Welcome to the Safran Q1 2019 Revenue Conference Call. 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.

Thank you very much. Good morning to all of you. On today's call we will discuss the business highlights and the revenue for Q1 2019. The press release and the presentation as you know are available on our website. To sum up the highlights, I’d say first that Safran got off to a very strong start of the year with a broad based organic growth of 12.6% in Q1 2019. Second, I would say that the strong organic momentum positions Safran ahead of its 2019 outlook. We believe we are really well ahead of the outlook for the beginning of the year. And third, Safran stands behind its customers and monitors very closely the announcements regarding the 737 MAX to adapt if necessary. I am sure that we will have the opportunity to address these three points during the Q&A session. Meanwhile, let's turn to the financial and business chart for Q1 2019. Going to Page 4, Q1 2019 was an excellent quarter for Safran. Reported revenue reached Euro 5.781 billion, an increase of 36.9% compared with Q1 2018 including a positive scope impact from the acquisition of Zodiac Aerospace and a positive currency impact from euro-dollar average spot rate. The revenue grew 12.6% organically, thanks to the contribution of all our businesses. The recovery of Aircraft Interiors is making progress. Seats resumed organic growth over the period. The organic momentum is broad based and sustained. Let's move to the CFM56 and LEAP update, Page 5. Q1 2019 deliveries: Combined deliveries of CFM engines, LEAP engines and CFM56 increased by 15.9% to 577 units in Q1 2019 from 498 units in Q1 2018. A focus on the LEAP program: We delivered 424 engines in Q1 2019 compared with 186 units in the year ago period. Regarding the adjustments to the 737 MAX production system announced by Boeing, CFM has maintained the projection rate for the LEAP-1B at this point. LEAP backlog amounts to 15,329 engines at the end of March 2019. Market share on the A320neo is 59%. A focus on CFM56: CFM56 deliveries reached 153 units in Q1 2019 compared with 312 units in Q1 2018 reflecting, of course, the planned production ramp down. An interesting point of the CFM56 is that CFM56 fleet passed an historic milestone on April 8, 2019, it has surpassed 1 billion flight hours since the beginning of the program with 33,239 engines produced. This reflects the continued confidence of our customers. Let's move now to Page 6, with our online business highlights for the Q1 2019. We enjoyed a 10.2% growth for the civil aftermarket, thanks to the strength of spare parts sales versus second generation of CFM56 engine. I remind you that this indicator is in US dollars. The momentum in the carbon brakes business continued with several new contracts, notably with Air India for 27 A320neo and Westjet for 10 787s. The cabin activities logged new orders for galleys and for Ecos bins with several airlines. And Safran was also selected to supply Seats notably with a major Asian airline for Business, Premium and Economy class for a 787 linefit order by Air France and also by Corsair. Regarding, the share buyback program of Euro 2.3 billion, Euro 342 million worth of shares were repurchased from January 10 to April 24 on top of the Euro 1.2 billion executed in 2018. These are the main highlights I wanted to share with you. Now Bernard will guide you through the detailed financials and I will come back for the outlook at the end of this presentation. Bernard?

Thank you, Philippe. And I'll start with a few considerations before diving into the figures, Page 8. All figures in this press release represent adjusted data except where noted, so we provide you with the reconciliation between Q1 consolidated revenue and adjusted revenue in the Additional Information section of this presentation. Second, organic variations were determined by excluding the effect of changes in scope of consolidation, notably, the contribution of Aerosystems and Aircraft Interiors in January and February of this year are considered out of scope. Page 9, the FX situation, euro-dollar spot rate has improved from Safran point of view with the positive impact for revenue growth in Q1 and we believe it will continue into the year and that would be positive in the long-run for our hedge rate that remain at 1.18 for 2019. On Page 10, most of the figures above have already been given by Philippe so I would be quick. We have Euro 5.781 billion revenue in Q1. That's an organic change of 12.6%. The change in scope is Euro 802 million. It includes Euro 781 million contribution for two months of Aerosystems and Aircraft Interiors from ex Zodiac and Euro 21 million in Defense through the acquisition of the unit for ElectroMechanical Systems activities from Collins Aerospace. The currency impacted positive for Euro 223 million. It reflects a positive translation effect mainly from the euro-dollar average spot rate. That was 1.23 last year in Q1, and that was 1.14 this year in Q1. Page 11, the revenue by activity. Aerospace propulsion revenue was Euro 2.735 billion. It's up 19.6% or 14.8% organic; Aircraft Equipment, Euro 1.458 billion, up 15.4% or 9.2% organic; Defense, Euro 360 million is up 20.8% or 11.1% organic; Aerosystems and Aircraft Interiors Euro 1.225 billion, up 13.3% organic. Some color on those increasing revenues: For Propulsion, reported OE revenue were up 19.6% or up 14.8%, organically. Thanks to narrow body engine deliveries that were up 15.9% from 498 to 577 engines driven mainly by LEAP production ramp up and the ramp down of CSM56. Military OE were also due to the Rafale fighter engine deliveries up from 3 units in Q1 last year to 8 units this year. Helicopter service OE were also up, thanks to higher volumes. Services in propulsion were up 19.7% or 14.9% organic. Thanks to civil aftermarket up 10.2%. But also helicopter support activities up in the high-teens and military services up. Aircraft Equipment OE were up 15% or 8.4% organic. Thanks to deliveries of nacelles for the A320neo that ramped up from 66 units in Q1 last year to 120 units into Q1 this year. A320 nacelles also reached 24 units this quarter as shipments began in Q3 last year. We had also higher sales of equipment for landing gears and wiring for the Boeing 787 and Airbus A350 and the planned reduction in assembly rate of A380 was a headwind. We delivered 4 nacelles for A380 this quarter compared with 16 in the year ago period. Services for Aircraft Equipment were up 16.5% of 10.9% organic. Thanks to higher activity on carbon brakes, MRO for landing gears and the increase in sales of step up for nacelles. Electronic and Defense 11.1% organic was spread over defense and avionics. Defense sales were up 12.9% organic, thanks to higher volumes of sighting systems and optronics. And avionics were up 9.6%, thanks to electronics. For Aerosystems and Aircraft Interiors the 13.3% organic growth relate to March of this year against March of last year. If you take a quarterly increase, it's 4% organic. For Aerosystems, it’s driven by the good performance in Fuel and Control systems, Safety systems as well as good momentum in connected cabin sales for Aircraft Interiors, compared with the previous year quarter’s performance cabin grew slightly while Seats resumed organic growth driven by the progressive recovery in sale of Business class Seats. Page 12, our FX hedging portfolio now is 27.4 billion with no material changes to the Group's foreign exchange coverage. Since the last disclosure we've increased the firm coverage for 2020 to 2022 and the targeted hedge rates over this period are unchanged. Philippe, for the outlook.

Thank you Bernard. As I just said Safran is ahead of its path towards the full year 2019 guidance. The organic performance of the Group is trending above full year guidance for the first three months of the year. Impacts of 2019 of the 737 MAX situation are closely monitored and Safran will adjust its production plan if necessary. Based on our understanding of the situation we do not foresee a material change in our current trend. This is what I wanted to tell you. And from now on Bernard and I will answer your questions.

[Operator Instructions]. We have a first question from Christian Laughlin from Bernstein.

Just it's on LEAP-1B deliveries really, if I could just follow up a little bit on that. Firstly, Philippe, are you looking at this opportunity as a way to -- or are you trying to capitalize on this slowdown on the Boeing side in order to converge on schedule with respect to OE deliveries to Boeing? And then secondly, is there a certain trigger that's driven by either how long the 737 grounding continues or otherwise that will at some point drive a decision to change LEAP delivery rates or productions rates and when is that? Thanks.

Good morning Christian, as you know we are building today at rate 52 to be ready when Boeing will start to deliver again. We are still in the catching up mode and of course if Boeing for the future is at 42 airplane a month and we keep producing at 52, at a point we will have to adjust our production if needed. As I said when we talked for the presentation of our guideline for 2019, we said that at the beginning of the year we were 3 to 4 weeks beyond schedule at Boeing and we were expecting to be back on-schedule some time in Q2. I confirm that we will be back on-schedule with Boeing sometime in May and from there it will be our decision to see if we keep producing at 52 or if we monitor more closely our production.

Next question comes from the line of Olivier Brochet from Credit Suisse. Sir, please go ahead.

I have two questions on the LEAP still if I may please. The first one is the impact of that cut in production announced by Boeing on the other activities of the Group and the impact on the cash position for you i.e. are you still paid by Boeing for that difference or is it something that will come in the future? And the second question is on the issues that were faced by Southwest in one of the flights and that led to some inspections. I just wanted to understand how serious that can be and what financial consequences this could have?

Yes, I would take the first question. I would say that 90% of the impact is on propulsion, so we have also some impact for other businesses including cabins and equipment but it's really limited. Now the impact of cash of course, as you know, part of the price for the engine is paid at deliveries from Boeing to airlines. So as Boeing has stopped delivering the aircraft to airlines we have kind of headwind in terms of cash in Q2. If it goes like that until the end of Q2 I guess the impact will be in the region of Euro 200 million but it's offset by other factors, so we don’t see that as deviation from our budgeted map for cash for the year.

So regarding your second question Olivier related to Southwest, of course we don’t have the full report yet of what happened on Southwest but have seen and you have seen I'm sure, some comments made in the media regarding the fact that we suspect a coking of the fuel nozzles, which would have been at the origin of this incident. If it is confirmed it is a coking of the fuel nozzle as we said already we consider it as a minor issue.

Next question comes from Robert Stallard from Vertical Research. Sir, please go ahead.

Bernard, you said that there would be offsets to that 200 million if you’re not paid for the LEAP deliveries to Boeing. What would those offsets be? Is that coming from additional aftermarket on older aircraft?

It's coming from the rest of the business. It comes from services, as you mentioned, but also from other businesses that are doing very well as you've seen the figures in terms of sales. You can be sure that some part of that is translated into more profitability and more cash in. So it's coming from all businesses.

Okay. And then as a follow up, with the grounding of the MAX are you seeing additional aftermarket sales on older 737 and CFM engines?

It's too early to tell. Of course, all the other airplanes are really at full speed regarding the utilization. And in the medium term, we will see for sure some effects -- positive effects on our services. But as of today, again, it’s too early, we didn't see really a huge or big inflection of the services related to this utilization of older airplane, too early. It is positive for sure.

Next question comes from Celine Fornaro from UBS. The floor is yours.

My first question would be regarding, potentially if you could have a risk of over hedging in 2019 and how should we think that in terms of impacting your profit, if you don't manage to deliver everything as you planned for the year and there was a bit of a spillover to 2020? So if you could help us thinking around that? And the second one would be on the aftermarket strong trends for the quarter. If you could give us a little bit more color in terms of scope or volumes and also pricing and scope in particular kept progressing compared to the end of last year for example? Thank you.

Okay, I will take the first question of -- on hedging. No, there was absolutely no risk of over hedging. As we manage full year period there is absolutely no risk. So if we see that we have an impact on the sales, the hedging that we take now will be used for the following years. So I don't see any risk here.

Celine regarding your second question on aftermarket, as we said a bit earlier, we enjoyed 10.2% increase of our index for services of proposition for commercial. And inside of this 10.2%, it's nice part of increases coming from the spares of CFM56 second generation engines, which are trading for the first quarter above this 10.2%. This is what I can tell you about it.

But in terms of scope or the airline spending, still is it like a flat type situation or you still see increased scope on the …?

We are very pleased with what we see.

Next question comes from Chloe Lemarie from Exane BNP Paribas. Please go ahead.

I had a few questions, and it would be on the guidance because you mentioned that you're ahead of the plan for the first months of the year, so if we get some color on this, what are the most salient points from this perspective? It sounds like it’s pretty much across the board and across all divisions but the areas that are the strongest to you, that would be great? The second is on Seats, it's good to see that the activity grows again sales, but what's the evolution on book to bill in the quarter? And lastly on the civil aftermarket if you could provide the split of organic growth in MRO versus spare parts that would be amazing thing?

You want a lot of very specific details that we usually do not provide. Regarding the guidance, I said that we are trending today above the guidance for 2019. And again based on our understanding of the situation at Boeing we do not foresee any material change for this trend for the rest of the year. So it's too early for us to talk about a new guidance but from what we see from what we have seen over the first three months and from what we foresee for the rest of the year, we believe we are going to be above the guidance of 2019 we gave you in February of this year. This is what I can tell you about the guidance. It's going to be better. Regarding the Seats, we are taking more orders. We are still in the recovery mode. Don't forget that in 2018 the sales dropped by more than 20% or around 20%, so we are in the recovery mode. This year is going to be a lot better. We are -- in the book to bill of course we are doing better than 1, but it's too early we need to tell if this trend is going to continue. We do everything we can in terms of innovation, R&D and short-term support to all our customers in terms of delivery and quality to make this recovery sustainable for the future. But again it's still bit fragile and I prefer to keep working and I think that in September we'll be able to give you a better update than the one I just gave you.

And on the breakdown of our civil aftermarket growth of 10.2%, we have a 12.5% increase in spare parts and more than 5% on services.

Next question comes from Andrew Humphrey from Morgan Stanley, so please go ahead.

Just a couple please. One is on the supply chain. We heard some quite cautious commentary from the likes of Allegheny and even UTX earlier this week on the availability of long lead time components. Can you speak about how you currently see the situation there? Do you see any kind of risk from some of the more fragmented or longer lead time parts in the supply chain? And the second question sorry is around, you mentioned spares -- deliveries spares in your outlook statement as being one of the factors that could influence the outlook this year depending on what happens with your deliveries to Boeing. I mean are you seeing significant demand from lessors and from airlines for more LEAP spares on the back of the Boeing issues, is that something that could potentially have a positive profitability impact in the event you do see some disruption around 737 deliveries?

Regarding the supply chain, you are absolutely right, it is a point that we mentioned for years now. We have a very strict management of supply chain for forging and structural castings which are the base of most of our parts of engine and it is something which is still at risk even if we believe that so far we have been able to monitor this risk by finding new suppliers and being able to support the production ramp-up of the LEAP. But nevertheless it is not something which is behind us, which is a challenge that we monitor every day to support the growth and the future growth requested by our customers. So there are some risks, they are totally under control at this point but it is something which in my opinion is going to last quite long because it's difficult to find a new production capacity at the level of quality requested for engines available in the world.

I will take the question on spare engines, let me put it this way, we experienced good trends for CFM56 spare engine orders and we haven't seen any negative impact from the current situation on LEAP spare engine orders. So I think it's both positive for that and I think it will be a good sign for the transition cost from the CFM56 LEAP situation.

Next question comes from Harry Breach from MainFirst. Sir, please go ahead.

Can I possibly ask two sort of very simple questions to Bernard because I am a bit slow in my understanding and Philippe if you can forgive me, can I ask you one nasty question. Bernard, there are nice questions. When we think about the CFM spare engine tool, okay, where you are providing long-term service agreement as support to customers, can you give us any sense of your ability if you will to accelerate the rate at which the spare engine pool is built-off, okay, thereby to sort of avoid just piling up undelivered engines for installation on wing. If I think about it, can you give us any feeling for how much of the spare engine pool build that you could pull into this year? And another related question about the delays. And if I think in very simple terms and please forgive my ignorance, this year, if we hadn't had the 737 MAX issues, the direct manufacturing costs and overhead to be allocated to the LEAP programs would have exceeded your contractual revenues on the program. And therefore, we would see negative margin as you've shown us in the CMD presentation. If we reduce production rate, we're still going to have presumably costs in excess of what we could capitalize it for inventory that we'll have to expense during the period. So just in theory, Bernard, if we have to reduce LEAP production rate this year, we should not expect a material or a significant reduction in the gross loss, if you will, the negative gross profit contribution from LEAP. And then over to my slightly nasty question, sorry, Philippe. Philippe, one of the -- I guess the most recent challenge at Seats, was at Seats UK. Can you give us a feeling about how execution is going on schedule and on quality of seat? Are we sort of past that problem now so that all the parts of Seats are functioning?

So welcome in the Harry Breach conference call if I may, it's a very long question and the answer will be short on my side. We haven't seen anything material on the CFM56 spare engine pool. And on the 737 MAX implication on our unit cost reduction plan, today, we haven't seen anything. Of course, there could be some impact, but we don't see that in 2019 as a major variation -- deviation to our plan.

Let's talk about your nasty questions now. Seats UK is recovering. I am very pleased with what I have seen over the last three months. What you should know Harry is that we got rid of the top management at the end of last year, December of last year. The top 4 managers of Seats UK have left the company and we brought a new team coming from France, from the US in order to support our customers. And I am extremely pleased with what they have been able to achieve over the last three or four months. We are back on time with our biggest US airline customer. And they are happy with the quality of the products we deliver. We have still one or two challenges with new programs which are supposed to be delivered some time during the third quarter of the year. So they are at risk. I cannot tell you that in three months everything is back to normal. But we are quite confident we are going to be able to overcome the problems we have found from the pool engineering, which was done before. In terms of quality in terms of on time delivery, I don't have any more plans with the UK. The only -- to be totally honest with you, the only place where I still have some challenges is France with Seats France. But Seats UK, I would say is back to almost normal today.

Next question comes from Ben Heelan from Bank of America. Sir please go ahead.

Just one from me. A big part of the Capital Markets Day was the higher R&D for the NMA aircraft. How do you see the grounding of the 73 impacts on the timeline from the NMA and have you seen any change in the communication from Boeing around when an announcement of that program could be made? Thank you.

I think that's a question Ben you should ask Boeing but we were forecasting decision regarding the engine selection sometime in the April-May timeframe before the Le Bourget airshow. I do not foresee any more such communication from Boeing in the next coming weeks or even coming months. I think that Boeing has other things to solve on short-term than to make a communication. We are still working a lot with our equipment businesses in the RFI processes like on any new -- potential new programs but in terms of communication I do not foresee anything short-term.

And I think that was a question I had at the last conference call is the amount of spending for the NMA in 2019 and I said that it was limited in 2019, so we don't see that as a driver for our R&D spending in 2019.

Next question comes from Christophe Menard from Kepler Cheuvreux. Sir please go ahead.

I had three quick questions hopefully. The first one is on guidance. I mean Q1 performance is really mind boggling and it's exceptional. And your guidance is a result of a very rigorous process. I was wondering what part of the business surprised you most on the upside in Q1 and what was the very positive surprise? And the second question is on the retrofit activity in Seats. Can you comment on that trend, is it seeing good momentum? You mentioned in your press release that Connected Cabin was also one part of the strong growth at -- well, it's in the other part of the Zodiac business but is it also one of the drivers for retrofit activity in Seats and whether you're also seeing strong growth there? And the final question is on the electrical harness contract you got with Boeing for the 777X and the renewed collaboration for the Dreamliner. Should we assume that this is coming with margins that are also aligned with your own targets i.e. improvement in margins, any comments on this would be helpful?

Okay, I will take the first one on guidance, as we previously said I mean we are ahead of the guidance and I would say that at the end of Q1 we were above what we projected for the first quarter and it comes from all businesses. Frankly they've all been doing very well and it continues like that in April and we haven’t seen any change in the trend. That’s why we are very confident and that’s why we say that we are trending above our full-year guidance. So no specific areas where we were surprised, everything is doing very well.

So on your second question on retrofit and IFE, yes, we are seeing a nice business coming mainly from airlines which are working to differentiate themselves with new cabins, new seats and new IFE. And in the IFE business technology is moving very, very fast and I could see that the last show -- interior show in Hamburg at the beginning of this month that our technology is really at the top of the state-of-the-art and most of -- many, many airlines came to us in order to retrofit their existing system with new systems. So in IFE is part of this nice move in the retrofit business we are enjoying today with mainly the businesses which coming from the ex-Zodiac. You are right we never talk about electrical harnesses but we rarely talk about electrical harnesses. We have renewed our contract for the 787 and we have negotiated and we got rewarded a contract for the 777X. Of course this contract has been negotiated taking into account the level of margins that we have defined with Bernard in 2015 with improvements which should come year-after-year from our own productivity and from the way we buy products. Don’t forgot that in the wiring it is a big part of the cost which comes from us, right? So we do our job and our supply chain is also doing its job in order to support the requested margins what I do confirm.

Next question comes from Sandy Morris from Jefferies. Sir, please go ahead.

When you alluded early in the Q&A to this Euro 200 million cash flow impact, what is that based on? I mean if Boeing delivered no MAX aircraft in the second quarter, the impact would only be Euro 200 million or what -- sorry, before I get the wrong end of the wrong stick?

Yes, it’s absolutely what you said. The impact coming from no deliveries from Boeing to airlines on second quarter would be Euro 200 million and the negative impact is only due to that situation. You must be aware that approximately 50% of the cash for the installed engine is prepaid, alright? So 50% is already cashed in and we are working for the other 50% and the Euro 200 million that I mentioned is only related to that impact.

We have no further questions.

I just wanted to thank everybody for listening to this presentation and wish everybody a very nice weekend. Thank you very much.

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