Safran: Traffic Recovery Underway but Supply Chain Risks Intensify

Wide-moat Safran reported 2021 EBIT in line with guidance while revenue was slightly disappointing. Revenue declined 5.4% organically due to lower-than-expected LEAP engine deliveries (845 versus 900 as previously guided) caused by supply chain disruptions in the U.S. during the fourth quarter. A mix shift to high-margin aftermarket sales supported group EBIT growth of 8.4%, with margins expanding by 160 basis points to 11.8%. Positive working capital movements and improvement in profitability saw strong growth in free cash flow to EUR 1.7 billion, from EUR 1.1 billion in 2020. Guidance for 2022 implies 17% growth in revenue while the EBIT margin is expected to increase to 13%, which compares with a 15.3% precoronavirus margin. Sales growth and margin expansion is supported by 25%-30% anticipated growth in aftermarket sales and the ramp-up of LEAP engine deliveries.