Welcome to
the Safran Half Year twenty twenty one Results. At this time, I would like to turn the conference over to your host, Olivier Andreas, Safran's CEO and Bernard Delpit, Deputy CEO and Group CFO. Mr. Andreas, please go ahead.
Good evening, everyone, and thank you for joining us to this call to present our H1 2021 results. I will start the presentation with a glimpse of air traffic data in H1 on Slide 5. Then I will give an overview of financial and business highlights for the last 6 months. During H1, the increase in air traffic has been Gravio and Irregular. We already discussed the TRO in February a quarter ago.
What you have seen since March is an ongoing gradual increase, which was heightened May Due to the upsurge of COVID cases in Asia, since then weekly cycles for CFM engines, both CFM56 I returned to the 2019 level in China. In the rest of Asia Pacific, The cycles are still going down, reaching minus 71% compared to 2019 mid July for both CFM56 Vysek Sandeep. In North America, the level of cycles compared to 2019 has been quite stable in early July After a steady improvement, it is now around minus 15% compared to 2019 for all CFM engines. And in Europe, the improvement in flight cycles is more recent, but seems rapid with a level of minus 34 Versus 2019 reached mid July for CFM engines, out of which CFM56, we're at minus 39. All in all, weekly cycles as of July 18 To be compared to the same week 1 year ago, for all CFM engines, we are down 29.5% And CFM56 were minus 35%.
What you have said now, we feel more contagious volumes trading around the world makes us cautious, yet Still confident about the rest of the year. Looking at financial on Slide 6. Adjusted revenue reached
6,876,000,000.
It was down by 21.6% with a strong negative exchange rate headwind. On an organic It went down by 17.3%. Adjusted recurring operating income €659,000,000 down 30.4%, representing 9.6 percent of sales. It is down 29.3% on an organic basis Compared to H1 2020, that's improving by 140 basis points compared to H2 for 2020 underlying margin. Operations generated EUR 701,000,000 of free cash flow, 22.2% decrease.
This represents 106% conversion to our recurring operating income and it allowed to decrease our net debt position. All in all, Our first half has been challenging in terms of top line, but Thanks to a very high level of cost efficiency, profitability is increasing compared to H2 2020, where recurring operating income represented 8.2% of revenue after taking into account The effect of the activity transformation agreements in 2020. On the cash side, a good cash generation has allowed us to reduce the net debt in H1. On Slide 7, a focus on propulsion. Combined shipments for CFM56 and LEAP engines Reached 4 48 units, down 16% compared to H1 2020.
That means 211 LEAP delivered in Q2 compared to 188 in Q1 this year and 170 in Q2 2020. At the end of June, Total lead backlog stood at more than 9,300 engines and our market share on A320neo family is close to 60,000. For CFM56, the progressive ramp down continued as planned. 49 engines were shipped in H1, Out of which, 23 in Q2. Mid June, GE Aviation and Safran launched a bold development program, the CSM RISE, targeting for more than 20% lower fuel consumption We also extended CSM's international partnership agreement by 2,050.
On aftermarket, given what we have observed in Q1, It is not a surprise that civil aftermarket revenue was down 25.5% in H1 compared to H1 2020, even with a year on year growth of plus 55% in Q2. Remember that Q2 2020 is a very low comparison basis. Spare parts sales in H1 are still down year on year, especially CFM spares and services contracts slightly decreased. In our helicopter business, we are on a 1 engine that powers the Airbus Helicopter Edge 160 He's now certified in both Europe and United States. On Slide 8, A few words on our Equipment, Defense and Aerosystems division and our Aircraft Interiors division.
1st, equipment, defense and aerosystem. Safran has been chosen by Singapore Airlines Provide wheels and carbon brakes for its entire fleet of Boeing 777 through a tail off brake landing service contract. 31 aircraft are currently on order. Safran currently supports wheels and carbon brakes For 126 service and Boeing aircraft at Singapore Airlines and Scoot, the Locust Airline of the Singapore Airlines Group, including A320, A350, 7 37, 800 NGs, 7378 MAX and 787. Safran signed a 12 year nacelles service contract with CORSAIR for the nacelles office 5 Airbus Efleet Artemere.
With this contract, the group commits to the repair of the nacelles and the general service of the 1st Aversa at the time of our program renewals with the support of its network of experts for on-site, nurse inspection and its maintenance repair in overall sensors. Safran has launched GeoNex M, a new inertial unit for SaaS boats, And on the issue's vehicle, it complements the Puronics land range as well as the Agonix and Plaquonix ranges intended respectively for 1st Frank, surface vessels and submarines. Coming to our Aircraft Interiors division, Safran regains customer interest in its products and achieved several commercial successes Image Huang. In particular, with the German airlines for the crew rest areas and the SkyLounge core business class seats of its future fleet of 16 A330neo aircraft. The Middle East airline provide new view business class seats for its Boeing 737 MAX And in Indian Airline, provide line seats, the 200 economy class seats for 75 FE20 and FE21.
Slide 9. Structuring actions have been taken in order to enhance the competitiveness of Safran, with Stila's manufacturing footprint Optimization actions ongoing as we talk. HR cost in H1 are down year on year, But more important is when we compare our share cost in H1 2021 to our share cost in H1 2019, We are still at the same level of savings that what has been achieved in full year 2020. It is a result of 2 different effects in opposite directions. On one hand, we benefit from a lower headcount That is still decreasing yet at a slower pace.
On the other hand, as we're seeing, We have a lower use of short term working scheme. It is around half the level we saw in the last 9 months of 2020. We are continuing our industrial footprint optimization. As an example, no later than 2 weeks ago, 1 new site closure has been announced. Safran Electrical Components site in Santa Rosa, California, which is within Safran Electric and Power.
All in all, with regards to cost, we navigate the crisis with a very cautious approach and put the same pressure on cost as last year. Research and development expenses are down 5% compared to H1 2020 and almost flat compared to H2 2020. OpEx in H1 2021 Are down 13% versus H1 2020, and they are 28% below H1 'twenty nine team level. Despite an increase compared to H2 2020 due to HR costs No values of short term marketing as just explained. CapEx commitments are kept under control, and the impact of CapEx on cash is decreasing year on year.
I now give the floor to Bernard for the financials for the first half twenty twenty one.
Thank you, Olivier. Good evening to everyone. Slide 12, just as a reminder, you know that the Average spot rate was $1.21 against euro. This year, it was $1.10 last year. It would create negative impact on revenues.
Hedge rate is at 1.16 As we said at the beginning of the year, no change against last year. And we had some up to market impact The spot rate had closed in our accounts, but you know that we stay debt in the adjusted debt. On Slide 13, some update on our FX strategy. The hedge book totaled €29,000,000,000 at the beginning of this month. The euro dollar peaked At 1.23 on January, then the trend reversed.
And based on news flow from central banks leading to a stronger dollar with the euro Reaching a low point at 1.17 at the end of March. So we took this opportunity, 1st, To spread the risk of Cairo by moving away the nearest barriers, now 83% These scale burials are above 125,000,000 and we also took the opportunity of this FX to add new options to the 2024 book at Strife consistent with our long term rate target between 114116. But for 2021, we are very comfortable with achieving a rate, a hedge rate of 116 for the full year. I suggest we skip the Slide 14, which is the usual bridge between consolidated data and adjusted data that I will comment. So let's move to Page 15.
One off items were negative for EUR 195,000,000. It reflects Impairment for 1 Equity accounted investment and several programs. We also booked EUR 31,000,000 of restructuring costs. Net financial income was EUR 84,000,000 negative compared with EUR 117,000,000 In H1 2020, it reflects the higher cost of debt, with EUR 51,000,000 cost of debt in H1 this year, including the cost of 2 major transactions for bonds and converts in H1. And it also reflects Foreign exchange losses of EUR 28,000,000 this year.
Income tax charge was €100,000,000 representing an apparent tax rate of 26.2%. So adjusted net income group share was EUR 269,000,000 EPS was EUR 0.63 a decrease of 47%. On Slide 16, on revenue. So adjusted revenue reached EUR 6,000,000,000 in H1, down 21%, and we're still at EUR 57,000,000 on H1 twenty 19. Two comments here.
Currency reflects a weakening dollar and Q2 sales for all divisions are now Above Q1 level, of course, Q2 comparison basis is much easier than Q1. So the 10% increase In Q2, it's a good start of the recovery. But again, comparison basis were low. It's not pre tuning this slide, but I think it's worth mentioning that the 10% organic growth in Q2, the breakdown is 40% 1.4% on propulsion, 9% in equipment, but still down 4% in interiors. On Slide 17, recurring operating income went down for from EUR 947,000,000 in H1 2020 to EUR 659,000,000 In at the end of June, so it's down 30%.
On an organic basis, Recurring operating income went down 29%. We have experienced strong negative volume impact on All activities, especially civil aftermarket, which is obviously detrimental to recurring operating income recovery. And on the other hand, cost savings have been achieved on R and D and personal expenses on external services. Obviously, Some elements cannot remain as low as in 2020. For instance, short time working, as Olivier said, will not bring the same savings in 20 21 Compared to 2020, and some external services that have been frozen in 2020 team, have to rebound.
But all in all, we have managed to bring operating expenses in H1 Down compared to H1 2020 and still down again 28% compared to H1 twenty nineteen level, and I think that's one of the main achievements of the first half of twenty twenty one. So the group recurring operating margin stood at 9.6% of sales, which remained below H1 2020, But improved compared to H2 2020 underlying margin that was 8.2%. Slide 18 on R and D. Total R and D spent was EUR 640,000,000 of which 426, for self funded R and D. R and D sold to customers, which includes works Funded by agencies mostly in France is increasing by EUR 64,000,000 compared to H1 2020, mainly driven by higher funding and works coming from the French Aerospace Plan.
Sales and Net R and D expenses decreased by EUR 21,000,000, notably due to lower development expenses Sylvie and Reginald, Aircraft Products. Given the back end weighing profile expected in terms of activity and profitability, We have very carefully managed R and D expenses. We decreased by 35% Compared to H1 2019 and in line with savings achieved in 2020. As a result, R and D impact in P and L decreased at 4.7% of sales. On Slide 19, the other view of business performance.
All Three divisions, recurring operating income have been impacted by negative volume impact, A negative effect of under absorption of fixed cost, but a positive impact coming from lower expenses, and this is what I'm going to Explained on the next slide, starting with propulsion on Slide 20. Revenue was EUR 3,249,000,000, down 20% or down 15% On an organic basis, OE revenue was down 15.6% in the first half due to lower LEAP engine deliveries And CFM56 continues rundown. We delivered 399 LEAP engines that is 11% less Then in H1 2020, we delivered 49 CFM engines of CFM56 That is 42% less than in H1 2020. Services revenue In proportion, we're down 22%, driven by civil aftermarket revenue and military services. Civil aftermarket was down 25.5%.
Remind you that it was down 53% in Q1. So it's a 55% increase in Q2. And we've seen some sequential improvement From Q1 to Q2, up 15% in 2021. The drop of 25% year to date was mainly due to lower spare parts for CFM56 engine
and to
a lesser extent for high cost engines. Services contracts Slide 3 decreased as well. 2 activities have been resilient in proportion: Helicopter turbines activities with a double digit organic growth, thanks to services and OE military sales, Thanks to higher M88 deliveries for the Rafale program as planned. Recurring operating income decreased at EUR 504,000,000 with an operating margin at 15.5%, close to full year 2020 operating margin. Despite cost savings, operating margin is strongly impacted by the growth in civil aftermarket and to a lesser extent by military support activities.
Helicopter turbines has been a very good strong positive contribution in H1 2021. For the record, We did not book any loss of completion for long term CFM56 services contracts. For equipment on Slide 21. So sales totaled EUR 2,972,000,000, down 18% or 14% on organic basis. OE revenue was down 20% or 15% on organic basis and up 6% in Q2.
Services were down 14.5% in H1 or 10% organic, but Up 18% organic in Q2, notably with carbon breaks and Indian support activities and Macel. Despite defense support growth, electronics and defense activities decreased in H1, mainly driven by avionics, Pricing, Guidance Systems and Electronic Activities. Profitability decreased at EUR 270,000,000 And represents 9.1 percent of sales, and this decrease was mainly driven by the drop in volume. And the one off items was €59,000,000 were booked mainly due to impairment of 3 programs. Now, Et HAP Interiors.
Sales totaled EUR 646,000,000, it's down 40% or 35% organic. That has been Tejas is again the division that has most suffered from the crisis. We believe it has reached a trough in Q1. OE revenue were down 37.6% of 32% organic in the semester, including a 5% decrease again in Q2. Sales were strongly impacted in cabin due to lower volumes for galleries and lavatories and for floor to floor activities and catering and inserts.
And in seats, due to lower volumes, as business class seats were down by almost 60% in H1 2021. Services revenue in Aircraft Interiors Well, Dan, 45% or 42% organic and again 5% in Q2, driven by C Passenger Market as well as Cabin's Perceval and Mervo activities. So the recurring operating income decreased again And was negative for EUR 110,000,000. Operating margin was strongly deteriorated at 17% negative. But Thanks to cost savings.
Recurring operating income decrease remains limited considering the size of the sales decrease. Operating income reduced by EUR 10,000,000 this semester when sales are down more than EUR 400 Millie. It demonstrates the depth of the restructuring achieved in this business that paves the way for strong rebound as soon as the event comes back. Some words on free cash flow. Free cash flow reached EUR 700,000,000, The 5% to 24% decrease in EBITDA, free cash flow generation was driven by cash from operations of EUR 733,000,000.
Type Control maintained an investment at EUR 329,000,000 down for from EUR 421,000,000 in H1 2020. And working capital improved by almost EUR 300,000,000 is still up, essentially driven by a stronger CREV in receivables and good control of inventories. So Moze on liquidity, I'm sure you've noticed that we have been in the market to issue bonds in March and to restructure a convertible in June on top of a €500,000,000 bank loan signed with the EIB at the beginning of this year. So in a nutshell, Safran liquidity is strong and sound. And I guess that Page 25 says almost the same thing with a net debt of the last 12 month EBITDA at 1.2 at the end of June.
Net debt is has been reduced And nothing really to say on the balance sheet at the end of June. Olivier?
Thank you, Bernard. Turning to Slide 29 and to conclude this presentation. The evolution of Star Trek at the global level It's consistent with what you have seen what we have foreseen at the beginning of this year. We have been cautious In considering that reaching our full year targets implies a meaningful ramp up in the second half, And that remains to be done. We see reasons to be both confident Emkoces.
On the one hand, vaccination rollout all around the world has been impressive. On the other hand, the spread of volumes is still a threat to the growth in sales and profitability that is expected for H2. A delay in the pace of civil aftermarket recovery during the second half of the year constitutes an element of risk to this outlook. We are confident in our capacity to go on managing Cost reduction and manufacturing footprint optimization. Our full year 2021 outlook This conference for sales and profitability, it is raised for free cash flow.
Taking into account Rafael export contract, advanced payments, we now expect an increase in free cash flow generation at both 2020 levels. Ladies and gentlemen, we are now at your disposal for the Q and A session.
Thanks so much and good afternoon.
I have 2 questions, please. So the first one, As you noted that there, Bernard, that there had been an improvement in the aftermarket in the Q2 sequentially. I was wondering if you'd seen any signs of airlines pulling forward some of their aftermarket demand from the second half in preparation for the summer. And then secondly, I was wondering if you could give us an update on how your deliveries to Boeing are going on the 737 MAX and whether you're still below their production rate current production rate of 16 per month. Thank you.
Hello, Robert. Yes, indeed. As Bernard said, the aftermarket in Q2 improved versus Q1 by 15%. I will not say we see airlines pulling forward, we don't,
spare parts
We've not seen that yet. On deliveries to Boeing for the MAX, Boeing has indeed increased The monthly rate of production, remember that we have delivered quite a number of of LEAP engines to Boeing in the course of 2020 in advance of their needs. So there are still You know, a significant number of LEAP engines that are out there in Seattle ready to be mounted on aircraft. So what we deliver to Boeing on a monthly basis is not Konnected is not directly related to their production rate because of what you delivered to them in 2020. So overall, we I mean, we said at the beginning of this year that the number of LEAP engine that we will deliver in 20 21 would be in the same range of as last year.
This is what we said. I can say today that it's going to be up North of 800. So it's going to be a step up versus 2020, small step up. More LEAP 1A engines delivered to Airbus, Les Sleep won't be delivered to Boeing because once again, because of the advanced deliveries we've made in 2020.
That's great. That's very helpful. Thank you.
So we have another question from Celine Fornaro from UBS. Please go ahead.
Yes, good evening. Thank you for taking my questions. My first question would be regarding on the spare parts performance in the propulsion division. And I know in Q1, the weakness, you explained it Due to the catalog issues that you had in Q4, so clearly, there was
a pull forward there at
the end of last year. What are you seeing in Q2? And also presumably now you start to have a feel of what could happen in Q3. So does that relate to the more cautious statement that you're making on The market for the remainder of the year. So that would be my first question.
And my second question would be related to interiors and the overall outlook on profitability for this year, given the heavy losses on the first half and potentially a limited Pickup in business given the widebody exposure for the second half. Thank you.
Okay, Celine. Stair parts, yes, We have explained the pull forward as one of the reason why There was a slight decrease in revenue per share visits in Q1 2021 compared to 2020. You said as well that there Was also, let's say, some airlines pushing fan and turbine Part of the work for pushing forward. When I look at the in Q2, Revenue per share visit, we are in the same vein as Q1. So basically, the trend That we have seen in Q1 has remained in Q2.
We see a step up of spare parts sell in Q3 in a relation to the pickup of the air traffic that we are forecasting. Basically, what we've seen, remember, we were at minus 40% of Narubodi ASK in June, end of July. We are at minus 30%. We are seeing a step up. So normally, that should materialize in spare parts revenues soon in Q3.
Interiors profitability, as Bernard said, there has been A tremendous action plan to reduce the breakeven point Farfon Seats and Cabin. The fact is that H1 has been a trough in the top line. And I can say it's been an achievement to be where we are, Considering the top line that has significantly fall in H1 versus So H1 2020. So now going forward, on seats, we expect a better H2 Sam H1 with, let's say, more activity in the Werder top line, same for cabin. And so we still target breakeven at the very end of the year.
And Maybe, Bernard, you can comment. Yes.
Okay. It means that you just cannot take the first half of the run rate of losses for second half. We need to We think we're going to halve it. That's, I think, the best guidance I can give for H2 losses for Interiors. You get it?
Thank you.
Celine? Yes. Tremendous, you're going
to maintain the loss for it over the full year.
It's going to be loss making in Q3, and we hope we can breakeven somewhere
in the last quarter. So on
a full year basis, it's going to be above what you've seen at the end of June, but don't take H1 and double it to get the full year figure. Of course, you will see the material improvement at the end of the year.
Thank you very
much. So we have another question from George Zhao from Bernstein. Please go ahead.
Hi, good evening, everyone. In the first question, we've seen Pretty strong traffic recovery in U. S, China, Europe. As you've noted, the other regions still remain quite weak. So could you quantify for us the proportion of your narrow body engine fleet before COVID that was outside of those And given that we're now more than halfway through the year and total narrow body ASK is still trending below your conservative Case, what type of contribution do we need from those other regions to get to your traffic and aftermarket guidance for the year?
And second question, a quick one on equipment. Could you just elaborate on which product areas have been leading the aftermarket recovery? And how that compares versus propulsion, we look at similar aircraft class, so narrow body engine versus narrow body equipment. Any color there? Thanks.
Okay. Hello, Thor. On the respective weights The value stations for our, let's say, CSM business and cycles, Trying to give you some guidance. Europe waits for around 30%. Joop, including Russia, CIS, close to 30%.
North America is above 20%, 2022, 2023, that's about it. China is around 15% and APAC as well. Abak, if you have a specific piece, it's around $15,000,000 to give you some keys, okay? On the equipment, I will let Bernard respond.
Okay. I understand The question, Georges, is that where is the pickup in Q2 coming from in the various businesses that we have inside the Equipment division? Is that it?
Yes, exactly. Whether it's wheels and brakes versus some of the other ones, any color that
you can read?
Yes, yes. So Q2 for the Equipment division was 4% up on organic Total revenue, but it's up 9% on an organic basis. And the Main part is coming from our nacelle business that has seen a strong recovery in aftermarket in Q2. Our Lending Systems business in Q2 was also quite strong. And I would also say that the Aerosystem division has also done quite a good job.
Electrical and Power And our Electronics and Defense business in Q2 were a bit more flattish, it's not down. This is how I can detail the pickup in revenue in the Equipment Division. And again, I would say that most of the improvement came from services On an organic basis, the equipment in services were up 18%, 18%. And I would say that all divisions, excluding Electrical and Power, were up in services for equipment in Q2.
Got it. And then any comparisons to the propulsion site when you take similar like narrow body versus narrow body?
We have to work on that. We will try to elaborate the answer later, George.
Okay. Thank you.
We have another question from Ben Heelan from Bank of America. Please go ahead.
Yes, good morning, evening, rather. So thanks guys for taking my question. So my main question is on Visibility in Q3, I think we heard from GE earlier in the week that they were expecting a 25% improvement in shop visits Sequentially in Q3 versus Q2. So could you give us a bit of color about how you're seeing shop visibility and how that Kind of plays into your aftermarket expectations into the second half of the year. And then the second question, I think you obviously highlighted in the presentation, you've done a lot of Restructuring of debt maturities and the balance sheet in a pretty good position.
Can you talk a little bit about capital allocation and how You guys are thinking about capital allocation as we're starting to hit the recovery. Thank you.
Okay. I will take the last one then. I don't think it's the right time to talk about capital allocation at that time. We will have Capital Markets Day at the end of the year. I think that will be the right timing and place to talk about capital allocation.
So please keep your question for ladies around. Olivier, you take the 1 or I can answer on
So basically, Ben, we said at the beginning of this year and we confirm that the total volume of Short visit for 2021 should increase compared to 2020 by mid teen. So this is our number. At the end of H1, we are below the volume of CHOVIB that we have reached In H1 2020, just simple math because of the strong Q1 2020, so we are below. Now we see a step up in Q3 versus Q2. In Q2, we had around 15% more shop visits versus Q1 2021.
So there has been one step. We see a further step in Q3 that it's Maybe too early to quantify, and we will see a further step in Q4 In order to get to the overall volume I mentioned.
Ben, just uncommon because the real cross Between GE and Safran, it's always very difficult because we don't have the same fleet. And by the way, I think that when we make comments On shop visits, we look at shop visits for the 2nd generation of CFM56 engine As we think, these are the ones that really matter in terms of value. And I guess, our partner in GE, they are looking at all Shop visits, not only 2nd gen for CFM56, not talking of non CFM engine. Yes. Okay.
No, that's fair. Thank you.
So next with a question from Jeremy Bragg from Wedbush. Please go ahead.
Good evening, guys. Thanks for taking my question. Good evening. So first question, please. Are you still given that we're tracking a little bit below The trend line on narrow body SKs, are you still comfortable with your guidance of getting back to 20 nineteen's level of shop visits by 20 23, please.
And then the second question is on my favorite topic, which is revenue per shop visit and USM. Could you just give us a feel please of the amount of USM that is in the system at the moment and whether you still think that you can keep revenue per Shop visit flat, despite maybe more USM coming into the system through pricing increases. And is there a risk that if you put prices up,
Okay. Jeremy, I will take those questions and maybe Olivier will make some comments after. In terms of long term or midterm trends, I must say that it's not an easy question. We will refresh our assumption at the Capital Market Day to see when exactly it's going to be 2023, 2024. We don't know yet.
Maybe it's a question of quarters moving because as you said, that ASK He's lagging behind what we had in mind at the beginning of the year in terms of strength. We will update that. I think it's Tushin, it's really something complex because we have to take into account green timing, Retirement, the amount of deliveries that airtimeers will put on the market. And so there are so many moving pieces here. It's I think it's too early to update you on that.
And I would say also the same thing on the revenue per shop visit. As we said, we are a bit below 2020 in terms of revenue per shop visit. Some part of the explanation, I think, has to do with the Workscop. That is not exactly the one that we had forecasted before. And but I have absolutely no mean to give you an answer on the amount of USM in the pipe for the moment.
The only thing I can say Edaf, the total retired CFM56 engine is still very low. So I think that the level, the amount of USN is still a question mark for us for the future. That's the basics of our answer, saying that you cannot take any retired Aircraft and take the path out to maintain a new aircraft. This is still valid. I mean, it's the amount of retired engine We'll not give you exactly the same the exact question of how much of that will be taken to maintain new engines, new generation engines.
So that's again A bit tricky, and we are working on that to refresh our assumptions for the Capital Market Day.
Okay. Thank you.
May I ask? Jeremy, what we can see short term, short term, because There has been a low number of retirements in 2020 and the early part of 2021. We won't see The search in new spots in the short term future, in the coming months. We won't see that in the coming months. And we will update you, Bernard said, for the Capital Markets Day.
Lovely. Thank you. And please may I ask one follow on one, which would be around Airbus production rate increases because I think at the last quarter when we spoke, They hadn't been announced and now they have. So would it be possible to give a view on that, whether you feel that 70 or 75 is the right number, if it's possible for you to go there easily, etcetera, please.
Thanks for the question.
Sorry.
We are listening carefully to all our customers, Airline customers, leasing company customers as well. And I have to say, We are not sure that the market has the appetite for such rates. And that rates well above 60 Can be sustainable. This being said, we've We've agreed on the number of engines that we will deliver to Airbus in 2021 2022. And we are discussing with them the numbers for 2023.
Lovely. Thank you so much.
So we have another question from Christian Sanson from Exane BNP Paribas. Please go ahead. Yes. Good afternoon, everyone. It's Christian from Exane.
First, thank you so much for bringing forward the release to today's evening. It's much appreciated, much simpler for us. I have a few technical questions to ask, so I apologize for that. The first one is on the employee profit sharing agreement. So remember that in H2 last year, You released the provision by €103,000,000 which was actually kind of excess provisioning for employee profit sharing in H1 that you adjusted in H2.
If I remember correctly, the employee profit sharing agreement is a 2 year agreement that benefits also this year. Can you give us an order of magnitude of what is the kind of impact we have in H1? Is it similar to the provision that you released in H2 last year. Is it Klemer or not at all? To give a to get a feel for what to reverse when things harmonize in 2022.
That's the first question. The second, I apologize if you already explained this, but can you come back on the repayable advances in propulsion impacting the recurring operating income in Juan. What did it refer to? And is it significant in numbers? And the third one is a clarification on the free cash flow outlook.
I just wonder whether your free cash flow trajectory for this year is better than expected If you exclude the offer orders from Greece and Egypt, is it showing some for some improvement compared to your initial dividend on that. Many thanks.
Okay. I will start with the last one, Christophe. Excluding the Rafale Prepayments recent announcement, it's going as planned. I mean, it's okay. No major issues.
So I was already comfortable with the initial guidance, and I am even more comfortable today with the announcement of some new prepayments for Rafael. The repayable advance in Propulsion, so you know how it works. We get some funding for some specific programs. And if the programs are not successful, we don't have to repay that. So that's when you book that, It's a positive.
It's a one off. It was material in the propulsion business. But as we had all the exceptional negative, I would say that the net Exceptional in the proportion was something like €50,000,000 at the end of H1, taking that into account, but also other negative exceptionals.
And Is it a net positive?
Net positive, yes. Net positive, yes.
Vincent.
And for the employee profit sharing agreement, I don't know exactly what you mean. But if I mean, The savings that we made, if I may say so, in 2020 were based on the kind of targets That we had before the crisis. So this is the kind of savings that we made, and that was also compared to 2019 where we made a
lot of
provisions based on what were the results by that time. So I'm sure that the reversal would be Not as high as the savings as the improvement in profitability will be gradual. So don't take the savings and take that as a headwind for the same amount when it will be reversed in 2022.
Okay. Well, I guess we'll get some clarity on that in the Capital Market Day. That's useful comments. Thank you, Donna. So we have another question from Chris Allen from Goldman Sachs.
Please go ahead.
Yes. Thank you for taking my question. So first, just to come back on the point you made that you aren't sure whether Rate 60 is sustainable.
I just wonder, is that
a 7 37 plus A320 comment, I. E. Is that 120 per month? Because I suppose it's quite plausible that we end up in And then separately on free cash flow, previously you'd expected a balanced H1H2 split, which probably meant around EUR 550,000,000 per half. And you've obviously done much better than that in the first half.
Now we have a prepayment in the second half on the military side of probably around €150,000,000 So should we be expecting around EUR 700,000,000 in the second half? Or was some of the H1 performance we saw a pull forward from the second half? Thanks.
I will start with this one, Chris. Thank you for the question. No, don't take just the math as you do that. Don't take the €700,000,000 as of Henri for the rest of the year because part of the strong H1 was due to some actions that we began to do on the H2. So no, it's not going to be as high as the figure that you just mentioned.
Okay, please.
Sorry, yes.
Yes, go ahead. Sorry.
Yes. Chris, on rates. First, I would like to outline that Boeing has been Significantly successful in the first half of twenty twenty one in gaining additional orders. We've got more than 500 additional orders for the MAX. So the good news is The MAX has gained customer confidence and Boeing has Secure big orders from Southwest, United, Alaska, Romania, And I guess there are more to come.
So I mean you should not bet on a significant imbalance in market share between both FMS. That would be medium term mistake. Okay. That's helpful. Thank you.
So we have another question from Christophe Menard from Deutsche Bank. Please go ahead.
Yes. Good evening. Thank you for taking my questions. I have 3 quick ones. Going back to GE and what they said, they said that, I mean, I understand that it applies to all their shop visits.
So my question was more on the 2nd generation. They said green time impacted them in Q2, but they expect less of green time impact in Q3 and Q4. Does that comment also applies to CFM56 second gen according to what you see at the moment? Second question is on FX and the efforts you made on what you highlighted In terms of the barriers, would it be fair to say that you could target in 2022 and 2023, the low end of the range in terms of FX rates? Or is it still undecided, I would say?
Last question on the equipment division and aftermarket. Did you see a high level of initial provisioning or Airlines actually rushing to provision some spares or equipment in the Aircraft Equipment division specifically Thank you, too.
Steph, I will take the first and the third one. I will let Bernard answer on the exchange rate. On wind time, What we have seen in H1 2021 is in the same vein as what we've seen since the start of the pandemic, since same vein as H2 2020. And so we expect Q3, Q4 to be kind of the same as first half of twenty twenty one. You may be wrong, but this is what we expect.
On equipment, no, we don't we have not seen big IP orders from airlines for our equipment business, we've not seen that.
Okay. And for FX, I will keep the range. It's too early to give tell you exactly where we will end in the range. Clearly, today, the spot rate is 118. So if you stay with this kind of rate for a long period of time, at the end, As I always say, hedge rate and spot rate have to converge.
So if the spot rate stays at the same level, You cannot expect to decrease the head rate from 116, which is the situation today, to lower levels.
Okay. Thank you very much for your interest.
So we have another question from Harry Breach from Stifel. Please go ahead.
Yes. Thank you. Thank you very much for taking my question. Good evening, Olivier. Good evening, Bernard.
Guys, just three quick ones. Firstly, Olivier, please forgive me. At the beginning of the call, You kindly gave some year on year comparisons for the number of cycles, I think, from the CFM56 fleet for the recent week. Could you please just repeat those data points, those figures you gave? Secondly, Guys, we've talked a lot about spare parts and aftermarket.
Just wondering, if we think about the spare engine side of the business, is that Still very, very slow at trough levels. Are we starting to see any pickup on that side? And then just finally just turning to supply chain.
How are
you seeing supply chain performance sort of overall at the moment? Is it about the same in terms of the level of concern, improving or maybe going the other way? Thank you.
Maybe I can start with the supply chain and to explain again how we manage the situation. We have a watchtower when we look carefully at 700, which is a small portion of our supply chain, but we carefully watch 700. And we think that there are, Let's say, a bit more than 100, less than 150, which are in a situation that needs We need to be managed. But for the moment, we haven't seen a lot of Suppliers really turning into a very bad shape. Very handful, I would say, have experienced Critical situation.
So we don't see that as a burning issue, even if we I start to work very intensively with them to prepare for the ramp up in the second half. We made across the board inquiries to be sure that they are ready, that they have all means from a cash point of view, from a Headcount point of view to ramp up again. So I would say that today, I don't have that on my agenda as a bottleneck for the wrap up in the near term. If I can answer on spare engines, I would say The situation has not much changed. I mean, we haven't seen a lot of new orders.
I would Expect it to be stable in 2021 versus 2020. I mean, you can't expect airlines to purchase a lot of Bear engines in the situation today. So stability is the message here.
Yes. We saw the same number of car engine in H1 2021 than in H1 2020. Hi, Salpus. So in June 2021, I mentioned that the narrowbody, ASPS, so average 6 kilometers, We're at around 60% versus 2019. So basically a minus 40%.
That was in June. Now we are end of July. In end of July, we are at minus 30% Persis, 2019. This is year on year, 10 weeks that we compare, okay? And This is varying depending on the regions, very irregular.
For China, We come back to the 2019 in terms of sales. In Asia Pacific, we are at minus 70, I said minus €11,000,000 that's minus €70,000,000 roughly. In North America, we are at minus 15,000,000 And in Europe, we are at minus 1st 4. This is now end of July. This is where we are.
So this gives us an overall minus 30. Now we feel For all CFM engines, now the LEAP engines are flying more because they are more LEAP engines Claring now than used to be in 2019, so there are plenty more. And the CFM56 Engines were at minus 35. Does it clarify?
Yes, that's really helpful. Thank you, Olivier. Thank you, Bernard.
So we have another question from Andrew Humphrey from Morgan Stanley. Go ahead.
Hi, good evening and thanks. I've got a couple, if I may. One shorter term one. I'm going to ask about some of the exceptional costs that you highlight in the first half of twenty twenty one, particularly the $180,000,000 charge. Is that Basically, the same or equivalent to what your joint venture partner called out on One particular loss making contract.
And can you shed any further light on that, what type of aircraft that is? And then a couple of longer term questions. Firstly, in terms of as you look at your fleet at the moment, I understand 3rd Shop visits are not a big part of the economic drivers. But do you have an expectation for how many engines in your Currently will come in for their 3rd job visit. And finally, maybe an even longer term question, Following up on the presentation around the RISE demonstrated program, do you anticipate a significant package of improvements that could be applied to the LEAP or sort of intermediate stage or upgrades that could
That's okay for me. So we'll start with the first one with exceptional costs. Do you refer to the €195,000,000 negative one off items that we booked In H1, if it's related to that, it's really the depreciation of an intangible R and D asset for our Space business, most of that. So there is nothing like loss For contracts, nothing like that, just depreciation. Understood.
Okay. On the long term question, show visit number 3, virtual visit. I have to say that We've not made the breakdown between short visit 1, 2 and 3 in our numbers. There are very few show visit number 3. Our fleet is quite young.
So we are talking mainly show visit 1 and 2 as we speak. And so I don't have any flavor to give you on show visit number 3. Anyway, Charvisit number 3 is much less significant for us in terms of revenues.
And if any, that would be because of 1st generation of the CFM56 engines. Is there a little impact?
No, I'm not sure I understood your question on the rise and LEAP Can you please repeat and clarify?
Yes, of course. And apologies if it was a bit unclear. I mean, I guess what I'm driving at here is you've clearly targeted a Very significant improvement in efficiency with the RISE program as well as a significant departure in engine Hector, from what we have today. I guess what I'm asking is how much scope there is for a sort of intermediate stage, not between the 2 architectures, but a material improvement to the LEAP Engen, in terms of efficiency that could come at an earlier date.
Okay. I see. Thank you. Okay. As you said, RISE is targeted at 2,035.
This is a 2,035 horizon. I would like to outline that we are not talking about the launch of an engine development. We are talking about the technology development And technology maturation program. So within RISE, there's A significant layer of underlying technologies, plus this disruptive architecture. The underlying technologies that we are working on could apply to any kind of engines, whatever the architecture is, including the LEAP engine.
So we would use this Layer of underlying technologies, I talked about composite. We would go more composite For the forward part of the engine, we would go additive manufacturing. We would improve here and there. So Zoos' underlying technologies could apply to a LEAP Improvement program for an intermediate timing horizon, It could apply to any kind of new engine. Is this clear?
Did you clarify?
Yes. Pascal.
I will not quantify. I will not but I will not quantify.
No, that's very helpful. Thank you.
Okay. Thank you, Andrew. So we are done. Thank you.
Good evening. Bye bye.
So we have no further questions, gentlemen. And then ladies and gentlemen, this concludes for today's conference. Thank you for your participation. You may now disconnect.