Safran reports first-quarter 2014 revenue growth of 3.3% (4.9% at constant currency) driven by civil aviation business
Growth in line with annual outlook; the target for adjusted recurring operating income growth is confirmed, notably due to currency hedging
All revenue figures in this press release represent adjusted revenue. Please refer to definitions contained in the Notes on page 7. Comparisons are established against 2013 figures restated for the application of IFRS 11, Joint Arrangements. Please refer to the Annex on page 8.
Key figures for the first quarter of 2014
First-quarter 2014 adjusted revenue was Euro 3,443 million, up 3.3% year-on-year, up 4.9% at constant currency or 3.5% on an organic basis. Revenue growth was driven by continued momentum in OE and services at most Aerospace activities. Revenue growth resumed in Security. Defence sales were down due to temporary delays in deliveries. Civil aftermarket grew 12.4% in USD terms, driven by first overhauls of recent CFM56 and GE90 engines. Full-year 2014 outlook is confirmed despite the Euro’s persistent strength. If the average EUR/USD spot rate of 1.37 were to remain throughout 2014 the mid-single digit growth objective for adjusted revenue would remain achievable, the positive effect of the improving hedge rate partially offsetting the adverse translation effect. The hedging policy isolates adjusted recurring operating income from current EUR/USD variations except for the part generated in USD by activities located in the US, subject to the translation effect when converted into Euro. The target hedged rate for 2014 is 1.26. The low-double digit target for growth of adjusted recurring operating income for 2014 is confirmed.
Key business highlights for the first quarter of 2014
Safran and Albany International inaugurated a plant in Rochester, New Hampshire that produces 3D woven composite parts for the new LEAP engine. A sister plant will soon be inaugurated in Commercy (Meuse, France). CFM order momentum remains very strong, both for current-generation CFM56 engines and for next-generation LEAP engines. Orders for 557 CFM56 engines were recorded in the first quarter including from VietJetAir (Vietnam) for A320ceo, Transocean Air (Japan) and GECAS (US) for Boeing 737 NG aircraft. Orders for LEAP engines totalled 606 in the first quarter. Orders for LEAP-1B powered Boeing 737 MAX aircraft were placed by GECAS, Air Canada and Comair (South Africa). Since the end of the first quarter Lufthansa (Germany) placed an order for 40 A320/A321neo aircraft powered by LEAP-1A engines. Safran and Avic announced an initial Chinese order for 120 WZ16/Ardiden 3C helicopter engines to power the AC352 helicopter. This new-generation turboshaft engine programme is jointly developed by Safran and Avic on an equally shared basis. Messier-Bugatti-Dowty (Safran) has been selected by Boeing as one of two suppliers of wheels and carbon brakes for all models of the Boeing 737 MAX. The French defence procurement agency (Direction générale de l’armement) chose Sagem (Safran) to modernize the optronic systems on 4 air defense frigates in the French navy. Over 2 million highly-secure passports and ID cards have been issued to Chilean citizens by Morpho (Safran) since the start of production in September 2013.
Paris, April 23, 2014 - Safran (NYSE Euronext Paris: SAF) today reports revenue for the first quarter of 2014.
Chairman and CEO Jean-Paul Herteman commented:
“In the first quarter, Safran’s growth is driven by the continuing momentum of OE deliveries and service activities in our commercial aviation businesses thanks to increasing production rates and sustained air traffic growth.
Our very satisfactory order intake since the beginning of the year also reflects healthy longer term global demand. In addition to signing more orders for LEAP, our next-generation narrowbody engine, the current-generation programme CFM56 remains in very high demand, as our successes notably at the Singapore airshow prove.
The top priority in 2014 for Safran’s teams is focus on execution, especially on bringing into production the LEAP, Silvercrest and the new Turbomeca range of engines. We took a further step in March with the inauguration of a plant in Rochester, NH, where, with our partners at Albany International, parts using the differentiating technology we developed together are being produced. A sister plant, located in France, will be inaugurated in the autumn.
Our targets for 2014 are fully confirmed. Safran’s strong positioning and sustained market trends give us full confidence in delivering sustained profitable growth.”
First-Quarter 2014 Revenue
Safran’s revenue in the first quarter was Euro 3,443 million, a 3.3% increase compared to Euro 3,333 million in the same period a year ago. At constant currency, revenue was up 4.9%. On an organic basis, revenue grew 3.5%.
Revenue increased by Euro 110 million on a reported basis, or by Euro 117 million on an organic basis. Growth was driven by continued momentum in most Aerospace activities, both in OE volumes and service activity, and in the Security business.
Organic revenue was determined by applying constant exchange rates and by excluding the effects of changes in structure. Hence, the following calculations were applied:
The unfavourable currency impact in revenue of Euro (53) million for first quarter 2014 reflected a globally negative translation effect on foreign currency revenues, notably in USD, CAD and BRL. The Group’s average spot rate was USD1.37 to the Euro in the first quarter 2014 vs. USD1.32 in the year-ago period. The Group’s hedge rate improved to USD1.27 to the Euro in the first quarter 2014 from USD1.29 in the year-ago period, somewhat mitigating the translation effect on revenue. The target hedged rate for 2014 is USD 1.26.
First-quarter 2014 revenue was Euro 1,825 million, a 2.2% increase (3.2% at constant currency, 2.1% on an organic basis) compared to revenue in the year-ago period of Euro 1,785 million. The increase in revenue was primarily driven by growth in civil original equipment and positive aftermarket momentum, for both CFM56 and high-thrust engines. Military revenue (original equipment and spares) was stable compared to the year-ago quarter.
Revenue of the helicopter turbine activities declined despite the additional contribution of the share of the RTM322 programme acquired from Rolls-Royce. Turnover was negatively impacted by the combined, temporary effects of production delays, as well as slower-than-expected recovery of EC225 support activities and exceptional winter weather conditions in North America which affected aircraft activity and associated services. A catch up is expected within the year and the annual outlook remains unchanged.
CFM56 engine deliveries (402 units) were 3% higher than the same period a year ago. Total commitments and firm orders for CFM56 and LEAP amounted to 1,163 engines in the first quarter. The total backlog for these engines stands at about 7 years of production at current rates and notably contains orders and commitments for close to 6,400 next-generation LEAP engines.
In the first-quarter 2014, civil aftermarket revenue grew by 12.4% in USD terms, driven by first overhauls of recent CFM56 and GE90 engines. Overall service revenue in Aerospace Propulsion grew by 8.0% in Euro terms and represents a 50.6% share of revenue. Helicopter turbines aftermarket slightly declined. Military engines aftermarket grew slightly.
First-quarter 2014 revenue of Euro 1,016 million, increased 11% (10.5% on an organic basis), compared to Euro 915 million in the year-ago period.
The increase in revenue was notably attributable to the Boeing 787 programme with higher deliveries of wiring shipsets and landing gear. Positive momentum continues in the carbon brakes activity. In nacelles, strong revenue growth was driven by increased shipments of A330 and A320 thrust reversers and nacelles for regional and business jets. Compared to the first quarter of 2013, the same number of A380 nacelles was shipped.
In the first-quarter 2014, overall service revenue in Aircraft Equipment grew by 6.7%, including acquired activities. Service revenue amounts to 26.5% of total sales, a lower proportion than in 2013 as OE revenue grew faster than services.
First-quarter 2014 revenue was Euro 257 million, down 12% compared to Euro 292 million in the previous year (down 11.3% on an organic basis). The drop in activity was slightly greater than expected for the quarter as delayed deliveries of actuators and AASM seeker kits impacted avionics revenues. Optronics revenue was once again softer as shipments continued to decline. Nevertheless, a catch up is expected starting in the second quarter and the annual outlook for stability in Defence remains unchanged.
The Security businesses are now organised into three customer-oriented business units: Identification, including MorphoTrust, addressing governmental customers; Business Solutions, addressing telco, banking and enterprises; the explosives and illicit substances detection activities.
First-quarter 2014 revenue of Euro 345 million, increased 1.5% compared Euro 340 million in the year-ago period. Reported revenue is affected principally by the division’s exposure to the translation effect of various currencies, mainly USD, BRL and INR. On an organic basis, revenue grew by 5.3%.
Growth was mainly driven by the Detection business on sustained momentum of shipment of CTX systems to US and non-US customers. Identification revenues increased, driven by growth in the Americas (US Federal contracts, Chile) partially offset by declines in the Middle East Africa region.
Business Solutions activities declined slightly as banking-sector business in Brazil offset growth in the other areas.
Full-year 2014 outlook is confirmed despite the Euro’s persistent strength.
Safran expects on a full-year basis:
Adjusted revenue to increase by a percentage rate in the mid-single digits compared to 2013 revenue restated for IFRS 11 (at an estimated average rate of USD 1.30 to the Euro). If the average EUR/USD spot rate of 1.37 were to remain throughout 2014 the mid-single digit growth objective for adjusted revenue would remain achievable, the positive effect of the improving hedge rate partially offsetting the adverse translation effect. Adjusted recurring operating income to increase by low double digits compared to 2013 recurring operating income restated for IFRS 11 (at a hedged rate of USD 1.26 to the Euro). The hedging policy isolates adjusted recurring operating income from current EUR/USD variations except for the part generated in USD by activities located in the US, subject to the translation effect when converted into Euro. Free cash flow to represent close to 40% of adjusted recurring operating income, subject to usual uncertainties on the timing of advance payments.
The full-year 2014 outlook is based on the following underlying assumptions:
Healthy increase in aerospace OE deliveries. Civil aftermarket increase by a percentage in the low to mid-teens. Stable level of self-funded R&D with a lower level of capitalisation compared to 2013. Stable level of tangible capex. Profitable growth for the Security business, characterized, unlike other activities, by significant exposure to translation effect. Continued benefits from the on-going Safran+ plan to enhance the cost structure and reduce overhead.
Safran now expects annual net USD exposure for 2015-17 to range between USD 6 billion and USD 6.4 billion due to strong growth of businesses with exposed USD-denominated revenues.
2014: Hedging is finalised at a hedged rate of USD 1.27, with a target hedged rate
of USD 1.26. 2015: Hedging is almost completed at a hedged rate of USD 1.26. Accumulators are in place to hedge the additional exposure and strive to improve the achieved hedged rate to USD 1.25. 2016: Exposure of USD 4.8 billion is hedged at a rate of USD 1.25 (including knock out option strategies). Hedging of an additional USD 1.2 billion will be added through accumulators as long as €/$