Q3 2021 Airbus SE Earnings Call
This conference call and of course, you'll be operator for this conference. Please note that for the duration of the presentation. All participants will be in the listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask questions. At this time I would like to turn the conference over to your host young from Germany F N B.
And then the closet. Please go ahead.
Thank you got you.
Ladies and gentlemen.
You can see almost nine months 2021 results release conference call.
G E L T O and I mean, you guys I'm off here at home will be presenting our results and I'm sorry your question.
This call is planned to last.
Okay.
Do you think this Q&A, we try to conduct after the initial presentation.
This call is also webcast.
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The supporting information I catch was emailed to you earlier this morning.
It includes the slides.
We will now take you through as well as the financial statement.
Throughout this call we wouldn't be making forward looking statements.
The package you received contains the safe Harbor statement, which applies to this call as well so.
So yes regions casually.
Now I'll have two P M.
Thank you Adam and welcome on Board.
Good morning, ladies and gentlemen, and thank you for joining us today for nine months 2021 in this call.
Good to speak to the game.
Had the pleasure to meet some of you may know what show in New York.
Before the summer break.
Jimmy you can my sense will run you through our financial results and we are proud of doing it for the first time.
For a company being buckets to European Prime indices, the CAC 40 and deductible.
Let's start with our commercial aircraft deliveries in Q3, we delivered 127 aircraft to our customers.
Including one opportunities.
This takes our yesterday delivery number two for 124 aircraft compared to CMS and <unk>.
Talk to you on that process in the first nine months of 2020.
So we feel we are on track to achieve our 2021 delivery guidance.
600 commercial aircraft.
While nine months EBITA adjusted was $3 4 billion euros compared to minus $4 1 billion in the first nine months of 2020.
It reflects commercial across the range of costs as well as our efforts on cost containment and competitiveness.
While <unk> benefited from a reduction of risk exposures, which enabled us to release some provisions.
In Q3, we began to see an increase of our cost base as we are transitioning back to normalized business activities and as we started to ramp at the FY 'twenty prediction.
Our nine months free cash flow before M&A interest and a financing with US $2 3 billion euros and included strong putting two phasing effects on working capital.
On the operational side, we raised <unk> hundred thousand 70, <unk> monthly production rates as planned and our supply chain.
Fully engaged in the ramp it.
After almost 18 months of stable rates, we are managing individual cases of <unk> securities.
While we are ramping up with Goldman.
Well done.
In the context of Covid recovery.
10 of our northeast footprint.
I'll take the global recovery, we are closely monitoring potential risks throughout the ecosystem.
<unk> resources.
We continue to work closely with our suppliers striving to ensure that the rights into CRM. So collection capabilities are in place.
At the same time, we focus on the long term competitiveness of our industrial operations in particular on the transformation of our iOS picture of somebody value chain.
On this subject we continue to work on solutions with our social partners.
When it comes to the guidance, we keep our full year commercial aircraft delivery guidance unchanged.
Following our nine months financial performance, we raised our 2021 guidance for EBITDA and.
And free cash flow before M&A interest and a financing.
Let's now look at our commercial environments.
The crisis is not yet over as everybody knows the deviation undersea is starting to emerge from.
In Q3 global Air traffic has further recovered.
During the foot chief trend, which we have seen since the beginning of their and they said he has put in place.
Domestic travel is at 70% of its pre crisis levels.
International Air traffic is still at low levels, which we've seen some great progress, particularly for Europe and North America.
Which should be further supported by the reopening of the U S.
For vaccinated passengers when it come to North Atlantic.
However, key markets can still it can still be volatile for example, China, which lost more than 50% of its air travel activities within one month during the summer.
And then I call. It in the context of our recent decision to launch the <unk> freighter of their EBIT.
So we mentioned that the air cargo market as remain well above the pre crisis levels.
All in all we continue to expect the market to recover between 2023, and 2025 with domestic and regional markets clearly leading the recovery.
Now, let me remind you of orders and backlog.
In the nine months, we booked 270 gross orders of which 156 senior line in.
<unk> 100 in fact that crops, including seven <unk>.
We saw 137 cancellations year to date of which only 10 in Q3.
These cancellations in nine months were largely anticipated and already embedded in our backlog valuation as of year end 2020.
As a result net all of those were positive at 150 seat aircraft and our backlog in units.
Amounted to 6894 aircrafts.
Moving to vertical.
In September we announced plans for the CTF Nextgen.
I'm pretty excited about it.
It's a new fully electric vehicle for sustainable urban Air mobility.
<unk> leveraging several years of research and demonstrates our developments to plan for our first prototype in 2023, which paved the way.
<unk> certification in 2025.
And looking at helicopters and the nine months of 'twenty, one we booked 185 net orders compared to 143.
In the nine months 2020.
<unk> vehicle at several dose in the right segments.
And in 2021, and we see good and positive momentum for large campaigns in our home countries.
Finally.
In defence and space.
In the nine months 2021 order intake was at $10 1 billion euros and this represents a 23% increase year on year.
During the third quarter alone, although we have booked in the amount of $6 6 billion euros. This includes deal bill by the Indian Air Force for the acquisition of 56, Cte 95 aircraft to replace its legacy fees.
The support and staff contracts can you award for the German and Spanish or fighter fleets.
Although by the Republic of Kazakhstan of two Airbus a phone with them, becoming the ninth okay on top of the aircrafts.
This new export complex brings the total number of a falling within all deal to one onward and 76 units.
Let me take this opportunity to highlight the crucial role played by all Airbus military aircraft in the context of the recent category evacuation.
Turning stone, which involved 25 <unk> hundred <unk> seven customer nations and nine <unk> hundred 30, <unk> tankers from 61 took a write offs.
This underlines once again the critical assets. These aircraft has become for customers and the more generic.
The award that our defense solutions play in protecting People's lives and providing humanitarian relief.
In line with the United Nations Sustainable development goals is also demonstrates how we contribute to safety stability and prosperity worldwide by developing defense and security solutions.
Promote new order flow.
Freedom and Democratic values.
In space systems to see orders, including the remaining portion of the contract to design and manufacture of six <unk> satellites.
And we also continue to see good momentum in the satellite business. The second set that out of play out in Earth observation constellation was successfully launched <unk>, which enables us to start delivering to our customers in the very high resolution markets.
It's Jeff.
We very much welcome the signing of the SaaS implementation agreement for this record.
The more phases, one and two which marks one small to support of Spain, France, and Germany for this program.
<unk> is proud to be part of the future combat Air system, which is key to secure national sovereignty and European strategy question with respect to operational technological and industrial capabilities for the <unk>.
21st century.
Beyond that cats and following the recent German elections, we are pleased to see among the German political parties. The continuation of the widely shared commitment to strengthening European Corporation, including in the Europe Defense.
For your withdrawn we continue to progress toward complex signature we hook Carl.
And.
No.
Dominik will take you through our financials Dominik the floor is yours. Thank you Jan and good morning, ladies and gentlemen.
Our nine month 2021 revenues increased to $35 2 billion euros up 17% year on year.
Reflecting the higher number of commercial aircraft deliveries.
Our EBIT adjusted increased to $3 4 billion euros in the nine months of 2021.
From minus <unk> 1 billion in the prior year's period, which included 1 billion of charges due to impairments and write offs triggered by COVID-19.
Strong year on year improvement EBIT adjusted is mainly driven by the commercial aircraft delivery performance and our efforts on cost containment and competitiveness.
It also reflects a reduction of risk exposure, which enabled us to release some provision as an example, we reviewed the COVID-19 related charges and reassess the level of exposure, which had a positive impact on our EBIT adjusted.
At the same time in Q3, we saw the progressive resumption of activities that will further accelerate in the coming months.
On research and development expenses in the first nine months decreased by 6% year on year.
Now expect our 2021 full year research and development expenses to be slightly lower than in 2020. Some expenses previously foreseen 2021 will now be incurred in 2022, and we will ramp up our R&D next year.
For nine months earnings per share adjusted stood at two Europe 95 cents per share based on an average of 785 million shares.
Our nine months free cash flow before M&A and customer financing was $2 3 billion euros.
It reflects our effort with cash containment and also includes a strong positive phasing impact in working capital part of which is expected to be neutralized in Q4 2021.
All in all given the nine months, we saw a good number of commercial aircraft deliveries and be focused on competitiveness, but we're still managing our costs in a crisis mode up to <unk>.
We begin to resume activities in the third quarter with further acceleration expected for the fourth quarter in the nine months.
We also benefited from a favorable hedge rate and from some provision release.
Now look to the next slide regarding our profitability.
That said the nine months of 2021 EBIT reported was also $3 4 billion the level of EBIT adjustments was a net positive for <unk>.
1 billion in total.
Including one.
190 million related to the <unk> hundred 80 program of which.
45 million booked in Q3, minus 165 and negative impact from foreign exchange mismatch and balance sheet revaluation of which only $5 million in Q3.
Plus 43 million of other adjustments, including compliance costs of which minus $6 million in Q3.
<unk> per share reported includes minus 172 million of financial results in.
It mainly reflects the net interest result of minus 233 million.
Partly offset by plus 63 million euros related towards decile of yes, you all.
The tax rate on the core business is around 27% the effective tax rate on net income is only 21%, including the effect from tax risks updates and the tax effect on the revaluation of certain equity investments.
Lastly, offset by deferred tax assets of habits.
The resulting net income is $2 6 billion euros with earnings per share for reported of three Europe 36.
Now on to our hedging activities and.
In the nine months of 2021, $15 4 billion of hedges matured with the associated EBITDA impact at a rate of $1 19 versus $1 20 compared to the same period last year.
For the full year 2021, we expect an average hedge rate of $1 21 compared to 119 in 2020.
As a result, we expect the hedge rate for the remaining three months to be less favorable both year on year and in comparisons with nine months of 2021 average.
In my nine months 2021, we implemented 22 $8 billion of forward.
At a rate of 122 of which $12 1 billion in Q3 'twenty one at a rate of 121.
Mainly for the years 2022, and two 2025.
This translated into.
Improved average hedge rates for those years.
Our total hedging portfolio in U S dollar, including $1 2 billion of hedges did qualify that in Q1 'twenty one.
Now at $87 1 billion with leverage hedge rate of 136 versus <unk>.
$81 billion also at 126 in December 2020.
Now, let's look at our cash evolution in the nine months of 'twenty one.
Gross cash from operations.
<unk> was at $2 7 billion euros, mainly reflecting our EBIT adjusted and including a $4 5 billion provision consumption related to the restructuring plan.
Our working capital has decreased by $4 8 billion Europe. It includes a significant positive phasing impact from the timing of receipts and payments.
The offset by inventory build in the divisions, reflecting the delivery profile.
Year to date, the April and continued to weigh on our free cash flow before M&A, but less so than in the nine months of 2020.
99 months capital expenditures were around $1 2 billion euros negative brought in line with the nine month 2000 <unk> level for 2021, we continue to expect our capital expenditures to be around 2 billion euros ketchup.
Free cash flow reported was $2 3 billion euros.
M&A activities accounted for only minus 14 million euros, while customer financing represented the inflow of 62 million euros. The aircraft financing environment remained solid with sufficient liquidity and financial market for our products.
Also benefitted from support of export credit agencies.
When it comes to our fiscal year 2021 of.
Free cash flow and in particular looking at our working capital.
We expect the nine months phasing effects to be possibly move slide for the fourth quarter.
And to see an impact from our single aisle ramp up.
Our net cash position has improved to $6 7 billion in Europe.
Of the end of September and our liquidity position remains strong and stood at $27 7 billion euros.
Given the increase of our net cash position and our robust liquidity, we decided not to renew the undrawn $6 2 billion Euro.
Elemental liquidity line, which matured in September in the Meanwhile, we extended the maturity of our 6 billion euros, the revolving syndicated credit facility by one year.
Going forward, we will continue to adopt and active approach when it comes to managing our liquidity.
With the objective of maintaining our robust credit ratings and now back to you.
Thank you Dominik.
Starting with commercial aircraft in the nine months 2021, and we did 424 aircraft 274 customers.
Which one operating needs without revenue recognition at delivery.
When we look at the nine months 2021 situation by aircraft 70.
First on the <unk> to 'twenty, we delivered 34 aircraft.
Our collection rates currently at five per month is expected to increase to around six months in early 2022 with a monthly production rate of 14 envisaged by the middle of the decade.
To support the 820 <unk>, we are bidding a peacetime.
EMEA Robin which is targeted to be entrepreneur in early 2022.
On the <unk>.
'twenty, we delivered 341 aircraft of which 165 were <unk> hundred 20 ones.
We are working to secure their own book and we are on a trajectory to achieve rate 65 by summer 2023.
Amortization of the <unk> hundred thousand <unk>, starting to lose east progressing well and should be up there actually more by end of 2022.
On the <unk> hundred 20, onex at all the main components assemblies, namely the wins from Broughton the.
The notes four wall fuselage from San Jose and New Hampshire delays from Hamburg.
<unk>.
Enter.
Limbaugh.
Coming to <unk>.
Let's move to wide bodies.
We delivered 11 aircraft in the first nine months I'm happy to share with you that we expect to increase our April 30 collection rate.
Two two almost close to.
A month on average at the end of next year.
We also delivered 36, <unk> and we now expect to increase the production rate from around five per month to date were around six in 'twenty.
2023.
On <unk>, we deliver two aircraft in the first nine months.
In October of one more I'd say to you is did you go through in their rates and we are organized to end the deliveries by the end of this year.
Now, let's look at.
Airbus commercial financial and the nine months revenues increased by 21% trailing theyre largely reflecting the higher deliveries as compared to 2020, which you'll remember was totally impacted by COVID-19.
The increase in EBIT adjusted is mainly driven by the delivery performance and a focus on cost containment and competitiveness.
In addition, we released some provisions reflecting among others. The good progress made on the remarketing of unplaced aircraft.
Finally, let me remind you that the nine months of 2020 vision suggested included 1 billion your wolf charges due to impairments and write offs triggered by Covid.
COVID-19.
Looking at helicopters.
In the first nine months of this year, we delivered 194 aircrafts in total 25 more than in the nine months 20 <unk>.
Revenue increased by 14% year on year to $4 1 billion, reflecting growth in services and ways as.
As well as higher deliveries.
Mazzuca Puma helicopter than last year at the same pace.
The EBIT adjusted increased by more than 30% versus last year through the nine months of 2022.
314 million awards this year, driven by services program execution, and lower spending on R&D due to the <unk>.
Of the certification process for the H 160, and the new 5 billion version of the H 145.
In 2020.
Now onto defence and space revenues.
Broadly stable compared to the nine months 2020.
The increase in EBIT adjusted mainly reflects our focus on cost containment and competitiveness in the first nine months of 2021.
For the 400 of them immediate tight on protect what we deliver four aircrafts in the first nine months of 2021.
We have continued with development activities towards achieving the revised capability roadmap of via cross retrofit activities are progressing in close alignment with customers.
Risks remain on the development of technical capabilities and associated costs on a crossover Josh when we look at liability in particular with regard to power plants on the <unk>.
Cost reductions and on securing export orders in time us.
They are the revised baseline.
No.
Onto the guidance slide.
Also we continue to face other unpredictable environment.
Nine months performance enables us to rates of 2021 guidance, let me read outs.
Our updated 2021 guidance to you.
The basis points 2021 guidance the company assumes no further disruptions to the world economy.
<unk> traffic, the Companys internal operations and its ability to deliver products and services.
The company's 2020, what guidance is before M&A.
That basis. The company has updated its 2021 guidance and no targets to achieve in 2021 around.
Seek some of those commercial aircraft deliveries.
EBITA adjusted of $4 5 billion euros.
And free cash flow before M&A, and Christina financing of $2 5 billion euros.
Let me conclude as usual by summarizing our key priorities.
First on top of managing on deliveries and backlog as agreed with our customers.
We will maintain our.
Before our dedication to secure the ramp up of our <unk> hundred 20 family.
And because the demand is very strong.
At the same time, we make further progress on the modernization and transformation of our commercial and industrial operations.
This includes.
The digitalization of our developments projection and logistics processes.
Why don't use of robotics in our production sites as well as the simplification of our industrial setup by bringing I almost have to have somebody back into the heart of our company.
In preparing for the future.
In this context of ramped up in transformation, we expect to see a pickup in hiring with a focus on securing the rights schemes to support our clients.
When it comes to our leading role in Decarbonizing our industry we.
We are pleased with the additional momentum generated by the other segments, which recently brought together a wide range of international decision makers introduced.
<unk>.
Supporting the view that firstly.
The decarbonization of cytokine.
<unk> be the result of an unparalleled couldn't keep at fault.
All industry stakeholders as well as supportive government policies.
On that note, we welcome the <unk> commitments to.
Align the global Air transport industry, with the Paris agreement and to achieve net zero carbon emissions by 2050.
And secondly, the.
Semi test confirms that we are likely to see a multi step process. This starts by replacing old plans with new ones.
Emitting less carbon followed by an increased use of assistant anybody edition fuse, including synthetic fuels beef.
Before finally, moving towards small disruptive technologies like hydro power that ground.
And in case, you have not been able to follow the events I invite you to visit our Airbus website to find the replace.
Let me finally emphasize that it remains a priority to deliver on all the <unk> 2021 guidance.
As we've seen for the crises home visits and a strong balance sheet enabled us to sustain our ability to invest in our.
Our long term ambitions across the portfolio.
Now we are already together to take your questions. Thank you for your attention.
We now have a Q&A time.
Please introduce yourself and your company.
Question.
Please limit yourself to two questions at this time.
Second question.
Oh I see.
Please remember to speak clearly and slowly.
Just to help all participants, particularly upfront so I understand your question.
So could you. Please go ahead.
Laser procedure for the party.
Thank you we will now begin the question and answer session.
To ask a question press zero one on your telephone keypad.
If you wish to remove yourself from the queue. Please press <unk> on your.
Thank you Bob So once again, if you wish to ask a question.
<unk>.
Well thanks, Bob.
First question is from Mr. Tristan Sanson from Exane BNP Paribas, Sir Please go ahead.
Yes. Good morning, everyone. Thank you very much for taking my questions. Please crystal for Nixon.
First question is on the delivery trajectory for this year.
You've been delivering lately below youll production rates in the August September 40 units, especially in October he is not.
Could it be material kicks up.
From what we see you still have strong demand.
From a full year Rockwell, especially loves from graduated commitment on an <unk> you don't have major disruptions in the supply chain and we are expecting.
Expecting for inventory.
It needs to happen. So can you explain a bit the dynamics, what's going on and why you don't get starts to really use that to the bedroom.
That's the first question and.
Second one I'll ask one about your multiple ambitions.
Call till the stones the former.
Months and another great off your full year margin trajectory.
How do you look at.
Yeah.
Yeah.
The midterm potential come up without profitability.
Hi, Good morning installed I guess Dominion will take the second question I start with the first one.
Yes, you're spot. He then a difference gap between production and deliveries are mainly in September on the October or will very likely be a bit of the same nature. While it reflects a different situation first on customer side, where we have planes ready for delivery that I've not been delivered.
And we need to work on it to November December to get them delivers and also as I mentioned in the year on year corridor, two tweaks going a bit this morning.
With the production issues with the number of <unk>.
Supplies, which are leading to planes.
<unk> outstanding works or planes or close to be delivered but not fully finished.
<unk> been for the Assembly line, but they need to be fully finished before being delivered.
Nothing unusual there.
Remember we had some.
Similar issues in the early stages of the ramp up we need to get on top of it and we plan to develop the vast majority of those plans till the end of the year. That's why we maintained our guidance of 600 planes, because we think we can achieve.
I hope it's clear.
Second as part of the question. So on the margin ambition, maybe I should first clarify that the.
Slight uptick in the guidance so I have been adjusted.
What are the components that we can catch ups and what that means for the margin ambition.
I mean first of all we mentioned that there is some R&D phasing topic, so where so that the cost of wanted to incur this year might slip into next year.
That's part of it a low triple digit million amount.
There were some Q3 nonrecurring item I mentioned some provision releases recall, we had a billion ish.
Provision.
Other charges, which were COVID-19 related and predominate in June last year, and they related to topics like inventory write offs.
The financing issues.
Writing off certain buildings and to a certain degree we were able to release some of that but again only a low triple digit million amount.
And then what the rest is really a relatively minor change to what we had guided so don't don't overestimate the hospira and then let it flow through to the modern ambitious basically.
Cause it's predominantly phasing and nonrecurring items.
So that means we are not changing our margin.
Target, where we said that when we get back to the rest of 2019 to me when they deliver.
The EBIT margin, we had in 2019.
So if you think about the rate profile that might be a certain rate increase.
And you can speculate now when this will happen. So maybe 23 pick a number but don't forget that Europe is still.
Still burdened by a ramp.
Ramp up cost is burdened by the R&D expenses for XLR and so there are several items, where we think we can harvest later on so it's not really the locked to a modern efficient, but that's just the kind of intermediate milestones easy guys here.
Okay.
Okay. Thanks for the comments.
Thank you. Sir next question is from my name is Janine Giordano from UBS. Please go ahead.
So thank you for taking my question.
I just talked to the first one would have to be I guess from the supply chain constraints.
And some of the colors that you.
You provided here.
Outstanding work and.
Probably.
To deal with things like Tvs, and you know we watch it off in tears, if you'll have the changes.
And the customers demand that.
Also on the supply chain.
If you could provide us some color on how many suppliers have you brought on watch I mean that number has increased.
Back to the June July period.
Also you know.
How you are planning to support and help the suppliers in this ramp up.
In terms of hiring staff for materials.
Especially you have slightly raised.
Target number for Q2, 2023, and how should we think.
Thank you.
Good morning Simeon.
On the number of suppliers on watch we have not significantly changed.
Compared to <unk>.
And of H one.
Some changes in the mix of suppliers, we are monitoring somehow put that situation under control others are suffering maybe more than what we were expecting from the early stages of the ramp up.
Considering we have no systemic issue.
With commodities also playoffs, one that's all that area, but we have a number of difficulties.
Just in the early stages of the ramp up and that's that is although a small number of suppliers, which are the origin over all our current challenges, but we think this will be.
Over time, our managed and therefore, we are not changing all our COO.
<unk> for the ramp up how do we plan to help actually we can plan to it we have been helping all along the COVID-19 increased twice and I would say peak time theres been a lot of resources, our best resources that have been involved when it's mainly on <unk>.
<unk> onsite finding workarounds when we have difficulties.
Adapting our production plans.
And joining us on the short term.
<unk> as a consequence.
It looks like that sometimes we have to take claims.
Have a good evening.
None of the month to deal with the situation and put them back on projects or even later.
But we think this can be managed in the last months of the Europe, Although Europe, sorry, that's why we have not changed our guidance.
So that was to some extent expecting you will remember I was quite cautious.
And each one of the difficulties that we were seeing for the visit.
Going out to 15 months of hibernation as I call. It that's what's happening.
Overall, the supply chain is a hardie, who we see things moving forward as.
As we expected but specific difficulties we are on top of those difficulties. We are very focused we are demanding for the with the supply chain that they stay on truck for the ramp up and dealing with those individual cases, so that's basically the way I look at it today.
Yeah.
Thank you Neil and if I could just can you put up in the slight increase in rates for stations 42, 65, how should we read them.
The first sign of conviction from your side on the demand and how you see the order book panning out.
Well on that very specific points of it is very consistent with what we had said before.
We would probably be less of 100 dollar on the rates moving forward.
That's what we have done in the COVID-19 crisis, where we had any ability towards super important to give that granularity to suppliers. So we'd be back to the kind of guidance, we're giving on rates before COVID-19.
So this is very specific figure I would not see it as a sign of trust in the demand, but this being said, yes. There is a very strong demand for our products.
And even stronger on a day by day on the 20 <unk>. So that's why we are confirming the trajectory of our perfect mainly driven by the supply the speed of onset is driven by the supply including the two months.
In our perspective.
We justify going beyond.
To five and you know that we are considering 70 75 moving forward because we see the very strong demand for the spring 'twenty moving farther away in the second half of the decade.
Thank you very much.
Thank you Mahan next question is from Mr. Keith Bachman from Deutsche Bank.
Go ahead.
Yes, hi, good morning, Thank you for taking my question.
Precisely on the strong demand for aircraft I was wondering if you could give us some more color on the impact of de carbonization strategy of headlines on the replacement cycle in the second part of the decade.
And whether it has changed over the last two years in terms of the demand and what they express to you.
The second question is on.
Material shortage could you also mentioned.
You mentioned to us whether magnesium is starting to be obtained.
Sure in terms of.
<unk> aluminum.
Well I'm not sure.
Thank you Christophe impact of Decarbonization.
Yes to what extent I think it's it's difficult to judge we are more and more questions, we spend more and more time during the.
The process, we really observe that this is a going to be CRO customers, how do they wait that the carbon in their decision making at the end, that's probably is very diverse and not easy to access for us but in.
And the decision to buy new planes to replace older planes.
In the <unk> state have on there.
Financial and Nonfinancial equation is moving forward, it's absolutely abuse that decarbonization.
Plays a bigger award and this has changed compared to two years ago, I think that that's really effect on.
On the magnesium I know, it's on the radar of.
Our teams I'm not aware of Sydney, She can't description of shortage as far as we are concerned because of these very specific.
Commodity.
I cant say Maura, it's beyond my pay grade if I may say, so, but it's still very very high as a specific topic.
Today at the habits, but it's part of what we're monitoring.
But.
If I could follow up on this one.
Can you confirm that museum is actually using the aluminum.
Lloyd that you're on.
On the plane.
Yes.
But as you know it's a it's mainly aluminum and then you have other components inside there and you have is you have different kind of value mediums.
So to what extent I mean.
I think it's very small percentages.
<unk>.
Again, we need to address this question if you want to read into it with especially some of the specialty stuff.
Percentage of magnesium in arguing I'm sorry about it.
No problem. Thank you very much.
Thank you. Sir next question is from Matt <unk> from Barclays Go ahead.
Yes, Hello, thank goodness from Barclays. Thank.
Thank you for taking my question on the cost side for the Airbus segment. You mentioned that you saw an increase in the cost base I was wondering if you're able to quantify how big the coffee category this quarter compared to Q2.
And then your guidance implies that this cost will continue.
Q4, so can you help us understand what you're trying to sleep Dominique you pointed that part of your guidance comes from lower cost than what you were previously.
Thank you.
Yeah sure I'm happy to try to shed some color on that so my first one you see on the Opex, you really see it quarter by quarter, what we printed in SG&A and R&D.
And.
If you look at the guidance, we gave on the R&D will be saving over would be slightly lower than last year.
And you can see what we've done in the first nine months of the scale that they have a big Q4 expected.
It's interesting.
But increasing and ramping there.
And also why not resuscitate that pocket of the business to really prepare ourselves for the future and will go further than that so this will continue as the Navy tried to contained of course much more rigorously.
But there's also some activities, which have been shifted to the right, which means to stop like I Havent project.
Drive productivity going forward.
So from that perspective, it's a conventional increase and of course lots of at least seven.
We need to continue to support them on the production side, we don't quantify that in detail.
But its waiting a little bit on the gross margin going forward you mentioned, they're working parties, we need to really sustain the rep and this is something that you also see it feeding into our financials and then I'll take all reflected in what we've guided for the EBIT adjusted for Q4.
Thank you.
Next question is from Mr. David <unk> from Jpmorgan, Sir Please go ahead.
Yes James.
Two questions. Please the first one is I just wondered.
Your tolerance was on this inventory situation. Obviously, you are now committed to the production ramp up.
Six months.
It's just not clear to me.
Whether you will.
Building more inventory.
Bringing it down between Q4 and Q1 next year. So just wanted your thoughts on that.
And then secondly, Dominik, maybe it's a difficult question, but it just seems that the quarterly results certainly this year, it's an unusual year that there's a lot of one off each quarter and we're having.
Obviously very volatile margins Q1, Q2 Q3, just as we all start to think about next year, although any sort of one off items.
I think the provision releases or other one off items that we could start to think about what might help us formulate a view on next year.
So we let these difficult question to Dominik Indeed.
You say tolerance on inventory.
I think.
This nutrition nature is changing we had inventory.
In 2020.
Those are the big matched on the short term between the email and the supply we decided to maintain our views for 'twenty a rate of 40, which we thought.
And of course converge the prediction and the reason is actually what we observed.
And we keep adding.
This name.
The nature of inventory going down so that's that's the actual and what we want to do.
No we are entering an institution, especially as we start the ramp up on the <unk> well.
Well, we have some inventory linked to this ramp up and its more coming from the supply side.
And we try to make it to keep it as long as we can but dealing with those industrial difficulties that are probably quite.
Quite specific to H <unk> 2021 that keeps that's what I hope and then when we will be W. Dies on the hump of trajectory, we should be back to more normal times.
So I guess I hope it answers your question.
The nature of inventory, we've had in Covid time.
We have little Tony runs through it we try to bring it as low as we can moving forward. The rest is a more business as usual unfortunate.
So I mean really the longest lag so Glenn just maybe I can ask my question clearly cleanup inventory of complete but undelivered aircraft.
It was about 140 planes.
The end of Q3.
This is my estimate.
Do you think that there's a chance that number may rise in Q1 next year when you come to them.
You can deliver everything you build and maybe.
Kuwait inventory of Undelivered claims.
Yeah. That's the question I tried to answer.
I think the peak was and of each one of them and you can do against each one and 2020 in the meantime.
We've been going down.
Likely below one on the other.
End of 2020 top of my mind, and we kept going down slightly progressively moving forward. So it's below or significantly below one on London and the Guy who got you mean like if you look at all on that one it's slightly below 100 and that can be don't want all of it and we want to keep it going down moving forward.
On the demand side.
These production issues are impacting this but it's not totally orange to two inventory that would be more the nature of difficulties on the production side. So that the mix, though the reasons why we would have inventory all hany.
Going from human to supply if I may say like this.
Thank you.
Okay.
Taking the question. The question was related to the question I mean, what's the kind of clean base to jump off I'm extrapolating into 'twenty two.
Well one of 17th we have so far I think very roughly a couple of things I can mention here.
On the Covid related charges, we took last year.
Within EBIT adjusted was about a $1 billion.
We are releasing so far about 400 million you will see that in the financial statements, but I have to caution that not all of that is inevitable. Just that there are some part of it some very roughly half is actually in the adjustment itself was 880 related and on top of that there are some other benefits we got.
Because of some support schemes of Covid asked before so very roughly I would say you can assume with the COVID-19 triple digit million number so far in the nine month that has helped us.
To deliver the results.
And it's also impacting the guidance as I mentioned in the guidance, there's a certain component of that.
Yeah.
So would you released more in 2022.
You could think about it.
Be careful I mean, that's why I mentioned, let's see we doing that.
In the Covid, there are different buckets of that payment and $1 billion.
And if it adjusted.
One of this was inventory write offs.
I would say then there's a little bit more to come in Q4, but not much more going forward because we have made great progress. Thanks to the efforts of our commercial colleagues in placing unplaced aircraft for the wide body side that this is where these write offs came from and there was some some booking of provision that unwind for some buildings that's already behind us.
I'd say the lion's share is behind us and there's not much more to come out of that bucket because certain write off like for instance argue projects be terminated but permanent and will not come back.
[noise], Thank you Youre doing.
Thank you Sir our next question comes from Ben Heelan from Bank of America go ahead.
Yes, good morning, guys.
Wow.
I wanted to come back, especially on the supply chain question because Mr. Nicholson at the conference calls from Payors and tier ones and over the past week. Some of them do you seem to be a little bit more concerned on on the supply chain and then I think the message is to you you've given today I think one of the page highlights it is while I can see.
Some pressure, particularly in forgings and castings that are right in Q3, specifically.
So in what areas of the supply chain are you seeing pressure is it forgings and castings is not the area that we should be thinking of.
Why why why do you seem a little bit more comfortable with how the supply chain is positioned today than than than kind of some of the messages I think we got from peers and that would be the SaaS question and then secondly on the cash guide and.
Good to see that you are generating cash every quarter and it looks to me a lot of cash guide for Q4, which is very very small in flight will be seen historically, you've had very large inflows in Q4, and so is there anything specific that we need to be thinking about as to why you are not going to see a big inflow in Q4 and should we assume going forward.
Abbas can generate cash and in every quarter. Thank you.
Thank you Ben.
Sure. The answer is I can take the first one.
On the supply chain.
I think we have a number of contradiction is indeed in the situation and I try to sort of help understanding those.
We have tensions across the bolt on the supply chain are.
Due to the overall worldwide situation beats on logistics Commvault coastal energy, if you could choose to access to human resources.
Cost of raw materials for that that's a bit something that is a across the board and it's no surprise that some of our peers I've highlighted the consequences of these tensions.
As far as we're concerned you remember we have tried to.
I'll just keep it as much as recruiting.
Start of the ramp up by communicating in the second quarter of this euro.
What our supply chain, a very detailed supply planning in our home care plans to try to help people are anticipating and therefore preparing for the call. This morning, we were wondering whether we should singled out some commodities or some.
Of the suppliers are all the countries, where we operate.
Looking at the <unk>.
The issues, we are having with suppliers. It's more case by case and things. We think we can get on top of it.
Although quickly so I don't want to yes to single out to finger point some of the commodities are all the suppliers because we don't seats as of today I.
Tell us and again, we think as it seems we are having at the moment the topix. The issues. We're having are things that we will manage into cost over the next months.
So that's that's the situation and the CRO I like.
I'd like to give I'll try to give to you Ben and for the.
The cash flow the quarterly cash flow Dominik.
So in terms of what is the reason why the uptick in free cash flow is not so big and as compared to the remain to do so to speak whenever the trusted.
Given also that the new rates should go up if you think about the 600 targets for the year.
The following items I think are important you know that there's always.
The Tories are difficult issue with the prediction of the working capital items, we have some receipts and payments.
In working capital, which fluctuating a lot and just to give you a flavor about that.
You just have to open the balance sheet and look at some of the items of your questions at all the contract assets and liabilities you see that so far in the nine months, we had $1 3 billion negative.
If on the other hand, you see the operational trade liabilities were $2 3 billion positive, which was also driven by appreciation of dollar. So not all of that is cash relevant but this gives you a feeling about how big these swings might be and why we have been benefiting them first and foremost from trade liabilities as you can see in the balance sheet and that's affected is suddenly.
Green neutralized in Q4, we will continue to see that kind of a negative GDP of challenge.
From today's perspective, and also a much higher capex in Q4 than in the first three months.
And all these factors are willing totaled bringing the free cash flow down to the kind of $4 2 billion remain to tool, which we have guidance from today's perspective, I want to highlight though that.
If you look at the overall year, we tried to really Hum.
Have a free cash flow, which does not have a cut off any mortgage on the future and the other way, but try to keep it clean and I think for your modeling for next year you can assume that that's that's kind of conversion we see this year.
With the puts and takes like eight four a M and H 'twenty between it's been a solid basis for the full year, whether we will be able to have a positive free cash flow every single quarter I would not cutoff signed with block on that but that's clearly the objective and.
I think.
But given the volatility.
The timing of receipts and.
Payments is it's very hard to really commit to that.
Okay, great very clear thank you.
Sure Ben.
Sorry next question.
One is from Mr. Roberts thought that's that research. Please go ahead.
Thanks, so much good morning.
I'll keep it to one in the interest of time I'm Kim this whole topic of the <unk> hundred 20, moving to 75, a month and a lot of chatter in the press from some of your suppliers and from the lessors.
Just generally on this topic is it contingent on Boeing 737 deliveries remaining subdued or do you see overall market demand justifying this move to 75. Thank you.
Thanks Robert.
We don't have 12 customers.
Their decisions to older twenties planes is contingent of what they assume.
Happening with the other players in our preferred compete at all so it's very difficult for me to answer that question.
The the plans and the need to ramp up comes from what we observe in our customer base in terms of demand with already in the backlog are moving forward in the discussions, we're having and the ongoing competitions and so that's basically it.
The the view the angle of attack.
Airbus on the market and that's not speculating on what's going to happen on the other side on.
On the long term I would be very prudent on what's going to happen in the midterm. We have a very good visibility, we'd probably never had such a strong backlog and visibility and clear demand from our customers a falloff products. Therefore, we based it on the other a good understanding of the situation moving forward and maybe just maybe one comment.
Underpinning that argument.
If you think back about the big guidance raise them also free cash flow and enjoying a good topic a good part of that is PDP flows, which were actually better than what we anticipated at the beginning of the year because customers are current on PDP and so they really put their money where their mouth. It.
That's very helpful. Thank you.
Thank you Sir our next question is from Mr. Doug Harned from Bernstein.
Yeah.
Thank you very much.
The first question is I wanted to follow up on the previous question with respect to the finished inventory of airplanes, you talked about being at 100 at the beginning of the year, maybe a little bit less.
But the gap that you've discussed before its hard for us to see how you are not having 135 to 140.
Okay airplanes today in inventory given that gap. So I just wanted to make sure we could get some clarity on where that cap stands.
And then second.
One of the things that we've noticed is has been with respect to China. Your deliveries to China. The last couple of months have been about half what we've been seeing and at the same time orders from China still remain pretty much shut down.
Do you think with respect to China in terms of when your deliveries may pick up again there.
And when might we see order flow start again.
So maybe I start on the delivery side I think what do you need to look at is really the full nine months of the year to date. That's what we said we ended last year at Lyft are less than 100. If you just take the <unk> 40 for the first half an increase of slightly either for Q3, and you would take into account a couple of weeks.
Of vacation shut down in August.
Come to about 34 mm.
Lyle.
So, especially in a place like screen up 40, something like produce them because they were 341, so that's basically a little bit of a wash.
And then we were actually able to reduce the inventories on the wide body. So that's I think where the Delta comes from you have been going down by around a dozen or so wide bodies over the nine month that this is so statements come.
Come together.
It's not super useful to look at it quarter.
Quarter by quarter, because sometimes the aircraft. It's almost finished just ahead of the quarter. So I think it is more useful to look at the envelope of the nine months and there you can make the numbers work quite well.
On the on the deliveries to China.
We had lost share or roughly 20% of all deliveries that went to China and we don't see she page we expect something similar for 2021, So I don't see significant change in nature, we have up and downs.
Depending on the situation in China, and the weakness of our customers to come.
We had some challenges.
In September of from that perspective, now it's fair to say that we have not seen orders now for a long time and we know that it's the same for our competitor also the.
The backlog of planes to be delivered to China is going down and you will remember that I was expecting.
She tend to change in 2021 way, we're coming close to the end of 2021, but there will be at a point in time the need for their Chinese airline industry.
To be back to Williams, and all the planes to refill the backlog and make sure they can access to too.
Two slots for the shipyard because they will need it.
But this being said you can see the positive momentum is worth for what I said on the SP.
FY 'twenty one this morning, we are all in a process to our Congress, Florida production system into FY 'twenty, one because there is demand and that's also demand in China for that product.
So I don't see a change in nature moving forward as.
As far as the demand from China.
Putting us.
Very well thank you.
Thank you Sir we have one last question from Mr. Andrew Humphrey from Morgan Sir. Please go ahead.
Hi, Thank you for taking my questions.
Two if I may.
On the subject of demand visibility can you tell us whether you have delivery slots still available in 2023, and if so I quantify it.
And.
The second question is on.
Production and supply chain and the visibility you have on that.
I think I would interpret it as relatively reassuring that some of the issues you've had or not resulting from the.
The tightness in supply or lack of availability of materials, but from from some internal issues.
<unk> can you tell us you know.
All of those issues relating or are they sort of random issues or would you relate them to kind of any particular any particular area of the business I'm thinking of some of the issues you've had around ICF in the past.
[noise] Ah I start going to the second part of the question, where theres more to say probably.
I just want to make sure I have not been misunderstood you say he walk linked to internal issues actually that's not the case. He work is linked to our issues with on time delivery of parts of components of quality escapes that needs to be managed and this is mainly if not entirely come.
From the supply chain then it is creating a need for outstanding work and at work.
And working parties, but that's the that's the consequence of supply chain issues impacting us.
We all have to be very strategic on your question of S. Yes, we are no longer in the situation, where the bottleneck is Ah I tell us a bit for design or pollution reasons, that's the situation today.
I hope that clarifies, what you say, so a small external issues impacting our internal operations and leading to delays need for outstanding work in plans that have gone schools of thought that needs to be finalized completed before they go to the video center and deliver to customers.
The first question was on the open slots where I.
I don't want to them to answer a specific can you buy type except any new that are on the 20 <unk>.
We have no slots available in 2023.
Very clear thank you.
This concludes our conference call.
If you have any kind of a question.
Now to me.
I guess, Tom or myself, and we can get back to you as soon as practical.
Thank you and I look forward to speaking to you I think.
Yes.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation you may now disconnect.
[music].