SAFRAN

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Safran Sees Income Margin, Revenue Growth Through 2025 -- Update

12/02/2021 | 05:58am

By Olivia Bugault

Safran SA said Thursday at its capital markets day that it expects profit margin and revenue to grow through 2025, and disclosed other mid-term targets such as for free cash flow and dividends.

The French defense-and-aerospace company said it expects recurring operating income margin to reach 16% to 18% by 2025. The target would represent "more than 5 points margin expansion from 2021, mainly driven by growth in services across all divisions," it said. In 2024 and 2025, its margin should expand faster than during the 2021-23 period.

Its propulsion division--its biggest segment by revenue--is expected to reach the highest margin, with an recurring operating margin of more than 20% by 2025. For its equipment and defense unit, it targets a recurring operating income margin at around 15% by 2025 and above 10% for its aircraft interiors division.

In the first half of 2021, Safran's recurring operating income margin stood at 9.6% of sales. In 2019, before the pandemic hit its activities, its margin was at 15.5%.

Meanwhile, Safran expects its organic revenue to grow on average by at least 10% per year from 2021 to 2025, with civil aftermarket--which includes spare parts and maintenance, repair and overhaul activities for civil aircraft engines--growing around 15%, it said.

"CFM56 and LEAP engines will remain the core drivers of the profitable and fast growing civil aftermarket business of Safran," the jet engine maker said.

Regarding cash, Safran expects to generate around 10 billion euros ($11.32 billion) in cumulated free cash flow between 2021 and 2025, it said.

All figures are on an adjusted basis, which Safran favors, noting that it better reflects its performance and allows comparisons.

"The messages are, in our view, overall positive on business dynamics, cash generation and capital allocation," UBS said about Safran's new targets and strategy.

The company added that it expects to resume its "historical practice" of distributing 40% of its net income to shareholders through a dividend that it would pay in 2023 in relation to its fiscal year 2022, and that beyond 2023, the board of directors will review this dividend practice "in order to ensure growing and attractive returns to shareholders."

Regarding its acquisition of Zodiac Aerospace in 2018, the company said a portfolio review has determined 70% of its businesses as core, and 30% under assessment. This review could also lead to divestments and bolt-on acquisitions, it said.

Safran, and the aviation industry at large, has been hit hard by the coronavirus pandemic, with its aircraft interiors division suffering the biggest blow. The recent emergence of the Omicron variant has again spooked the market and sent aviation and travel stocks falling. Safran shares dropped roughly 8% between Nov. 26--when the Omicron variant first triggered market concerns--and Wednesday's closing price.

However, Chief Executive Olivier Andries noted during last quarter's results on Oct. 29 that "Safran's third-quarter revenue confirms that the recovery is gaining strength month after month, which makes us optimistic for the future."

At 1038 GMT, Safran trades 1% higher at EUR104.10. Safran is one of the best performers on French index CAC 40, with most companies in the red.

Write to Olivia Bugault at olivia.bugault@wsj.com

(END) Dow Jones Newswires

12-02-21 0558ET

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