Daily Value in Paris – Safran sticks to its annual targets despite impact on Ukraine’s brink of war – 04/29/2022 at 11:15 am

(AOF) – Safran (+0.66% to 106.16 euros) confirmed its targets for 2022 despite the impact of the war in Ukraine. The suspension of all commercial exports to Russia and all operations in that country means an activity loss of about 2% of revenue and an estimated impact of about 70 basis points on margin. The increase in supply chain tensions and inflation induced by the Russian-Ukrainian conflict is also reflected in a further increase in inflation for commodities, transport and energy.

Its additional impact is estimated at around 80 basis points on margin.

“As a result, additional aggressive cost savings as well as commercial measures and deferrals of certain expenses will be implemented to offset the aforementioned impact of approximately 150 basis points on Saffron’s 2022 operating profit margin,” the band said.

Safran made the announcements as it released its first-quarter 2022 earnings, which came in at $4.071 billion in adjusted data, up 21.8% on a reported basis and up 16.9% organically over the year.

Its highly profitable commercial engine aftermarket business rose 52.9% in US dollar terms, “thanks to a strong contribution from sales of CFM56 engine spare parts and to a lesser extent service contracts and sales of high-performance engine spare parts.”

“2022 has started well, with Q1 organic growth of 17%, in line with our annual targets, despite a difficult environment with high air traffic volatility in China, the Russian-Ukrainian conflict, supply chain tensions and inflationary pressures ” commented CEO Olivier Andriès.

Ultimately, Safran confirmed its outlook for 2022. With constant scope and adjusted data, the group is targeting sales of between €18 billion and €18.2 billion, a current operating margin of around 13% and free cash flow of around €2 billion.

As a first approach, Jefferies maintained his underperforming view and $105.46 price target on Safran stock. If the performance at the beginning of the year is in line with expectations, the broker sees the impact of the war in Ukraine on the margin as very significant.


=/ The strengths of the value /=

– Third supplier of aerospace equipment: world No. 1 in commercial aircraft engines, turbines and helicopter flight controls, power transmissions, engine nacelles for aircraft, No. 2 in space engines and No. 4 in military engines…;

– Activity of 15.3 billion euros, organized in 3 divisions: aerospace propulsion (48%), equipment and defense (41%), then aircraft interiors;

– Business model based on 4 pillars: refocusing on civil aviation with the acquisition of Zodiac Aerospace, strengthening of propulsion and equipment with the aim of becoming the world’s number 1 manufacturer of aerospace equipment by 2035, historical partnership with GM, by 2040 at civilian CFM56 engine, gradually replaced by the Leap engine and ramping up of services (57% of sales), better margins than the 1


Go up;

– Non-operating capital (11.2% interest for the State, 6.9% and 10.6%), Ross McInnes as Chairman of the 18-member Board and Olivier Andries as Chief Executive;

– Healthy balance sheet with net debt reduced to 1.5 billion euros, free cash flow of 1.7 billion euros and cash and cash equivalents

of 5.3 billion euros.

=/ problems /=

– Strategy 2022 to increase competitiveness and lead the electric aircraft with annual sales growth of 4-6%, operating margin between 16-18% and R&D expenditure between 6-7% of sales;

Innovation strategy (R&D of 6.1%) integrated into the business model


Financially supported by the French state


with a portfolio of almost 12,000 patents:

– 2 “Safran Tech” R&T centers in Saclay and Gennevilliers: energy and propulsion, materials and processes, sensors, electrical and electronic systems, signal and information processing, modeling and simulation and future turbine blades,

– Platforms with specific equipment for new generation materials,

– Consolidation of additive manufacturing processes in Haillan with a view to their industrial use,

– strategic partnerships – the European “Clean Sky”, Saclay, INSALyon, ASTech…:

– Environmental strategy with reinforced objectives:

– Reduction of CO2 emissions by 50% by 2030,

– mobilization of the 400 main suppliers,

– Manufacture a “low-carbon” disruptive aircraft by 2035,

Integration of Sustainable Aviation Fuel, or SAF, in testing phase in 2021


– Order backlog at 4x annual sales and recurring after-sales sales for powertrains (2/3 of sales);

– Partnerships, with MTU for the engine of the European Folge fighter jet, with Airbus for hybrid propulsion, etc.;

– Portfolio rotation – sales for more than 500 million euros and targeted acquisitions.

=/ Challenges /=

– stock market risk of partial exit from the state;

End of partial unemployment in 2022 and retention of skills with a re-entry clause


Expectations for 2022: inflation and scarcity of materials/components, but gradual improvement in air traffic

hence a 20% increase in R&D and 40% in investment;

2022 targets a return to revenue growth between 18 and 18.2 billion, earnings with an operating margin of about 13% and cash;

– Refund of dividend to 0.5 €

prior to historic practice of a 40% payout ratio


Consolidation phase in aviation

The size of French players is very limited compared to their American competitors. It is therefore necessary to bring these stakeholders together, which will make it possible to increase the budget allocated to research and development and gain weight in international tenders. The Aéro Partenaires investment fund was launched in 2020 to support this movement. It was created by the investment company Ace Capital Partners, a subsidiary of Tikehau Capital, with the French State, Airbus, Safran, Dassault Aviation and Thales. This fund carried out several transactions in 2021.

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