Earnings Transcript for SAF.PA - Q2 Fiscal Year 2020

Operator: Welcome to the Safran Half Year 2020 Results. At this time, I would like to turn the conference over to your host, Philippe Petitcolin, Safran's CEO; and Bernard Delpit, Group CFO. Mr. Petitcolin, please go ahead.

Philippe Petitcolin: Thank you very much. Good morning, everyone, and thank you for joining us to this call to present our H1 2020 results. First, I hope that you are all safe and healthy. I will start the presentation with an overview on our H1. Then, I will give you an update on the COVID-19 impact on our activities, notably in Q2, and also on our achievements with regards to the adaptation plan that we have deployed all across the board. After Bernard's presentation, I will come back to give you our new outlook for 2020. And of course, if you have any questions, we'll be happy to answer them afterwards. On Section 6 of this presentation, we have also provided an update of our climate strategy post COVID crisis. Whilst air traffic is still in turmoil and the recovery is only beginning in some parts of the world, let me sum up the key events of this first semester. So going directly to Slide 5. The activity did well in Q1, but was strongly impacted in Q2. We reduced our productions in line with our OEMs' requirements. Our services businesses suffered from airlines deferrals and cancellations. And we started the implementation of our adaptation plan, which will continue in the months to come. For H1, we maintained an operating margin above 10% and a positive free cash flow generation in spite of a strong decrease of revenues. Looking at financials on Slide 6. The unprecedented drop in volume impacted all our divisions and turned all our financials down. Adjusted revenue reached €8.8 billion, down 27.6% and down 29% on an organic basis. The adjusted recurring operating income was €947 million, down 49.7%, representing 10.8% of the sales and down 54.4% on an organic basis. The adjusted net profit decreased by 63% to reach €501 million. Basic EPS decreased by 62.3% at €1.18 per share. Operations generated €901 million of free cash flow, a 23.4% decrease. This represents a 95% conversion to our recurring operating income. Our net debt position is €3.1 billion, thanks to positive free cash flow and to the absence of dividend payment in 2020. On Slide 7, a focus on propulsion. The combined shipments for CFM and LEAP reached 534 units. That means 178 LEAP delivered in Q2 compared to 272 in Q1 this year. For CFM56, the progressive ramp down continued as planned, 84 engines were shipped in H1. After a slightly lower Q1 than in 2019, the civil aftermarket, I remind you, it's in U.S. dollar, was down 66% in Q2 compared to Q2 2019. Finally, in helicopter businesses, Safran signed significant support contracts, in particular, 276 RTM322 engines for German and Norwegian NH90. On Slide 8, a few words on our Equipment, Defense and Aerosystems division. Despite the impact of the COVID-19 crisis on this division, new contracts were signed for Defense. Safran's new Euroflir optronic observation system has been selected by Héli-Union for the French Navy's Dauphin helicopters. In our Carbon Brakes businesses, Safran signed a contract with an Asian airline to provide carbon brakes of 10 Boeing 787. Let's turn now to Aircraft Interiors on Slide 9. Even if this business is the most severely impacted by the crisis, some contracts were signed. 2 major Asian airline chose the Safran trolleys, one to equip its A320 fleet and the other one is Boeing 787-10 fleet. A major European airline chose Safran's premium economy and economy class seats for its new A350. Finally, the Safran Passenger Solutions business was awarded multiple A350 IFE line fit contracts on a follow-on on 737 retrofit contract. Now I would like to talk a little bit about the COVID-19 impact on our businesses. So going to Slide 11, an update on this impact. As everybody knows, we are evolving in a very uncertain landscape. On the one hand, we see gradual signs of recovery. Some are material, such as in China, with less than 20% of domestic cancelled flight last week. On the other hand, some are less encouraging, such as in South America. But everywhere, the recovery is very fragile. As one has seen around mid-July in North America and earlier mid-June in China. As forecasted by IATA 2 days ago, IATA does not see global air traffic recovering to 2019 levels until 2024, a year later than previously estimated. The global air traffic, the RPK, is seen down 63% in 2020 and is expected to drop 36% in 2021 from the level of 2019. What we see is that cycles are down by 53% for all engines around the world by mid-July compared, of course, to last year. This is a steady increase from April, but it will take years to get back to the previous levels. CFM56 cycles are down by the same figure. LEAP is much better, but the comparison basis has a bias since the MAX grounding in March last year. Slide 12, a few words on our operation. The situation is normalizing. As of July 17, which is 2 weeks ago, only 14 of our 250 sites are still closed. Half of our workers are on site, 50%, and 10% are working from home. 25% are under furlough, including 31% in France. In average, between April and June 2020, 30% at group level and 34% in France were under furlough. We are in close contact with customers and supply chain to navigate the crisis. Regarding the supply chain, Safran is providing €58 million equity support to the investment fund called Ace Aéro Partenaires. This investment fund is part of the support plan for the aerospace sector announced by the French government. It will provide small and mid-caps with equity and consequently, will strengthen our supply chain. Regarding production, we have adapted to the new rates announced by airframers, even if for the LEAP-1B, and other supplies for the 737 MAX, the production ramp-up will, of course, depend on its return to service. The financial situation of airlines and lessors that will try to preserve cash as much as they could. This has already materialized in orders, cancellations and delivery deferrals request. Some of our businesses, mainly Cabin, Seats, Spare Engines are likely to be more impacted. As of today, we assume to manufacture around 800 engine LEAPs in 2020, including the spare engines. Going on Slide 13. The drop in activity has led us to a strong adjustment of our workforce and industrial footprint. We reacted as quickly as possible, and this adaptation is already implemented. The permanent worker headcount has been decreased by 12% worldwide and by more than 14%, if we include temps. In France, Safran has been the first large company to reach a transformation activity agreement with all the representative trade unions of the group. It will allow us to control the payroll through wage moderation, long-term partial activity, earlier retirement so that we will be able to preserve employment and skills. The industrial footprint has been reduced and sites are closing, mainly in Seats, in the U.S., and the U.K.; in Cabin U.S., Thailand, Mexico; Wiring, in Mexico, Tunisia and Morocco. All of these adaptations have led to restructuring cost of €77 million, mainly severance pay that are booked in this first semester. Slide 14. We are in line with all our year-end objectives in terms of cost reduction. Purchasing programs are scaled down in line with the decline in activity. We have decreased raw material and supply expenses by more than 30%. We have also decreased by more than 40%, subcontracting expenses. CapEx are being cut by 74% in H1, above the objective of 60% for the full year. It is the CapEx commitment that we are talking about. The cash outflow related to the CapEx will decrease materially in 2020 but to a lesser extent. R&D expenses have been reduced by 31%. And OpEx are already reduced by 17% in H1 2020, with a faster decrease in external service expense. On Slide 15, to conclude my presentation, some key takeaways. First, COVID-19 impact intensified in Q2, and it was particularly significant in civil aftermarket and aircraft interiors, that is why our reaction had to be material and quick. The measures that we have taken will structurally enhance the competitiveness of the group in order to benefit from the recovery. As of today, a gradual recovery is a central scenario as OE deliveries are likely to be lower for a period of time, but we definitely see some encouraging elements. Civil aftermarket is likely to recover faster than OE. Safran is more exposed to narrowbody, and we see that the recovery is faster in short-haul routes. The CFM56 fleet is a key asset. It is a young fleet that is less likely to suffer from higher retirement and part out after the COVID-19 grounding. We are definitely committed to address the climate change challenge. The growing state support in 2020 and in a couple of years to come, will help us keep a high level of research technology innovation activity. I now give the floor to Bernard for the financials. Bernard?

Bernard Delpit: Thank you, Philippe. Good morning to everyone. I will go straight to Slide 18 with some FX news. Average spot rate was $1.10 in H1. It was $1.13 last year, creating a positive translation effect of around €110 million on revenues, among a total of €194 million positive currency impact to revenues. Hedge rate was $1.16, $0.02 better than in 2019. And the mark-to-market effect of our consolidated financial results was a noncash loss of €1 billion, resulting from an unfavourable change in the fair value of the hedge book. It is restated in adjusted data figures that I will comment later on. Still on FX, on Slide 19. With regard to our hedge book, which totalled $21.6 billion as of 28th of July. Due to lower medium-term outlook after COVID-19, the average net exposure is now expected to be around $8 billion in 2020. With the recent weakening of the USD, some KO barriers have been triggered, leading to deactivate some options for '22 and '23. The hedge book has decreased by $5.4 billion since April '20 because of a combination of instruments deliveries over Q2 and KO barriers. KO barriers are currently spread over a $1.18 to $1.26 range, representing a risk on the size of the book and on targeted rates. As you may notice, we maintain our targets for '21 and '22 for hedge rate, but has withdrawn the previous $1.10 to $1.12 target for '23 under the current spot rate environment. On Slide 20, we provide the bridge between consolidated and adjusted accounts. I draw your attention on 2 usual restatements. First, PPA amortization has an impact of €172 million, of which €155 million correspond to the PPA of Zodiac aerospace. Second, the change in the mark-to-market impact of hedging instruments booked in the consolidated financial income was €1 billion negative, and I mentioned it a few minutes ago. Let's move to the P&L on Slide 21. As I will comment on revenue and recurring operating income in the next slide, I will only focus on other items. Share in profit from joint ventures decreased in 2020, mainly due to a lower contribution of ArianeGroup and of engine leasing businesses. One-off items were €144 million, negative. As mentioned before by Philippe, we booked restructuring costs related to industrial footprint adaptation and workforce resizing for a total of €77 million in other nonrecurring charges. The rest is due to depreciation of assets. Net financial income was negative €117 million compared with €32 million negative last year. It reflects a stable cost of debt. Foreign exchange losses and discount rate evolution on various balance sheet items. Income tax charge was €169 million, representing an apparent tax rate of 24.7%. Adjusted net income group share was €501 million. EPS was €1.18, a decrease of 62% and diluted EPS was €1.14, a decrease of 63%. On Slide 22, adjusted revenue has reached €8.767 billion in H1, down 27.6%. It includes a very limited change of scope for €20 million negative, €194 million of positive currency impact, leaving a 29% organic decrease, broken down between 2 very different quarters. It was negative 8.8% in Q1, notably because of the MAX grounding, and it was 47.5% negative in Q2 with the very severe impact of the current crisis. Recurring operating income on Slide 23, it went down from €1.883 billion last year to €947 million at the end of June, down 49.7%. This decrease includes a positive currency impact of €93 million. On an organic basis, recurring operating income went down 54.4%. There has been a strong negative volume impact in all activities, some of which were expected, such as the ramp down of CFM56 and M88 Rafale engine deliveries, but most of it is due to the COVID consequences. Mitigation actions such as cutting R&D expenses and other savings decided in Q1 have already a very strong positive contribution on all the businesses. The group recurring operating income margin stood at 10.8% of sales compared with 15.6% in the year-ago period. On Slide 24, a few words on R&D. Total R&D spend was €597 million, of which €447 million for self-funded R&D and €150 million sold to our customers. The self-financed R&D decreased by 31.3%, which is in line with the target of our adaptation plan for the full year. Amortization of R&D decreased by €20 million, in the line here that impairment of programs are booked as nonrecurring charges below recurring operating income. As a result, R&D charge decreased at €373 million. It represents 4.3% of sales. It was 4.6% last year. Slide 25 gives another view of business performance. Just a quick word on the corporate center. The recurring operating income is slightly positive for €6 million. It will not remain like that as we will credit back savings on central functions to businesses and as management fees will decrease with revenues. Slide 26, for Aerospace Propulsion. Revenue was €4.047 billion, down 31.4% or 33% on an organic basis. In the context of the continued MAX grounding and protection rate cuts, OE revenue dropped by 38.4% or 40% organic. We delivered 450 LEAP engines, that is 48% less than in 2019. And CFM56 continued to ramp down. It was down 67%. Military OE sales went slightly down in particular, we delivered 19 M88 engines compared to 22 last year. In Services, revenue decreased by 26.3% or 27.9% organic due to civil aftermarket revenue down 34.4% in USD. It was 3.3% negative in Q1 and 66% negative in Q2. Spare parts sales of the latest generation of CFM56 engines went down more than service contracts for CFM56 and widebody platforms. Military services and helicopter turbine support activities contributed negatively during the semester, even if at lesser extent with a high single-digit decrease in revenue. Recurring operating income decreased at €699 million with an operating margin still at a high level of 17.3%. The drop in spare parts volumes had a significant impact on profitability, especially in Q2. Military activities also contributed negatively, but I remind you that comparison basis were high last year. Helicopter turbines provided a slight positive impact due to one exceptional item. And the one-off or nonrecurring charges items were booked for €20 million this semester, reflecting the impairment of a program. Slide 27, Aircraft Equipment, Defense and Aerosystems division. Sales totalled €3.638 billion, down 20% or 21.7%, organic. After an almost flat Q1, Q2 was down around 40%, for the whole semester, which reflects a decrease both in OE with a 21% organic decrease for landing gears, nacelles, wiring, avionics and aerosystem and in services with a 23% organic decrease, in particular, carbon brakes, landing gears, nacelles and Aerosystems. Profitability decreased at €343 million. It represents 9.4% of sales. This decrease was mainly driven by the drop in volumes, especially in spares and services with landing systems and aerosystems, OE with nacelles, wiring and avionics. Defense activities were less affected as sales declined high single-digit and some businesses such as sighting and navigation systems improved. €73 million of nonrecurring charges were booked, including €46 million for impairment of assets for one program and €27 million for restructuring costs. For Aircraft Interiors on Slide 28. Revenue amounted to €1.072 billion. On an organic basis, revenue fell by 35%. Aircraft Interiors was the most severely affected activity among Safran activities in Q2 with an organic drop of 54.6%. OE revenue, which is by far the most important part of this division, dropped by 36.9% in the first half. Sales were strongly impacted in Cabin due to lower volumes for galleys, inserts and lavatories activities. All class seats programs were impacted by the COVID crisis, as well as connected cabin in-flight entertainment equipment and custom cabin interior activities for our Passenger Solutions business. Services revenue decreased by 28.6% in H1. Passenger Solutions support activities was slightly less impacted. The recurring operating income was negative for Aircraft Interiors for €101 million. Operating margin turned negative 9.4% of sales. The profitability decreased across all businesses, both for OE and Services due to the drop in volumes. €51 million one-off items were booked most of it for restructuring costs in the Seat business and Cabin. Slide 29, cash. Free cash flow reached €901 million despite a 42% decrease in EBITDA. There are specific comments that need to be made to fully understand the relatively high cash for this semester somehow, higher than expected. Free cash flow generation was driven first, by cash from operations and most of it in Q1, cuts in investments at €421 million down from €554 million last year, and a decrease of €168 million in working cap this semester compared to a material increase last year. This decrease is driven by limited increase in overdues after a peak in April and almost stable inventories, thanks to a very quick reaction to rate cuts and above all, a positive but temporary impact of an increase in concessions to be credited back to clients in the coming months due to delayed deliveries by Airbus. And the Boeing CFM agreement that allowed decorrelated cash-in and aircraft deliveries in 2020. As a result, and I turn to Slide 30, Safran's liquidity position is strong and sound. At the last AGM, on May 28, I commented on the refinancing of a €3 billion bridge facility, with the issuance of €800 million of convertible bonds. I also announced the issuance of notes on the U.S. PP market. This was done at the end of June, with €564 million senior unsecured notes issued with maturity from 10 to 12 years. As of now, about 50% of the bridge loan facility has already been refinanced. I remind you that on top of that, we have a €2.5 billion available RCF in case of dysfunctional commercial paper market. On Slide 31, just the figures that I just mentioned. And the net debt over last 12 months EBITDA was 0.8, end of June. I will not comment on Slide 32, as I just did that. Just to remind you, of course, that we didn't pay any dividend in the first half of 2020. And I will end with a few words on our balance sheet just to mention

Philippe Petitcolin: Thank you, Bernard. On Slide 35, let me conclude this presentation with our new guidance for 2020. Based on the strong fiscal year 2019 year comparison base, Safran, despite considerable uncertainty and based on the assumption of a gradual recovery of air traffic, now expects for 2020

Operator: [Operator Instructions]. And we have a first question from George Zhao from Bernstein.

George Zhao: My first question is how much of the Q2 civil engine aftermarket activity would you say, that was related to work that had already been contracted before the COVID downturn? And secondly, historically, we saw CFM spares drop in 2010, the last downturn, much later than traffic bottoming. This time around, global ASK probably bottomed in Q2, but your 50% civil aftermarket guide for the year indicates H2 might be similarly challenged as Q2. So I see you worked down the existing backlog, no longer have that benefit repeating in H2 and continue to face the effects of maintenance deferral. Could we see the civil engine aftermarket be down year-over-year in 2021?

Philippe Petitcolin: So around our aftermarket business, especially for engines, we have seen, as Bernard said, a large decrease of this index in Q2 going to minus 66%. What we believe is going to happen, and it's part of the assumptions we have taken, we believe that the traffic will recover, not really a lot in Q3, but mainly in Q4. And by talking with our partner GE, by talking with airlines, we assume what quantity of the shop visits will be induced during the second half of the year. And based on that volume, we came to the conclusion that overall, between H1 and H2, a reduction of around 50% of the aftermarket sales for 2020 is today our best option in terms of value. Of course, this is not guaranteed. It will depend on the recovery of the traffic and the way the airlines are going to work with their engines. Are they going to switch from engines, which are ready to go for shop visit and keep them in-house instead of going outside? Are they going to see a real recovery and a fast recovery of the business? Something we believe. And in this case, we do, as usual, in terms of maintenance, that's still quite unknown, but we believe we have been quite positive, but not too greedy in terms of future business, in terms of aftermarket. For 2021, we see a progressive -- of course, we are not discussing the guidance for 2021 but in terms of 2021, we see the recovery, especially in the narrowbody continuing. I remind you a few things that may help you also understand our business model. If we look at the total fleet of the CFM, 57% of our engines are less than 10 years old. 45% of them have seen, as of today, 0 shop visit. And 40% have seen only one shop visit. So when you look at the quality of the CFM engines of the latest generation, what we call the second generation, we have more than 24,000 engines in service. So believe -- and based on that, we believe that, again, the forecast we just gave you in terms of aftermarket and the continuation in 2020 is quite honest, really.

Operator: We have another question from Ben Heelan from Bank of America.

Ben Heelan: The cash flow in the period and the guidance is clearly very strong and a lot stronger than I, in particular, was expecting. Could you talk a little bit about pros and cons for cash flow generation in 2021? I know you just said you're not going to talk on guidance for 2021, but I'm just trying to gauge if the strong working capital performance that you have this year could be a drag moving into 2021?

Bernard Delpit: It's Bernard speaking. So it's something to give guidance for free cash for the end of 2020. So trying to guess what it will be in '21 is a bit difficult for me. Of course the moving part is working capital. I think that for the second half of 2020, we will expect a very strong decrease in inventories. We have already cut our procurement programs. So that's going to be positive. Some of the very positive exceptionals that we've seen in H1 should reverse also in H2 as we will see more aircraft deliveries. So it means that the concessions we credit back to clients will increase in 2020. Now for 2021, what will be key, I think, of course, is the EBITDA variation, and we hope that we will be able to at least stabilize it or even increase it. And for the working cap, I would say that if -- once we have reduced our inventories, it will be key to control the payables. When it comes to receivables, it's something really difficult because it depends on how airlines will be in the second half, if we see more restructuring or more support from the government to airlines will be key to understand how they will pay us and if they leave us with bad debt. So frankly, for the rest of 2020 I'm pretty optimistic that we will have a positive cash flow in H2, but it's far too early to say anything detailed on '21. Sorry for that, Ben.

Operator: We have another question from Mr. Robert Stallard from Vertical Research.

Robert Stallard: A couple of questions from me. First of all, probably for Philippe. The CFM agreement with Boeing earlier this year, is this being changed anyway because of the level of cancellations that Boeing has seen for the MAX in recent months and also its adjustment of the production rate pushing that rate 31 further to the right? And then secondly, in the last downturn, you did see the dollar value of shop visits come down as airlines deferred maintenance. Is that happening again?

Philippe Petitcolin: Robert, regarding your first question, and the agreement we signed with Boeing at the beginning of the year, yes, we had to update this agreement lately because it was impossible to maintain a production of around 10 engines a week with Boeing at very, very low production level. We would have just built a backlog for 2021 that we would have had to pay in 2021 and 2022. So we came to an agreement, of course, it is confidential with Boeing, for an updated decision where we would reduce the production of engines during the second half of the year, without impacting the cash generation that we had agreed at the beginning of the year. So in terms of cash, no change. In terms of production rate, yes, we accepted to decrease the production rate in order to be a fair partner with our customer. Regarding the second question, Robert, on the value of shop visits, we have not yet seen a reduction of scope materialize in the shop visits that we have inducted in Q2. It does not mean it's not going to happen. If you remember, 2010, it happened. But as of today, it is quite early in the process because we are just starting to receive new engines for shop visits for Q3, and we have not yet received any one for Q4, of course. So it's too early to tell. In Q2, it is not obvious. We have not seen this kind of phenomenon. But again, we have taken some buffer for our H2 forecast in terms of value of shop visits.

Bernard Delpit: Just as a follow-up, Robert. I guess, that you have noticed that we have reduced our total LEAP deliveries target for 2020 from less than 1,000 to 800, and this reflects the amendments to the agreement with Boeing or, I would say, part of that. And yes, what we are seeing now in the aftermarket is a very sharp reduction in the number or the volume of shop visits. That was really down in Q2, more than a reduction in the scope. But I think that, in today's context, the question of the scope of each shop visit is of less importance, that a number of shop visits by itself, that really dropped in Q2.

Operator: So we have another question from Chloe Lemarie from Exane.

Chloe Lemarie: I have two, if I may. The first one would be on the recovery in aftermarket. How do you think of the timing to recovery given the depreciated traffic outlook provided by IATA? Do you still expect that it comes prior to that recovery in air traffic? And has your view evolved on that timing over the recent months? The second question is a follow-up on Ben's question regarding free cash flow. Could you give a rough estimate of the tailwind you saw in H1 with regards to the lack of payment of an engine concession? Do you expect a full reversal in H2? Or will that be spread also on 2021? And on the working capital part, given the moving part you mentioned, should we anticipate that working capital will be a net negative role in H2? Or could it even be a slight positive again?

Philippe Petitcolin: I will take -- Chloe, I will take the first question, and we'll let Bernard answer the second one. Regarding the recovery and the timing in terms of services, we believe that services will recover faster than OE production but mainly in systems and equipment. You have to split really the way airlines react for systems and equipment and for engine. It is not the same way. For systems and equipment, if they break a part, if they need a part, they need it right away. So as soon as the traffic recovers, the business for services in systems and equipment will recover very fast. In terms of engines, this is a different story, and this is what I tried to answer to George in the first question we got. It's going to depend on the financial health of the airlines, how fast they see their own recovery. And do they think that they will need engines, so they don't change the way they were working in the past or do they see a very, very slow recovery and in this case, they can swap engines from one airplane to another one and defer a shop visit. So it's quite different. Again, in terms of our business in equipments, it's going to be fast because the airlines will need the part. In terms of engines, the two alternatives are still open according to the way the airlines will see their own recovery and their financial situation.

Bernard Delpit: I will take the second one, Chloe. We will not disclose the magnitude of the tailwind on concessions. But what I can tell you, it's material. And I think it will be -- it will reverse in H2, especially because we had a special agreement in order to credit back concessions for engines delivered in Q2 and Q3, and that was decorrelated from aircraft delivery. It's more a question of payment terms. And we will come back to normal after. So I think that this positive will turn to be negative in H2. So where will it drive our working capital in H2? I think it will be negative working cap evolution in H2. I don't know yet if the total working capital for the whole year will be negative because there are so many uncertainties. We hope we can keep it positive, but it's not a given.

Operator: So we have another question from Jeremy Bragg from Redburn.

Jeremy Bragg: I'm afraid, Philippe, sorry, I've got one question on the aftermarket again, to test your patience on that. And one on the agreement with the unions, please. So on the aftermarket, focusing specifically on Propulsion aftermarket, you talked a lot about 2020 and 2021. What I'm trying to kind of work out is at what point do you return to 2019 levels in terms of revenues on the aftermarket? And is that coincident with traffic returning to 2019 levels? Because there's a whole bunch of different things going on there in terms of the mix of the age profile of the engines, some stuff getting retired, et cetera. So I just wanted to know, simplistically, if traffic gets to 2019 levels by, say, 2024, will aftermarket revenues in Propulsion also return to what they were in 2019, in 2024? So that's my first one. I'm sorry for the long one. And then the second one is on the plan that you've agreed with the unions, which looks fantastic. It notes that it's an 18 to 24 months plan. But if we're in a situation where we haven't really got a recovery until 2024 on traffic, what happens after 18 to 24 months, please, or 12 to 18 months, sorry, for not knowing which? Could you look to take out some more costs permanently? And how easy would that be to do?

Philippe Petitcolin: Thank you for these two very simple questions. The first, related to the traffic and the aftermarket coming from Propulsion, usually, we could say it is quite proportional to traffic. So if the traffic recovers in 2024, we can expect the business to be back to what it was in 2019 by 2024. I think it's going to go faster, a lot faster because of the retirement of the old airplanes. It's the only big thing, which makes sense. You will have to fly the current generation of airplane a lot more because most of the airlines have decided to clean their fleet and to clean their fleet, meaning that the old airplanes will retire faster than what we were expecting even last year. So based on that, I believe that the airplanes, which are flying with our engines, the CFM second-generation, and tomorrow, the LEAP, will fly more, will go back to service faster than the global traffic. And don't forget, in addition to that, that we think, and it's not only us, but IATA thinks exactly the same thing, and we see it every day, the recovery is a lot faster on domestic growth, on narrowbody than on widebody. So as we are very much concerned about the narrowbody business, I think that our recovery of our services aftermarket in Propulsion will go a lot faster than the 2024 that we could take as a basic objective just because of retired and because of domestic traffic, which will go a lot faster than the widebody business. Second question regarding the plan we signed with our union. When we look globally at what we did until now, we had really to push very hard on our international people and personnel. And when you look at the total headcount of people we have at Safran, globally, before the crisis, when we talk about January, we were about 95,000 people, including 45,000 in France, 50,000 international. And when you add the temps, we had about 5,600 people temps, including 2,900 in France, 2,700 international. What we did on the international, if I take our own employees, we went from 50,000 to 39,000. We just reduced our workforce by almost 11,000 people, more than 10,000. And if I add the temps, we went from 2,700 to almost 500. So altogether, between our own people and the temps in the international plants and businesses of Safran, we reduced by 13,000 people. Done. It's done. It's not something we planned. It is behind us, which is almost 25% reduction. In France, because the rules are different, we use short timing. Short timing was used everywhere. And even today, we are at 31% short timing, but we reduced our people only by 700 people and 2,000 temps. So we have to do something. And the government after helping us on short-term said, we can help you at least until the end of 2021. And we signed with all our unions, all of them, an agreement which is going to -- I'm not going to go into the details of this agreement because it is confidential, and I hope you understand it, but we are going to reduce the salary increases that we were planned, we are going to stop the contribution on profit sharing, we are going to cap profit sharing and savings scheme, we are going to use as much as we can, short timing, we are going to let people go in early retirement, many, many, many things that at the end of the day, when I compare the reduction of costs, we obtained, on international and the one we are getting now in France based on this agreement, it is about the same. So we cannot say, and I didn't want people to think that we were more severe with our international staff than with our domestic staff. It is now with this agreement, the effort, which is requested from all our workforce is similar is about the same between international and French.

Bernard Delpit: And Philippe, if I can add something. Something that is great with these agreements that it will deliver positive results as soon as in Q3 and Q4, as we will limit some provisions for profit sharing starting now, and we don't have cash out for that, unless we have some for early retirements. So the cash impact and the return on investment, if I can say so, is much better with such an agreement than with the kind of social plans that we used to do in the past.

Operator: So we have another question from Celine Fornaro from UBS.

Celine Fornaro: Two questions, if I may. The first one is regarding the orders intake that you've seen in Q2. If, potentially, you could comment that on the service businesses, both on the Propulsion and the Equipment business on the civil service area? And my second question would be regarding your much appreciated detail on your -- how you see, Philippe, the recovery on aftermarket on systems and equipment. And actually, if I can ask you, but in that specific division, isn't far more exposed also to widebodies and so then we should be aware that potentially the flying of the widebodies would take more time to return. And maybe you could provide a bit more color of the exposure to widebody in the various divisions.

Philippe Petitcolin: We do not comment usually a lot on orders. I mean, the orders are in line with what you can see in the industry. We have a reduction of orders, both in OE and, not only a reduction of orders, but deferral of orders in terms of deliveries. That's something we negotiate with our customers, both OE and airlines. To be totally honest with you, I mean we have a lot of deferrals and a request of cancelation in our interiors business because, as you know, and it's linked to your third question on the widebody, with the Seats and the Cabin business, we are quite exposed to widebodies. I mean, airlines usually do a retrofit of cabin and seats for widebodies in priority compared to what they do on narrowbody. And the airlines are quite exposed to the cash and their financial situation has let them ask for a lot of rescheduling and a lot of cancellation of orders. That's the reason that the performance of our interior business has been so impacted, so much impacted in H1. But in terms of orders, we have not seen something quite different from what you may see from the OE in terms of reduction of production. The recovery of services in equipment and systems come faster than for Propulsion because usually, the airlines have a very low inventory of equipment and systems in-house to support their fleet. They have an initial provisioning, usually, and they try to keep it as low as possible. And when they get a problem, it is something to fix right away. So they cannot wait, and they have to order parts or they have to order a new equipment. It's during operations, they break something, they break landing gear, they break nacelle, they break something, they need to replace it right away. So they need the product right away. And so that's the reason I believe, and we have seen that in the past, when there is a recovery of the industry, the level of services coming from equipment and systems is faster than for engines. For engine, they know when they will need to send an engine for a shop visit and we know in advance what is going to come, usually. In systems and equipment, this is not the case. That's the reason, I believe, it's going to go faster.

Celine Fornaro: But do you think -- yes, that you have more widebody exposure in that business, so that would cap a bit the recovery?

Philippe Petitcolin: Yes, exactly. But don't forget that we have also a very nice exposure to narrowbody in systems and equipment. If you talk about nacelle on the A320neo, if you talk about landing gear, if you talk about wiring, if you talk about the electrical system and if you talk about all the businesses we bought from Zodiac, they were very much involved also in terms of security equipment, in terms of many fuel and so on in the narrowbody. So we are very exposed in interiors, I fully agree with you in terms of services, but your question was more on equipment. And on equipment, we are quite splitted between narrowbody and widebody.

Operator: So we have another question from Harry Breach from MainFirst.

Harry Breach: Hopefully, these are quite simple. Philippe, just when we think about shop visit, engine shop visit bookings, maybe sort of if you have the visibility sort of across the network for CFM, have we got some stability now in terms of sort of shop visits booked in the third and the fourth quarter? And can you give us any sort of feeling for how those compare to the second quarter? Second question, just with LEAP and with the reduction in the production plan for this year, can you possibly share with us when you think the likely -- the sort of program breakeven year would be on that? And then maybe finally, in terms of your supply chain guys, are they delivering on time, on quality? Are there any sort of bottlenecks that are requiring a lot of monitoring? How is it going?

Philippe Petitcolin: Thank you for these three questions, Harry. Regarding the quantity of shop visits, it's the most difficult to answer because I don't have really a very clear answer. What we think is going to happen is that Q3 is going to be more or less at the level of Q2, but it's Q4, which is going to get an increase in the quantity of shop visits. We do not see today a large increase in Q3, but the minus 50% over the full year is coming from a quite stability in Q3 and the beginning of an increase in the quantity of shop visits in Q4. Regarding the LEAP and the breakeven point, of course, it is pushed on the right. Maybe Bernard could get -- add a few comments on this point before I come back on the supply chain?

Bernard Delpit: Well, it's not an easy one because it has to do with the methodology that we use in order to book under absorption of fixed costs. So what we do is at all underactivity or, let's call that, under absorption of fixed cost goes directly to the P&L and doesn't go through the cost of production, all right? So from that point of view, for example, we got some kind of stability in the cost of production of LEAP so far but that is because all the under absorption of fixed cost goes directly to the P&L. So it means that -- if we continue to do things like that, we will not increase the cost of production of LEAP in 2020. For 2021, I don't know. But that means that, of course, we will defer the breakeven of the LEAP program. But I would say that having less flight hours for the aftermarket is also something to take into consideration, but it's not pushed years and years and years on the right with a question of handful of years after the breakeven that we previously planned that was for '21. So I guess it's going to be something for 2025, I would say, but it's not something that we have checked for the moment.

Philippe Petitcolin: Regarding your -- Harry, your third question on supply chain, we have been impacted at the beginning of the crisis because many plants were closed, both in France but also on the international side. Let's talk about Mexico, many plants were closed, and we had some suppliers, of course, which could not supply what we needed. As of today, I would say we are back to normal conditions. And we don't have any kind of specific problem with the supply chain in terms of supplying what we need to be supplied. We have a concern regarding the future of some of our suppliers and subcontractors because they are in the crisis too, and they see their revenue decreasing at a large scale, 30%, 40%, 50% and so we are more concerned about the future of our supply chain. And this is one of the reasons we have accepted to invest into this equity fund with an amount of €58 million because we need to support the supply chain, which is absolutely key in terms of expertise, in terms of businesses and -- that we really need to supply our own products. So in terms of supply, it's back to normal. We still have a few exceptions, but it's only a few exceptions. The key now is to be sure that the ones which need to remain alive will be alive in a year or two. Last question?

Operator: So we have another question from Mr. Olivier Brochet from Crédit Suisse.

Olivier Brochet: I would have three very quick ones, if I may. The first one on Equipment. How much of that business is on a per hour or per landing basis on the services side, please? And the second question, shall we -- does it make sense to expect Aircraft Interiors to be loss-making again in H2? Third question, will you also have restructuring costs in the second half, please, after the 77 that you've booked in H1?

Bernard Delpit: It's Bernard speaking. The first one is a difficult one. We have, I would say, I should be a per landing rates for some of our landing system business within the Equipment division. For the rest, we don't have any. So it's, I would say, limited. For Aircraft Interiors, yes, we should expect another half with loss-making in H2, much less than H1. It will recover because all that we've done in terms of structuring will pay back in H2, but still loss-making division in H2. And yes, you're going to see more restructuring in H2. You can expect more, yes.

Philippe Petitcolin: If I may just complete what Bernard just said, in the interiors business, but not only in interiors, but mainly in interiors business, in terms of restructuring, in terms of optimization of our businesses, in terms of consolidation, we will have done in 1 year something which would have taken at least 3 years to do, if we were not in this crisis. So we are moving as fast as we can in terms of closing plants, restructuring, moving parts in order to be ready the day the business is back. And the day business is back will be a win. Thank you very much for attending this call, and have a nice weekend and have a nice vacation for the ones who are going to go on vacation. Thank you very much.

Operator: Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.