Group's hedge rate was USD 1.16 in Q1 2020, compared with
1.18 in Q1 2019.

On an organic basis, revenue decreased by (8.8)% mainly coming from OE sales of
all divisions:

* Decrease in Propulsion by (11.8)% from OE volumes (civil aircraft) as well as
civil aftermarket. Slight increase of helicopter turbines maintenance and
military engines both for OE and services;
* Aircraft Equipment, Defense and Aerosystems sales slightly decreased by
(2.9)% due to landing gear and wiring activities for widebodies. Strong support
to sales came from A320neo nacelles volumes and to a lesser extent from
Avionics activities;
* Aircraft Interiors revenue dropped by (15.0)% impacted by OE sales for all
divisions due to the 2019 high starting point (delays caught up in Q1 2019) and
the Covid-19 impact. Slight increase from Passenger Solutions services.

Currency hedges

Safran's hedging portfolio totaled USD 27.0 billion at April 21, 2020.
Estimated annual average exposure has been reset to reflect the potential
impact of the Covid-19 crisis on USD-related businesses in the coming years.
The previously announced targeted hedge rates are confirmed.
2020 is fully hedged at an estimated net exposure of USD 8.0 billion at a
targeted hedge rate of USD 1.16.
2021 is fully hedged at an estimated net exposure of USD 9.0 billion at a
targeted hedge rate of between USD 1.14 and USD 1.16.
2022: the firm coverage of the estimated net exposure is USD 8.4 billion to
rise to USD 10 billion. The targeted hedge rate is expected to be between USD
1.12 and USD 1.14.
2023: the firm coverage of the estimated net exposure is USD 5.0 billion to
rise to USD 11 billion. The targeted hedge rate is expected to be between USD
1.10 and USD 1.12.

Business commentary for the first quarter 2020

* Aerospace Propulsion

In the first quarter of 2020, revenue was Euro 2,497 million, down (9.9)%
compared to Euro 2,771 million in the year ago period. On an organic basis,
revenue decreased by (11.8)%.
- OE revenue decreased by (23.7)% (or (25.1)% organically) compared with Q1
2019, due to lower narrowbody engines (both LEAP and CFM56). LEAP-1B deliveries
were in line with the agreement signed between CFM International and Boeing.
Lower high thrust engines also affected the first quarter 2020. M88 engines
deliveries slightly increased to 10 units in Q1 2020 compared with 8 in Q1 2019
and helicopter turbines OE sales were flat compared to Q1 2019.
- Services revenue was flat (in EUR, or (2.1)% organically) and represented
64.4% of sales. Civil aftermarket revenue (in USD) decreased by (3.3)% due to
the Covid-19 effects seen from March. Lower spare parts sales for the latest
generation of CFM56 engines and a lower contribution from services contracts
for high trust engines were the main drivers of this decrease. Military
services were a slight tailwind in Q1 2020.

* Aircraft Equipment, Defense and Aerosystems

In the first quarter of 2020, revenue was Euro 2,187 million, down (0.6)%
compared with Euro 2,201 million in the year ago period. On an organic basis,
revenue was down (2.9)%..
- OE revenue was flat (or (2.3)% organically) in Q1 2020. Deliveries of
nacelles for LEAP-1A powered A320neo continued to increase and reached 174
units in Q1 2020 (120 units in Q1 2019). This growth was erased by lower OE
sales for landing gear and wiring activities due to their widebody exposure.
Electronics & Defense revenue growth was sustained in Q1 2020, confirming the
momentum seen in avionics. Defense activities (sighting and navigation systems
as well as optronics) increased slightly.
- Services revenue slightly decreased by (1.7)% (or (4.1)% organically) in Q1
2020. Nacelles support activities were slightly up in Q1 2020.

* Aircraft Interiors

In the first quarter of 2020, revenue was Euro 694 million, down (13.9)%
compared to Euro 806 million in the year ago period. t. On an organic basis,
revenue decreased by (15.0)% coming from all activities.
- OE revenue dropped by (19.5)% (or (20.4)% organically) in Q1 2020. Sales
decreased due to lower business class seats programs, galleys and inserts
deliveries as well as Connected Cabin and custom cabin interior for Passenger
Solutions.
- Services revenue slightly grew by 1.9% (flat organically) in Q1 2020, thanks
to Passenger Solutions activities. Seats services decreased slightly and Cabin
support was flat in Q1 2020.

                                  * * * *

Agenda

- Annual general meeting (exceptionally behind closed doors):       May 28,
2020

- H1 2020 earnings:       July 30, 2020

- Q3 2020 revenue:       October 30, 2020

                                  * * * *

Safran will host today a conference call open to analysts and investors at 6:45
pm CET, which can be accessed at +33 (0)1 72 72 74 03 (France), +44 (0) 207 194
3759 (UK) and +1 (646) 722 4916 (US) (access code for all countries:
46192244#).
Please ask for the "Safran" conference and state your name. We advise you to
dial in 10 minutes before the start of the conference.

A replay of the conference call will be available until July 28, 2020 at +33
(0)1 70 71 01 60, +44 (0)203 364 5147 and +1 (646) 722 4969 (access code for
all countries: 418909632#).

The press release and presentation are available on the website at
www.safran-group.com (Finance section).

Key figures

Segment breakdown of adjusted revenue      Q1 2019       Q1 2020
(In Euro million)
Aerospace Propulsion                         2,771         2,497
Aircraft Equipment, Defense and
Aerosystems                                  2,201         2,187
Aircraft Interiors                             806           694
Holding company & Others                        3             5
Total Group                                  5,781         5,383

% change      % change      % change       % change
              in scope       currency       organic

(9.9)%            -           1.9%          (11.8)%
(0.6)%            -           2.3%           (2.9)%
(13.9)%        (1.0)%         2.1%          (15.0)%
n/s               -            -              n/s
(6.9)%         (0.2)%         2.1%           (8.8)%

2019 revenue by quarter       Q1 2019       Q2 2019
(In Euro million)

Aerospace Propulsion            2,771         3,131
Aircraft Equipment, Defense
and Aerosystems                 2,201         2,352
Aircraft Interiors                806           834
Holding company & Others           3             4
Total Group                     5,781         6,321

Q3 2019       Q4 2019       FY 2019

2,987           3,156        12,045
2,298           2,405         9,256
805               876         3,321
5                  6             18
6,095           6,443        24,640

Euro/USD rate              Q1 2019       Q1 2020

Average spot rate             1.14          1.10
Spot rate (end of period)     1.12          1.10
Hedge rate                    1.18          1.16

Notes

[1] Adjusted revenue

To reflect the Group's actual economic performance and enable it to be
monitored and benchmarked against competitors, Safran prepares an adjusted
revenue.

Safran's consolidated revenue has been adjusted for the impact of:

* 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:
a. revenue net of purchases denominated in foreign currencies is measured using
the effective hedged rate, i.e., including the costs of the hedging strategy

First-quarter 2020 reconciliation between consolidated revenue and adjusted
revenue:

Q1 2020                            Hedge accounting

                Consolidated   Remeasurement    Deferred hedging
                   revenue       of revenue        gain (loss)

(In Euro million)
Revenue              5,485            (102)              -

              Business combinations

Amortization intangible      PPA impacts - other       Adjusted revenue
assets - Sagem- Snecma       business combinations

         -                             -                    5,383

Safran is an international high-technology group, operating in the aircraft
propulsion and equipment, space fense markets. Safran has a global presence,
with more than 95,000 employees and sales of 24.6 billion euros in 2019.
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 1.7 billion euros in 2019.
Safran is listed on the Euronext Paris stock exchange and is part of the CAC 40
and Euro Stoxx 50 indices. For more information: www.safran-group.com / Follow
@Safran on Twitter

Press

Catherine MALEK: catherine.malek@safrangroup.com / +33 1 40 60 80 28 /
                                                   +33 6 47 88 03 17

Investor Relations

Cécilia Matissart: cecilia.matissart@safrangroup.com / +33 1 40 60 82 46 /
                                                       +33 6 49 44 60 34

Jean-François Juéry: jean-françois.juery@safrangroup.com / + 33 1 40 60 27 26 /
                                                           + 33 7 88 04 20 14

Florent Defretin : florent.defretin@safrangroup.com / + 33 1 40 60 27 30 /
                                                      + 33 7 20 26 19 11

Aurélie Lefebvre : aurelie.lefebvre@safrangroup.com / + 33 1 40 60 82 19 /
                                                      + 33 6 80 16 24 98

IMPORTANT ADDITIONAL INFORMATION

This document contains forward-looking statements relating to Safran, 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, 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 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 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 ability to successfully
implement and complete its plans and strategies and to meet its targets; the
benefits from Safran's plans and strategies being less than anticipated; the
risks described in the Universal Registration Document (URD); the full impact
of the outbreak of the COVID-19 disease.
The foregoing list of factors is not exhaustive. Forward-looking statements
speak only as of the date they are made. Safran does 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 the
Group'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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SAFRAN (EPA:SAF) - Safran: Adapting to an unprecedented situation

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