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Research Tree provides access to ongoing research coverage, media content and regulatory news on SAFRAN SA. We currently have 8 research reports from 2 professional analysts.

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Date Source Announcement
01Mar17 10:00 MKW Morpho Detection Awarded Cardiff Airport Contract for CTX 9800 Hold Baggage Explosives Detection Systems
18Jan16 17:00 MKW Morpho Set to Upgrade Albuquerque Police Department AFIS With MorphoBIS in the Cloud
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Cautiousness in the aftermarket?

  • 02 Aug 16

Safran announced strong H1 figures. However, management’s slight reduction in aftermarket growth guidance to the lower end of the 7-9% range certainly impacted the share price negatively despite guidance having been confirmed. Headline numbers: Adjusted revenue was €8.93bn, up 6.5% on an organic basis, driven primarily by growth in Aerospace services and in the Security segment. Adjusted recurring operating income was up 11.8% to €1.3bn, or a group margin of 14.6%, thanks to the growth in high margin Aerospace services and the continuously supportive contribution from OE on CFM56 engines along with the growing contribution from Security. These positive factors were partially negatively offset by the losses of in-production and delivered LEAP engines, higher R&D costs and headwinds in the Helicopter turbine business. Adjusted net income – group share at €862m, translating into a net income growth of 15.7% excluding last year’s exceptional capital gain from the sale of Ingenico shares. FCF generation was significantly positive during the quarter at €566m (€96m in H1 15) thanks to solid control on working capital and lower capitalised R&D as programmes enter into service. The net debt position was €1.01bn at the end of the half and includes the €470m payment to Airbus concerning the creation of Airbus Safran Launchers. An additional €280m payment will be made in H2 so that the total equalising payments will have come to €750m. The deconsolidation will impact revenues to the tune of some €400m and the 50% share will be consolidated at the equity level and is expected to have a slight positive impact on recurring operating income. The H1 16 civil aftermarket was up 8.5% in USD terms driven notably by recent CFM56, GE90 engines and services. Management now expects full-year growth to stand at the lower end of the guided 7-9% range. 2016 guidance has been confirmed with revenues expected to grow by a low single-digit number while adjusted recurring income is expected to grow by c. 5% with the margin rate expected to grow similarly to 2015’s. FCF should represent c.40% of adjusted recurring income.

Resetting expectations

  • 15 Mar 16

Safran’s management has reset expectations during its capital markets day (CMD) by guiding down margin expectations due to the transition from CFM56 engine to LEAP engine production from 2016 through to 2019/20. While this may have surprised the market which reacted to the news by punishing the stock by 6%, the overall presentation showed that from an operational standpoint the key pieces are in place to ensure a smooth ramp-up as well as ensuring that the learning curve effect on unit costs kicks in as rapidly as possible. The impact of the LEAP programme start-up costs means that management finds itself at the very bottom of what the market had expected which should lead to some downward revision in forecasts. The key points from the day: Group margins are flat at c.14% (2016-19) as the dilution from the LEAP OE ramp-up will not be offset by the growth in the aftermarket sales of CFM56. In addition to the positive FX tailwind, there is an improvement in margins in the non-aerospace businesses. Beyond 2020, Safran fully expects the group margins to go above 15%. The Aerospace propulsion margin is expected to stand in the mid to high teens through the transition, meaning that in effect the expected losses are a couple of hundreds of millions superior to what was expected and that, overall, the aftermarket would fail to compensate for the ramp-up. The expected improvement in the aftermarket has by no means been revised downwards with CFM56 engine maintenance still to kick-in fully and therefore offers significant growth potential both in terms of revenues and profits. The upside coming from the other divisions is certainly more aggressive than expected. All divisions are expected to deliver a 100bp progression per year during the transition period, helping to maintain the group margin. The improvements are expected to come from a combination of operational improvement, operational leverage from volume growth and the end of a high investment phase at most of the divisions and in particular Aircraft equipment. While factually disappointing, Safran’s management clearly stated that it was being very (if not overly) prudent, suggesting that the guidance was certainly “beatable” but that as a first CMD from the CEO the incentive was to deliver the guidance (setting targets that can certainly be beaten). During the CMD, management selected effectively to highlight that the LEAP programme had been significantly de-risked with key high supply chain commonality and double sourcing from both legacy suppliers and low cost suppliers at the heart of the process. In addition, Safran has stressed its supply chain by imposing a two-week production ramp-up to the maximum forecast production rate, identifying weaknesses and allowing time to mitigate them well ahead of the effective ramp-up. While margins are set to remain steady during the period, management was not shy when suggesting that cash flow should improve significantly during the period. While conversion of EBIT to cash is expected to remain flat at 40% in 2016, it should improve to 50% and beyond from 2017 onwards. A word on M&A: The divestment of the detection business (Airport scanners) and the review of the Security business (ID, biometrics), which together represent 10% of group sales, was also a surprise announcement. In addition management suggested that it was not against adding to the Aircraft equipment portfolio which has led to speculation about a renewed interest in Zodiac Aerospace. This would be an interesting deal, obviously depending on the price but whether or not the controlling families are willing to sell is an entirely different story altogether. A word on accounting: Safran’s CFO has highlighted that IFRS 15 (implementation expected in 2018), which looks at the accounting of long-term contracts with a key focus on revenue recognition, should have a limited impact overall, with the propulsion business already being accounted conservatively, and that, however, some changes in the Defence business should be expected especially concerning milestone payment revenue recognition.