Safran S.A.

Peter Campbell - Vice President, Financial Communications Bernard Delpit - CFO Philippe Petitcolin - CEO, Director and Chairman of Sagem

Olivier Brochet - Credit Suisse Christian Laughlin - Bernstein Ben Heelan - Bank of America Merrill Lynch Phil Buller - Barclays Tristan Sanson - Exane BNP Paribas Harry Breach - Raymond James David Perry - JPMorgan Nick Cunningham - Agency Partners

Thank you. Good morning, and welcome to Safran's 2017 annual results announcement.

We will be discussing the press statement and presentation that we distributed this morning and published on our website. Following the prepared remarks there will be a Q&A session.

Instructions will be given at that time. This call is being webcast and playback will be available on the Internet and via the phone replay service.

We want to draw your attention to the disclaimer page of the presentation, which contains important information and which qualifies information given therein. In particular, the presentation contains forward-looking information that is subject to risks and uncertainties that is more fully explained in the disclaimer page.

Please also note that the purpose of this call is to discuss today's financial announcements. We will not provide new information on the transaction with Zodiac Aerospace during this call.

You may always find the latest public information regarding our proposed transaction in the dedicated section of our website. And with that, Philippe, over to you.

Thank you, Peter. Good morning, and welcome to our call to discuss our full year 2017 results.

2017 was another very successful year for Safran. We delivered what I consider to be a very satisfactory financial performance, while on the operational side, addressing and overcoming the challenges that emerged, including the very challenging transition at Safran Aircraft Engine.

So let's proceed with the presentation wrap up. Safran team's execution was strong throughout 2017.

We exceeded all our financial targets, more on that a bit later. We executed well on the operational front.

We delivered 459 LEAP engines in 2017, in line with our target of more than 450. LEAP production costs are coming down as we planned.

When I took command of Safran in April 2015, we set ambitious targets for profitability improvement in our Equipment and Defense activities, and we are meeting or exceeding those targets. In Aircraft Equipment, operating margin improved to 12.6%, up this year by 1.6 percentage point.

The improvement there is 3.2 percentage points since 2015, which is better than the 100 basis points per year increase we committed to. In Defense, the increase is in line with our commitment, 1 percentage point improvement again in 2017, bringing margin in that business to 7.1% of sale.

R&D is coming down as programs enter into service. We are, however, investing heavily in research and technology to be ready in the future with the technologies that our customers will require.

CapEx is stable this year compared to 2016, as expected. We are investing to increase our production capacity to address growing demand.

For example, I was last week in Mexico where, with our partner, Advent International, we inaugurated the third plant where we manufacture woven carbon fiber composite fan blades for the LEAP engines. In 2017, we reshaped our portfolio of activities considerably.

We completed the divestment of our Security businesses, which we have set in motion in 2016. And we launched our agreed offer for Zodiac Aerospace, gaining strong support from Safran shareholders in June at the AGM.

We are in the final stages of creating a world leader in the Aerospace industry. A word on the acquisition of Zodiac Aerospace.

Zodiac Aerospace shareholders supported our offer. At the end of the initial stage of the offer, the market regulator declared the offer successful.

Safran owned at that point, directly or indirectly, over 88% of Zodiac Aerospace share. I'm pleased that Zodiac shareholders were so keen to become Safran shareholders.

The exchange offer was oversubscribed and they will not get all the share they each asked for. Some shareholders have taken the cash they received and bought more Safran shares, which shows the trust they put in Safran and its management.

Safran control of Zodiac is reflected in the governance, now with new people from Safran appointed to the Supervisory Board and to the management board. On February 13, Vincent Mascré, who is now the new CEO of Zodiac Aerospace, has been appointed.

He was the leader of our Landing Systems. Now the integration works -- work begins for Vincent and his team.

It's a bit too early today to incorporate Zodiac into our forecast. When I come back to give you the guidance for 2018, it will be on the basis of the Safran stand-alone from now.

We start working with the Zodiac teams to integrate them into our budget for 2018. And by the time we report our half year results, we'll be able to update the guidance to include, of course, the Zodiac activities.

So let's look at our financial highlights. Continuing momentum in organic growth, the adjusted revenues at €16.5 billion increased by 7.4% organically.

The growth was broad based on all activities, which contributed positively to these numbers, and we had a continuing momentum in civil OE and Aerospace services. Our adjusted operating margin at 15% of sales, with a strong improvement in margins at Aircraft Equipment and Defense activities.

The net profit of the group share was at €2.6 billion. We had a strong free cash flow generation of €1.4 billion, representing 58% of recurring operating income.

The net cash position is at €0.3 billion. So all our financial objectives exceeded in 2017.

A word on the LEAP program. It's still a very big commercial success.

We got 2,870 orders in 2017. We have a backlog of 13,728 engines, almost 14,000 engines in backlog.

And our forecast of production for 2018 is around 1,100 engines. Just a quickie on LEAP-1A, we are in operative [ph] in operation at 17 airlines with more than 530,000 flight hours accounted.

On the LEAP-1B, it's in operation at 16 airlines, with more than 80,000 flight hours. The rest of our Propulsion business is also doing extremely well.

The CFM deliveries fell as planned by 249 units to 1,444 engines, which is still a very high level. We continue to sell this engine with new 474 orders taken in 2017.

The backlog of the CFM56 is still over 1,100 engines. Civil market -- aftermarket had a very strong finish in 2017 and grew more than 11% for the full year in U.S.

dollars. This growth come from a favorable environment for our airline customers.

[R&T] growth was strong in 2017, and IATA expect robust growth again in 2018. We ended 2017 with a growth of the traffic of 7.6%, and IATA forecasts 2018 with an additional 6% of growth of the traffic.

Our helicopter turbines made very good progress in 2017. The new 2,500-horsepower Aneto engine was selected by Leonardo to power its AW189K helicopter.

Aircraft Equipment. In nacelle, we signed -- it's a question which has been asked at the last discussion we had with you.

We signed the continuation of our contract to supply the nacelle of the A320neo LEAP engines. On brakes, new contracts for carbon brakes for another 1,300 aircraft.

This reinforce our market leader position with more than 50% of market share of commercial airplanes of more than 100 passengers. And finally, in the electrical e-taxiing, we are moving in the right direction with our customer, Airbus, and we expect very positive news in 2018.

In Defense, just a word on innovation, we have been awarded a new study to be the demonstrator for the infantry robot. It is really for the future.

It's a big step for us, and we are extremely pleased with this study we gained with the French DGA. We are also investing in the future, in R&D.

The self-funded R&D declined by €53 million in 2017, notably as spending on the LEAP tails off. Research and technology remains a key focus to boost innovation and competitiveness on our core markets for the future.

Self-funded research and technology was €462 million in 2017, representing 44% of the self-funding R&D spending. And it is set to increase in the coming years to prepare the next-generation programs.

Now turning to 2018, I'd like to highlight the following trends for the year. We expect self-financed R&D to continue to drop, while we increase the research and technology.

This is totally consistent with our development roadmap and with the preparation of the next-generation program. A word on dividend.

We are going to propose a dividend of €1.60 per share at the next shareholders' vote at the next Annual General Meeting on May 25, 2018. This represents a growth of 5.3% on this dividend.

I remind you that the total dividend distribution grows by more than that because the 26 million Class A preference share we created in the context of the exchange offer of Zodiac are eligible for the same dividend as the ordinary share. Now I'll let Bernard present more in detail the financial results.

Thank you, Philippe. Good morning, everybody.

I'll start with the quick reminder of Page 16. We closed the 2 deals for the disposal of the Security business.

After final adjustments, the positive impact is updated from 766 million end of June to 824 million today. I think that's the end of the story for the Security for us.

Following page is the usual bridge from consolidated data to adjusted data. As always, the big number comes from the change in fair value of financial instruments.

Spot rate at close raised from 1.05 to 1.20 at the end of December. It creates a 3.4 billion profit that is eliminated in the adjusted P&L.

Page 18. I will come back to key metrics immediately.

Before that, I just spot here 3 figures. One is the positive contribution for €177 million of joint ventures, 109 million coming from ArianeGroup, it represents 50% of net income of this joint venture.

Second thing, one-off items are negative for €90 million, of which €47 million were transaction costs for Zodiac. I expect approximately the same amount in 2018, which is the closing year of acquisition.

And third point, 542 million of income tax, stable apparent tax rate of 23%. It takes into account changes in legislation in France, in Belgium and in the U.S.

All in, net profit stands at 2.6 billion, of which 1.8 billion for continuing activities. It's up 6.6%.

Page 19, adjusted revenue in 2017. Organic revenue growth was 7.4% as all activities contributed positively.

Changes in scope include the impact of the contribution of Safran space launcher activities to ArianeGroup starting at the second half of 2016. Currency impact is negative due to U.S.

and sterling. The 7.5% organic increase is 1.1% additional operational revenues, 704 coming from Propulsion; 335 coming from Equipment; and 110 coming from Defense.

Following page, adjusted recurring operating income. It grew by 2.7% at €2,470 billion.

Group profitability improved by 66 million year-on-year with a margin of 15%. Propulsion was down 57 million due to the LEAP transition.

Aircraft Equipment is up 115 million, it's 20% up. Defense is 25% up.

In terms of scope, it's positive for 40 million because of the equity accounting of ArianeGroup. And the currency impact is positive for 151 million, thanks to a $0.03 improvement in the hedge rate.

Page 21, R&D. Self-funded R&D decreased by 53 million in 2017.

As expected, capitalization decreased and amortization rose, leading to higher expense R&D for 87 million, as expected, a headwind to EBIT in 2017. Most of the decrease from R&D came from LEAP, and increasing in the amortization took into consideration the amortization of LEAP-1B and some impairment of capitalized R&D for the A380 program even if new orders are welcome.

Page 22, a brief overview of revenue and profits by division. To be noted that the group margin stayed at the high level in the context of the CFM56-LEAP transition.

As expected, the decline in propulsion margin was offset by strong improvement in Equipment and Defense. For the record, Equipment margin was 9.5% in 2015, it's 12.6% now.

And Defense margin is now 7.1%, it was 5.1% in 2015. Some color now on Aerospace Propulsion, Page 23.

Organic revenue growth was driven by continuing momentum in services, narrowbody engines deliveries and positive contribution of military OE. Total revenue for Propulsion is 9,741 billion.

It's up 3.7%. Organic change is 7.5% up.

Recurring operating income, 1,729 billion. For revenue growth, please note that the original equipment is up 8.3% organic; services is up 7% in euro, including civil aftermarket up 11.2% in dollars; military services, slightly down; helicopter turbine services, down.

In terms of EBIT, on the positive side, contribution of civil aftermarket, military engine OE, positive impact of dollar and the contribution of ArianeGroup. On the negative side, higher R&D charge, helicopter turbine situation and, of course, the CFM56-LEAP transition.

The headwind for this transition is €342 million compared to 2016, it includes negative margin on LEAP delivered, the cost of provisions to ensure time on wing and lower volumes of CFM56 OE. Some color again on the impact of the CFM transition, we track the incremental impact of LEAP ramp up and CFM ramp down on EBIT.

The 342 million of 2017, compared to 215 million in 2016 and to a range of 150 million to 200 million in 2018. 342 million is lower than the revised guidance given in October for 2 reasons: less LEAP deliveries and more spare engines sold to a lessor.

It mitigated the cost of the campaigns we launched for discs and shroud. Our unit cost, by the way, is down 30% between January and December.

Page 24, Equipment. Revenue, 5,415 billion, 5.2% up or 6.5% organic.

Recurring operating income, 682 million, up 20.3%. That's a total margin of 12.6%.

Reported revenue were up 6.6% for OE organically, thanks to increased volume for A350, nacelle for A320, landing gears and wiring for A330 and for A320 family. On the negative side, lower volumes for A380 nacelle and small nacelle.

Services were up 6.4% organically, driven by carbon brakes, landing gear MRO and nacelle support activities. EBIT is 20% up, thanks to increased volumes, productivity gains, cost reductions, optimization of industrial footprint and positive impact of FX.

But higher expense R&D was a headwind to profit for 25 million. For Defense, revenue is 1,345 billion, up 8.6% or 8.9% organic.

Recurring operating income is 95 million, up 25%, and the margin is 7.1%. On the revenue side, Defense is up 21.2%, and avionics is down 3.3%.

EBIT is up 25%, thanks to cost control and the industrial performance measures, and thanks also to positive contribution of increased volumes in military sales. On the negative side, higher R&D charge recurring operating income for €13 million.

Now I move to Slide 26 for hedging. I guess, hedging is a hot topic as the euro experiences some upward trend.

2018 is hedged, as already explained, at $1.18. 2019 and '20 are partly hedged depending on spot rate raising or not above barriers set between $1.26 and $1.32.

Those 2 years should be hedged between $1.16 and $1.18. For 2021, we have initiated the hedging for about 1/3 of expected volumes.

Considering actual market conditions and the remaining instruments to put in place, we have a broader range, including the possibility of $1.20, but we are not yet here. On the following page, 27, it shows the changes since our last discussion.

We have raised the lower range of previous guidance for 2019 and 2020 due to knock-out barrier that have been immediately replaced. I consider $1.18 in today's condition as almost certain for 2019 and very likely for 2020.

Our strategy is to postpone as long as possible the day when currency will become headwind to profit variation from a year to another. As I always say, in the long term, you cannot beat the market.

Hedging is just a question of visibility for you and for us. Page 28, cash flow generation.

One figure is missing here in this chart is the EBITDA. It's €3,454 million, up 10%.

It does not translate in cash from activities due to strong cash out from taxes. Except this, we have had a very good control on working capital, that is down €316 million, and the expected decrease in CapEx is here.

It's down €104 million. You know that we express cash conversion as 58% of EBIT, but this year, due to taxes, I suggest looking at it from a net income standpoint.

And our cash conversion has reached 80%, very good performance. Page 29 is our net financial position.

We are cash positive for €294 million. It has fortunately not last after the acquisition of Zodiac, which was already partly reflected here with €2 billion securities pledged for this purpose.

This slide gives me the opportunity to remind you that we bought back 6.4 million shares in 2017 and should start our new €2.3 billion program in the second quarter of this year. Page 30, our balance sheet.

It reflects what happened in 2017. The finalization of the disposal of Security, the positive fair value change in FX instruments that had a massive impact on equity, our provisions are up due to the growing activity in services.

I remind you that it is an IAS 18 balance sheet. It will change a lot after IFRS 15.

Speaking of the devil, let's spend some time on IFRS 15. The purpose here is not to challenge 2017 figures using new accounting rules.

We do that to have a proper comparison basis for 2018 guidance. That being said, the key message is that cash and cumulative margins on contracts are absolutely not impacted by this new methodology.

Page 32, the main changes for Safran were already flagged in our previous disclosures. Service contracts will be booked differently now on a cost-to-cost basis, cash being received in advance of revenue recognition.

Transaction price will be split of different obligations, for example, spare engines and installed engines will have their own revenue, even for the same customer, delivered the same year. R&D will also be booked differently when financed by customer, not when we get the cash, but when we deliver the part.

Warranty and penalties shall now be deducted from revenues. In this case, it's not a timing change, but a presentation evolution that will affect, for example, our CFM-LEAP transition curve.

Page 33 is the impact of IFRS on 2017. I remind you that we are using the full retrospective method and the opening balance sheet in 2017 is negatively impacted at equity level for approximately €0.8 billion.

We stated for IFRS 15, revenues are now €15.953 million (sic) [€15.953 billion], that's €568 million below IAS 18 revenues. And EBIT is now €2,192 million, €278 million below IAS 18 EBIT.

Page 34, some color on the restatements by nature of revenues. And surprisingly, services are the most impacted as it represents 50% of the group revenues and are the most affected by the new mechanics of revenue recognition.

Page 35, you have the restatements by business line. Propulsion is the most impacted due to contracts per flight hour, especially for helicopter turbines and the maintenance of military engines.

On the other side of the spectrum, Defense is almost immune from changes. A final word on IFRS 15.

It's a limited impact on revenues, 3.5%, and no material impact on EBIT as some revenues end up at 100% in EBIT. We plan to organize a workshop in 2 weeks to have a broad explanation if needed.

Please register by calling our IR team. And now I leave the floor to Philippe who will express the guidance based on those 2017 pro forma figures we stated for IFRS 15.

Thank you, Bernard. So going to Page 37, what are the key assumptions we take for 2018?

First, an increase in Aerospace OE deliveries despite a fall in the high-thrust engine modules. Civil aftermarket growth will be in the high single digits.

The transition of CFM-LEAP will have on overall impact in Propulsion, adjusted over recurring operating income, in the range of €100 million to €200 million. We will have a reduction of the self-funded R&D of around €150 million.

CapEx outflow will be similar to the level of 2017, and we are going to continue very hard to get some productivity improvement in all our businesses. So with these assumptions, the full year 2018 outlook comparing, as Bernard just said, apple and apple between 2017 and 2018 in the IFRS 15.

The adjusted revenue we propose will grow on an organic basis in the range of 2% to 4%; if we take the estimate average spot rate of $1.23 to the euro in 2018, this adjusted revenue is expected to be flat; the adjusted recurring operating income to grow between 7% and 10% compared to 2017 at a hedge rate of $1.18 to the euro; and free cash flow to be above 50% of this adjusted recurring operating income. Bernard and I are now at your disposal for any questions you may have for us.

Thank you.

I will go for 2 questions, if I may. The first one is on a topic that is creating a lot of questions at the moment on the market, which is on the potential rate increase for narrowbodies at Airbus and Boeing.

What sort of lead time do you need to basically implement a decision? And I read on Reuters that you said you prefer to make the decision in '19, but what sort of lead time do you need to implement it in Equipment and Propulsion?

That's the first question. And the second question is on LEAP.

Can you please reconcile the statement that you made that you will be delivering around 1,100 of them in '18? And the statement by CFM in late January that it will be between 1,100 and 1,200, which I find slightly different or maybe it's just me.

Olivier, if you don't mind, it's Philippe who is going to try to answer these 2 questions and not Bernard. I will let Bernard answer more the financial aspects of the questions you may have later on.

On the LEAP, if you take the question regarding the quantity, in fact, we say about the same thing. I really think that the key is to deliver at least 1,100 engines.

Some people will say 1,100 to 1,200. I think we are really in the same range.

We delivered 459 engines in 2017. The objective is really to get at the 1,100 mark for 2018.

Again, if you look at 2017, some people said 500, some people said between 400 and 500, some of us said maybe 600. So we kept saying more than 450 and we ended at 459.

So you see we were not that far from the truth. And for 2018, if we deliver more than 1,100 engine, I think we will meet the commitments and the needs of our 2 customers.

Regarding a potential increase of the rates outside of the ones we have already committed for, again, we are in the middle of this ramp-up. And I will feel a lot more secure to make a decision regarding a rate of 70 aircraft per month in the beginning of 2019 than today.

I think it would be foolish to do that today because we are still in the ramp-up and we are not 100% sure that our supply chain will be able to sustain such a rate. So -- when we get at the end of 2018, we will be at a level of production almost on what you need in 2019, and 2019 will be around 1,800 engines to be delivered.

So if we are able, without any major problem, to reach such a level of production, I think it will be a lot easier for us to potentially commit for another rate increase after 2021 for up to 70 aircraft a month. And that's the reason I said I would really like to postpone the decision until the beginning of 2019.

And do not forget one thing: we will have also to consider the additional investments which may be required to reach this level of production. And if we do so, of course, we will have to discuss with our customers how to be sure that we are going to amortize with additional potential investment in a time frame which is suitable for us.

If I may follow up slightly on the timing to implement the decision. So basically, it's at least 2 years.

Yes.

Yes, on your side?

Yes, yes.

I have two questions. The first one is a bit more narrow and focused on LEAP deliveries.

So we've seen production broadly or -- broadly keep track with the schedule over the last 18 months or so. But there's always been this sort of kind of airgap or slip, and that seems that, over the last like several reports, you've talked about trying to close that gap in the next several months, and we see that again.

So I was just wondering if you can elaborate a little bit on what are the drivers behind the slip. Are you concerned about it slipping further?

Or what makes you confident in closing the gap over the next few months? And then second question is more broad, just from a high-level standpoint.

So looking at this buyback, one could kind of take the implication that your visibility through issues with ramping up LEAP and those costs, your visibility with integrating Zodiac and those costs, and your visibility on the aftermarket are all synthesized to something positive and that you're comfortable and confident with these 3 situations over the next few years. Is that a reasonable implication or how do you think about the messaging -- not just the messaging, but executing this level of a buyback over the next couple of years, considering these 3 challenges?

Well, I will let Bernard answer the question on the buyback and our confidence to do it. Regarding the slip of production, you're right, we have been impacted in 2017 with a few quality problems.

There was one on our products, and we talk about it, and there were also 2 on our partner's side. These problems, in my opinion and based on all the information I have, are behind us.

If you remember, we had a quality problem with one supplier on the low-turbine disc. We completely overcome this problem and it's behind us now.

So that's the reason we were a little bit behind schedule. Today, it's a different story.

We are really in the ramp-up, and the supply chain has some challenges to overcome in order to meet these requirements. I don't have -- we are quite confident because I don't have any technical problem, which would put this ramp-up at risk.

It's just a question of delivering products on time, and we are really working very hard with all our partners and suppliers in order to come back to a nominal level of production compared to the commitments we made to our customers by mid-year. So we should be back on schedule by that time.

So no more additional technical problems since more than 6 months now, and we are extremely happy with that. And just a question of putting the supply chain and suppliers on schedule, which is taking a bit of time.

So that's the reason we have been slipping for quite a period of time. But again, the objective of 1,100 engines in 2018 looks really achievable.

I don't have today a kind of blocking point to not commit for this quantity.

Regarding the buyback question, yes, the message is definitely positive. We haven't changed our view in terms of volume.

We are talking of €2.3 billion. We're saying it will spread over 18 months to 24 months to consider the situation, but I would say that we are very confident in our cash generation situation.

We see a free cash in 2018, very similar to 2017. We're optimistic on spares.

We're optimistic on the ramp-up. As Philippe said, it's very challenging, but so far, so good.

So there is no reason to come back on what we committed or I would say what we said. I mean, our balance sheet is very comfortable, so no reason to come back on this €2.3 billion buyback.

I had a few. First one, on IFRS 15.

I think you guys said previously that you expect a limited impact, and I think the €280 million is slightly higher than what I guess and I thought it was going to be. So can you perhaps talk about what's driving this?

And as we move through to 2020, do we expect to get this €280 million headwind EBIT back? And then, I guess, on free cash flow, the performance is very strong in 2017.

How should we think about that in '18? Obviously, you've guided that, I think, the midpoint of the guidance is for free cash flow to be down year-on-year.

So is this any moving pieces that we should be aware of?

Okay, I will answer the question. You may remind that we guided or we gave explanation on the impact of IFRS 15 on revenues.

I don't think that we gave any specific indication on the impact on EBIT, right? Maybe I gave a presentation at the end of December saying that it would be negative, and that's the corresponding impact of revenue change.

But we didn't say much about EBIT. Why is there a kind of discrepancy between the limited impact on revenues than I expect to what we said approximately in March 2016?

We said it would be limited, and it is limited, because when you see the change of revenues between IAS 18 and IFRS 18, it's 3.5%, it's limited. But some of those revenue impact end up at 100% in EBIT.

Just an example, for the transaction price. Today, or I should say under IAS 18, we use the same price for the same customer for installed engines and spare engines, right?

And now we have to allocate specific price for installed engines and spare engines. So in 2017, as we have delivered more installed engines than the average mix, it has an impact on revenues.

And as unit costs are exactly the same, it has an impact on EBIT, just to give you an example. So nothing to worry about that.

The €278 million, the question is when will it recover, I guess, that's your question. It's a bit difficult to answer your question.

For €217 million, the opening balance sheet is a negative impact on equity, and we've given this figure in last summer of €0.8 billion. The €278 million impact on EBIT takes into account a recovery or let's say a catch-up of approximately 40% of this opening balance sheet impact.

So it means that the new impact of IFRS 15 is above the catch up of the initial IFRS 15 impact. And I expect that, since our business is growing, we'll still have this kind of impact in 2018, but that's not the point.

And now our revised guidance is expressed under IFRS 15. So it takes into account everything, catch up and new impact.

Now on free cash, if I may now answer your question on free cash, there is no specific one-off negative or something like that in 2018. We see 2018 free cash generation very similar to 2017.

I understand that expressing that in terms of EBIT, that is changed due to IFRS 15, is somehow tricky. So let's put it that way.

We see 2018 very close to 2017 and completely in line with our medium-term guidance.

Okay. So just coming back on the IFRS 15 quickly.

So I guess, if we use that math of 40% of the balance sheet impact is already being absorbed in '17, I guess one could argue that you get about €280 million. That balance sheet impact will have been gone by the time you get to 2020.

Do you think that's fair?

Yes, we have -- you are talking here of the initial impact in 2017. But the recurring business is creating some other impacts under IFRS 15.

So let's put it that way. The initial impact of €0.8 billion will be recovered at 40% -- is recovered for 40% at the end of '17 and, I would say, at 85% in 2020.

But between '17 and '18, you already have new contracts creating new impacts under the new accounting rules.

[Technical Difficulty] From Barclays. Three questions, if I may.

Firstly, on FX, as you say, there's been a lot of volatility here, but can you just remind us exactly how these colors work? Clearly, the average rate you'll end up achieving in 2019, no matter what happens, can't really be dragged too far away from the range that's being shown.

But in 2020 and 2021, you referenced knock-out barriers set at a rate of $1.32 with maturities up to the end of 2019. But obviously, the forward curve in the outer year, there's obviously a fair way ahead of that rate at present.

So how should we think about how this progresses, please? On the basis of the forward curve is somewhat valid and states where it is.

The second question is on raw material prices. Obviously, this has also been bouncing around a lot, and every supplier we hear from seems to suggest that they can pass this on.

So how should we think about the potential headwinds this may now present to you guys? And finally, a question on the timing of an internal decision for a potential Boeing mid-sized aircraft?

And what is an acceptable business case in your view in terms of the market size for dual-source engine? And how should we think about the profile for the investment required to meet an in-service date of, I guess, 2025, which is the time frame I think we're talking about.

Okay, I will answer your question on FX. The thing is, you shouldn't choose a forward curve because it includes swap points and the -- all of the value, I should say, of our hedging policy is to avoid swap points by using options.

And that's why you shouldn't compare the -- where we set the KO barriers for options. You cannot compare it to the forward curve.

I mean, you have to take into account volatility as well. And from that point of view, the only thing I can say that $1.32 is far away from today's spot conditions, that's why we are comfortable with what we said for 2020, which is a targeted hedge rate from $1.16 to $1.18, that is similar to 2019.

For 2020, as we have hedged $2.5 billion, that's 1/3 of the volume needed in 2021, due to actual market conditions, we cannot rule out an increase of the hedge rate. But again, it's in '21 and we are not yet at that point.

So but from a technical point of view, do not compare where we set our KO barriers and the forward curve because it's -- you cannot compare that.

To answer your question on raw material, we have a limited impact on variation of raw materials, especially titanium or aluminum. And we today have long-term contracts, which, in many cases, protects us from variations.

So in 2018, don't expect any big change in our forecast related to variation or raw material. We are not really very much impacted, generally speaking, in all our businesses by variation of raw material.

Even if, of course, when you have an increase or a big decrease of titanium, it can help or it can create an additional cost. But altogether, when you compare that with the cost of our products of the end products, raw material has really a small impact.

Question on the new middle of the market program at Boeing. If Boeing decides at a point to launch it, it's too early to tell you if double source for engines would make sense.

What I can tell you is that we are today in discussion with a customer like our competitors. The product we are looking at is under [50,000 pounds] of stress, which falls in the JV we have with General Electric called CFM, which is 50-50 percent JV.

And with our partner, of course, we will look at the business case and see if, at a point, based on the potential of the market, it makes sense to make an offer to Boeing regarding this program based on the fact that Boeing will decide to go either with a single source or dual source of engines. It's too early to tell, but it's a question which will come on the agenda some time, I believe, in 2018.

It's Tristan Sanson from Exane. I have a few questions and a follow-up on cash in '17 and 2018.

You said there was no exceptional movement of working capital first in 2017 and '18, but you still mentioned advanced payments received in '17. I suspect they are related to Rafale export orders.

Do you imply in your 2018 guidance that you will get a further advance payments related to these contracts in '18 or should we assume a reversal of that trend? That's the first one.

The second one is on the assumption around the Silvercrest engine program. Your cash outlook, if I understood your accounts, you have a €290 million provision in your accounts for that engine.

Should we assume that as you settle this issue with Dassault, this turn into a cash out in 2018? Or do you have a material cash out baked in your 2018 guidance for your -- for this program?

Third small one, is Airbus mentioned a revision of payment terms with key suppliers in 2017, which helps its cash performance. Can you tell us whether you have been impacted also at the working capital level by this or whether it could be an impact also in '18?

And final, still on cash, is one of the bigger driver of -- or impacting the free cash flow is the net evolution of provisions, about €200 million of headwind in 2017. What is the outlook?

Should we assume the same run rate for provision booking in 2018 going forward? It would be very helpful.

Okay, and this is Bernard, I will answer your question. For Rafale prepayments, we have the same assumption of prepayments in 2018 and '17.

So this is neither a headwind or a backwind, approximately the same amount. For Silvercrest, well tried.

I don't know where you get the amount of provisions because we don't exactly disclose that. As it is an ongoing situation with one of our client, I will not comment on what we plan for that.

For Airbus...

Is it not '19 of your accounts? Sorry, that's what I found it (inaudible)

No, no, no, I mean, it's not specifically dedicated, the number in the accounts to the situation you are referring to. Absolutely not, okay?

For Airbus, yes, indeed we have done something for the payment terms to Airbus. It is almost neutral for us as we have a factoring facility in order to mitigate or to offset this impact.

So no impact for us in 2017 and '18, if it's done in 2018 as we did it in 2017. And for provision, it goes up and down depending on activities.

So let's take the assumption that this one is going to be neutral for 2018 cash generation.

Can I start just with the guidance for 2018? We talk about organic revenue -- adjusted revenue growth in the range of 2% to 4%.

I think maybe that, that was perhaps a little lower than the consensus numbers I'm looking at we're anticipating. Can you give us a little bit of a feeling sort of between the businesses sort of the organic revenue growth you expect and the sort of dynamics?

And then secondly, can you -- and I hear your answer to Tristan a minute ago, Bernard, but can you remind us of any capitalized amounts remaining in terms of R&D on Silvercrest or was it fully written off? And then just final question for me, with Zodiac, I noticed the press release for their board changes the other week.

Can you just help us to understand the departure of Yann Delabrière. Was that something that was always planned from the minute of the acquisition?

Can you help us just to understand the sort of the CEO sort of departing, I suppose, in the middle of the transformation for Zodiac?

I will try to answer the first and the third question, and I will let Bernard answer the second question on Silvercrest. Regarding revenue, yes, you're right, we are conservative.

I would say that if you look at our guidance over the last of couple of years, we try not to be too optimistic and be sure we cover all our cost and on a limited amount of revenue. I've seen so many situations in the past where people are extremely optimistic and there are fixed costs, which may undermine their profitability.

And I prefer to be quite secured on the revenue side and be conservative on the revenue, put all my costs, variable and fixed, especially the fixed, in line with this conservative revenue. And then everything which is above the conservative revenue is good money.

So yes, you're right, but I prefer to be on that side than to be too optimistic in the guidance and let all my fixed costs be too high and at risk at a point if I don't meet my revenue forecasts. Regarding Zodiac, a few things.

We took responsibility on this company on the 13th of February. It was assumed since we started the discussion and after we signed the first document with them in May last year that the mandate of Yann Delabrière was limited to this transition period.

We never expected Yann Delabrière to stay after we take control of the company. We think -- I think that in order to achieve the synergies, to achieve the fact that this company has to be back as the preferred supplier of its customer, we need to put our own people, we need to put our own tools, we need to put all our processes in place and have a direct look on the management and on the profitability of this company.

To give you an example, I was, last week, at Boeing, and Boeing -- I mean, Zodiac have some problems with a Boeing customer, and we reached an agreement with Boeing on yesterday, on the February 26, which is going to enable Zodiac to be eligible to all the future business opportunities with Boeing. So this is a big step, and I did it.

I went myself to Boeing. It's not something that you can give to, as a task, to someone who has no experience in the Aerospace industry and who doesn't know the customer because, at that point, it's a question of relationship and trust.

So we put our team in place. I put a new CEO who will be really taking responsibility on the seats.

There is a team of Zodiac in charge of the cabin and the aerosystems, and we will drive them as we drive the rest of our businesses. Bernard, maybe answer the question on Silvercrest.

Shorter answer on Silvercrest. All assets have been written off for the engine.

And for the new client, the second client, everything goes through the P&L. So no more capitalized R&D on the Silvercrest engine.

Just three quite quick ones actually, if I may. Bernard, just when will you be able to say that '19 and '20 are 100% secured in terms of your FX rates is one question.

The next one is are you able to tell us, of the LEAP deliveries, how many you think will be spares actually in '17 would be helpful as well as '18 versus how many go to Airbus and Boeing. And then lastly, maybe I just was a bit confused here.

I thought, last year, you were only -- you said you would forego the H1 dividends to help pay for Zodiac. Maybe that was changed with the revised offer, but I just wonder whether I was confused there or you changed your view.

Okay, David. For 2019, we'll be able to give a firm and definitive hedge rate next year at the same period of time.

And by next year, we'll have increased our hedging for 2020. So the target will be more and more precise, I would say.

So almost the same thing as we go in the year, we can be more detailed in the guidance as we increase our coverage of the expected volumes. So for today, $1.18 for 2018 is for sure.

But again, I don't see reasons why we should not be in the range $1.16-$1.18 in 2019 and 2020. For LEAP deliveries, we don't give the detail of spares versus installed engines.

And I didn't really get your question on the dividend. I mean...

Sorry. Maybe it's my mistake.

I just thought you've originally said you weren't going to pay an interim dividend in the year. (inaudible)

Yes, that's true. We haven't planned an interim dividend in 2018.

We didn't say that in [Inaudible].

Sorry, my mistake. So it was just a euro.

So in '18, you won't get an H1 dividend?

David, we said that we wouldn't pay an interim dividend in 2017 and we did not. And we take exactly the same position for 2018.

Sorry. So just to be clear that you're paying a full year's dividend, you're just paying it all in the full year dividend.

In May. Yes, well, the full year dividend of 2017 will be paid on May the 25th for the full dividend, right?

And I...

So it's just a timing issue. It's not that you're going to pay less in dividends, it's just a timing issue.

I'm looking at Slide 13.

No, of course. I mean, we'll pay a full dividend in May.

I don't see why you consider it...

No, it's my misunderstanding. I thought you were going to just pay the H2 dividend.

No, no, no. Look at Page 13, I mean the chart is clear.

Before 2017, it was spread between an interim dividend and the final payment. And now it's all in.

The €710 million and the €1.60 will be paid in June, and that represents 100% of the dividend for 2017 paid in 2018. And we don't plan to come back to the former policy of interim dividend and then the rest of the dividends paid later.

Yes, a further question on the hedging. I wanted to ask what happens if you do go to $1.32.

Obviously, it's a long way from the spot, but it's not so far from the very long-term average of the euro, dollar. So is there any sort of plan B, if you like, or any portion which you've just sold as vanilla forwards or do you simply revert to spot in that instance?

And then second different question. Boeing has announced a JV with Adient on premium seats, which I think is a new development as most, sort of, fostering competition has been around economy seats so far.

Does that give you any concern with reference to Zodiac? And also, more generally, Boeing perceives a vertical integration.

Are there any areas of concern within your equipment business relating to that?

Bernard, will you take the first question? I will take the 2 others?

Yes. I mean, all the work of our treasury team is not to be called off the [guard] when the spot rate crosses the barrier.

So well in advance, we restructure our options and the potential KO barrier in order not to cross that. So it means that we are not going to change our policy.

We will continue to use option and to restructure the option if we see a potential risk of KO barriers to be passed. So that's what we do.

But if your answer is what will happen if spot remains at the high level for a very long period, so at that time, we have always said that there is a convergence in the long term between the hedge rate and the spot rate. So if, and this is an example, this is not a forecast because I don't do any forecast when it comes to FX, if the spot rate remains at the high level for a long period of time, so at the end of the day, our hedge rate will come down to the spot rate.

But we are not here, and we have today in our portfolio of non-used for the moment instruments, all the means to keep it -- I mean, the hedge rate, in the range of $1.16 to $1.18 for 1 or 2 years ahead.

I think your second question regarding the JV of Boeing and Adient in the seat business. I would just say it's another competitor.

As up to now, Boeing and even Airbus have tried to launch their own business in the seat for aircraft and have not been really very successful. We see how this new JV is progressing.

Don't forget one thing, most of the business, valuable businesses is coming from [indiscernible] directly from airlines. And usually, the airlines like competition and they like to discuss directly with the seat manufacturers.

How they're going to be more open to discuss with the OEM on seats, I'm not sure. Again, we just have to do our job, be innovator and propose good products that we will deliver on time.

So again, as long as we master our own quality, our own delivery and our own performance, I believe that there is plenty of room for Zodiac Safran to continue to grow the business, but it's a competitor. There has not been a lot of successful entry of new entrants in this Aerospace world coming from the automotive because the rules are so different that, until now, anyway, this has not been a huge success.

But again, we'll see how this new competitor is performing. The key is really for me to put my company back into -- on the right track and back on the performance which is needed by customers.

The third and the last question is on the integration of systems and equipment by OEM. Yes, it's a risk.

I mentioned it earlier in the presentation that we have been able to secure a long-term contract with Airbus for our nacelle business. It's just an example where you must know that our competitor for the second engine option on the A320neo has lost this contract.

So we have to do our own work internally to remain competitive without losing market share, but -- and be sure that we can propose the right product at the right price for customers. So yes, there is a risk that even Boeing may want at a time to integrate more avionics system, more equipment, but it's also an opportunity.

As long as you work with them, we've seen with Airbus, it's an opportunity to create even more value for our self. We have to be innovator.

We have to spend a lot of money in research and technology to make proposal that they cannot refuse. So that's going to be, I believe, the case on the new Boeing program if they launch it.

And on the continuing business we do with Airbus, same thing. Be innovator, we are going to propose the e-taxiing for Airbus.

This, I believe, in 2018, is going to be a big success in terms of new systems introduced on this aircraft. And again, innovation, research and technology, spend a lot of money, make proposal to the customer, upgrade your products, propose new product is really the only answer you may have in order to avoid that our customers be tempted to integrate vertically systems and equipment.

This is the end of our presentation. Thank you for attending this session.

Have a nice day. And we know that we are going to meet with some of you in the next coming weeks.

Thank you for, again, for attending this session. Have a nice day.