Full Year 2022 Airbus SE Earnings Call
Okay. That's helpful. Just come Terence he's not that's for the division of the presentation. All participants will be in a descent on the modem and the challenge is being recorded.
After the presentation, there will be an opportunity to ask a question.
This time I would like to turn the consumer wants over to you.
Felipe I mean, you've got some and it and legal.
Thank you Melanie and good morning, ladies and gentlemen.
They can see other full year 2022 results release conference call.
Employee meal, and Dominik <unk>, our CFO will be presenting our results and answering your questions.
This call is planned to last around one hour and 10 minutes.
This includes Q&A, which we will conduct after the initial presentation.
This call is also webcast.
It can be accessed via our homepage by clicking on the dedicated banner.
Playback of this call will be accessible on the website, but there is no dedicated phone replay service.
The supporting information package was published on our website earlier today.
It includes the slides, which we will now take you through as well as the financial statements.
Throughout this call, we will be making forward looking statements.
I invite you to refer to our safe Harbor statement that appears in the presentation slides, which applies to this call as well.
Please read it carefully.
And now over to Jim.
Thank you Ed and good morning, everyone. Thank you for joining us.
Early this morning for Europe , 2020 to move visual score.
I'm happy to be to the hearing to lose with Dominique who renews for visits.
Again in 2022 we faced an adverse operating environment.
On the one hand loss sure.
Resoundingly confirmed that people want to fly and they do so even at higher ticket prices.
Your lines have returned to long term fleet planning.
Preparing.
For long term growth.
In this conflict with the reconfirm long term visibility on demand, we decided last mid two <unk> hundred thousand <unk> to a multi production rates of 75.
In the middle of the decade.
On the other hand 2022 has also been a year of multiple disruptions, mainly driven by the community the impacts of Covid in the Russian Division of Ukraine.
International sanctions the energy crisis aggravated already existing attentions on logistics materials components and also skewed workforce.
Our supply chain.
Facing these.
Although CVR circumstances did not recover at the pace we had anticipated.
As a consequence, we had to adapt our operations.
The associated production plan for the year eventually leading to our December announcements.
I have to say this attrition has been quite was trading last year. Obviously, we were not satisfied with the number of aircraft we deliver Indian.
As you know in Q4, we delivered 226 commercial aircraft.
Full year 2022 deliveries to seek some 161.
Correct.
While this represents an 8% increase compared to 2021. This is about half the increase we had initially planned.
As you will see when I come to our guidance. This means that it will take us two euros to achieve what we had planned to do one.
Nevertheless, we met our financial targets.
For the full year 2022 inhibitor, just either stood at $5 6 billion.
Our EBIT adjusted reflects our deliveries, but also have a fulsome competitiveness and so they will benefit from the overall positive impact of non recurring elements.
Our free cash flow before M&A interest in our financings to that.
7 billion euros swap points hit them.
And has been supported by the federal labels for high end exchange rates environments as well as a strong positive Cleveland impact from working capital.
These solid financial results with a net income of $4 2 billion.
And confidence in our future financial performance.
The dividend proposal for 2022 of one eight.
Your picture.
As we entered 2023, we see strong demand in auto areas of our business while at the same time, we are facing persisting supply pensions.
This year, we expect our commercial accordingly profile to be back loaded again.
In light of.
Ongoing geopolitical and macroeconomic turbulences risks of further descriptions remained.
Before we look at our commercial environments that we mentioned that the sphere of probation period under the terms of the deferred prosecution agreement with the French support.
In international the UK asset pool in the U S Department of Justice.
This.
This has ended on the 31st of January 2023.
<unk> weeks ago, we are awaiting the former determination by the authorities that Airbus has complied with the terms of the GPS and to close the prosecution against Airbus in line with the push of the all requirements of each country.
Airbus will continue to meet its obligations under the consent agreement.
Extended until October 2023 is mutually agreed with the U S Department of state.
Did you say as well, although the posture, we have implemented companywide cultural and governance with respect to ethics, and compliance, which we will maintain and continue to develop going forward.
Let's now look at the commercial environment.
In 2022 commercial air traffic continued to recover with domestic <unk> market, leading the way.
International traffic has progressively been closing the gap strengthening our confidence in the wide body segment outlook.
Air travel demand came back even faster than we expected during summer and the trend was confirmed by the strong activity around the end of the Euro where global traffic was already trending close to previous levels.
The recent reopening of China is proving to be as two positive driver for air traffic.
Progressively recovers.
All regions showed no converge towards normalized levels.
Let me remind you of all orders in backlog for the Euro.
We booked a total of 1078 gross orders of which 222 in Q4.
On the wide bodies, we booked 63 orders, including 24 freighters.
Further progressed on the remarketing of our aircraft concerning the increasing commercial momentum on wide bodies.
We sold 258 cancellations.
Of which only 49 in Q4.
The cancellation and the euro were already largely anticipated and embedded Becker renovation.
During 2021.
As a result net orders were positive at 820 aircraft and our backlog in units amounted to 7000 to 139 aircraft at the end of December 2022.
Including 6093, <unk> hundred 20, <unk> across more than 6047.
Our net book to be significantly above one you just trace the strong appetite of our customers for well position and diversified portfolio.
This was once again evidenced by the launch of our Haynesville, Although we were hormones to receive several year the suite.
Which is obviously not yet reflected in our order book.
As of the end of December 2022.
On the other bodies by disorder.
And hope level, our backlog in value increased to.
449 billion.
Close to 450 billion.
In 2022, mainly reflecting a book to bill above one as well as the strengthening of the U S dollar.
Our robust and diversified backlog would support the company's resilience in case microeconomic conditions with some detail you're right.
Yeah.
Looking at helicopters in 2022, we booked 362 net orders compared to 414 in 2021 with a book to Bill above one both in units and value.
So all those are well spread across program and include 12, <unk> for which we secured customers on all targeted segments.
2022 was a sooty Jerome I should say a good year with ongoing market recovery and positive momentum on both civilian and military markets.
Finally in defence and space 2020 to turn out to be a difficult year in a complex geopolitical and macroeconomic environment.
As the tack on Ukraine had consequences that spreads too many signals and businesses one of the direct consequences is the loss of access to the Richard <unk> launches.
At the same time <unk> is experiencing further delays and GSE is tampa already grown being grounded sorry, following the launch.
Failure in December .
All in all in 2022, Europe has lost most of its capacity through excess space.
This is also directly impacted.
She is also directly impacted our space business.
In addition across our defense and space Division, the rising inflation impacted our long term contracts in particular, VX 100 program and.
And we were not immune to descriptions in the supply chain.
Still we also had some successes and important ones. The Airbus builds DSM European service module successfully brought nasdaq's volume space craft safety around the Moon and back home.
And we secured important orders such as the <unk> future combat Air system demonstrator phase, one b and Youll drawn.
Two important defense programs for the decades to come they will be critical for your security and strategic autonomy.
We also booked orders.
Although holders, which we will as well.
And an important role in our future business such as the contract to deliver a 20 later generation Youll fighters to the Spanish efforts as well as the renewal of two complex for the in service support of the Spanish fleet.
<unk> by the Republic of Indonesia, two Airbus <unk> hundred <unk> and services, becoming effective which makes Indonesia, the 10th Oklahoma All of these aircrafts.
And the contract to provide two high performance optical Earth observation satellites and services to put on.
This confirms the confidence of our customers and our company and products and takes our order intake to $15 7 billion.
Corresponding to a book to bill around one two.
Now Dominik will take you through our final Schwartz.
Thank you <unk>, good morning, ladies and gentlemen.
Our fiscal year 2022 revenues increased to $58 8 billion up 13% year on year, mainly reflecting the higher number of commercial aircraft deliveries.
Higher contributions from our divisions and the appreciation of the U S dollar.
Our fiscal year EBIT adjusted increased to $5 6 billion euros up from $4 nine in the prior year.
The year on year improvement in our EBIT adjusted is mainly driven by the commercial aircraft delivery increase partially offset by a slightly less favorable hedge rates versus fiscal year 2021.
It also includes some nonrecurring elements.
You might recall in the first nine months.
We recorded a nonrecurring positive element of $4 4 billion related to retirement obligations, partially offset by <unk> 1 billion negative impact, resulting from international sanctions against Russia.
In Q4, we made progress on our compliance related topics, which allowed us to release provisions for an amount of <unk> 3 billion euros, while the loss of <unk> newest satellites resulted in a negative impact of <unk> 2 billion.
While we continued to benefit from our efforts on competitiveness investments and preparing the future in particular, our decarbonization efforts and ramp up are now materializing in our cost base.
This is particularly visible in our R&D expenses, which stood at $3 1 billion in 2022 versus $2 7 billion in 2021.
Our fiscal year earnings per share adjusted stood at five euros 50 incentive.
Based on an average of 787 million shares.
Our fiscal year free cash flow before M&A and customer financing was a record $4 7 billion euros supported by working capital upside and the appreciation of the U S dollar.
Now onto the next slide regarding our profitability.
Fiscal year 2000, 22020, EBIT reported was $5 3 billion.
The level of EBIT adjustments totaled a negative $4 3 billion, including.
308 million positive impact from foreign exchange mismatch and balance sheet revaluation of which minus 41 in Q4.
$28 million related to the <unk> hundred 80 program of which minus $5 million in Q4.
Minus $477 million related to <unk> for a term of which $258 million negative in Q4.
Minus $82 million related to the Aero structural transformation in France, and Germany of which minus $34 million in Q4, and minus 79 million of other costs, including compliance costs of which minus $35 million in Q4.
Earnings per share reported includes minus $250 million of financial results.
Mainly reflects minus $232 million of net interest result. It also includes a negative impact from the revaluation of financial instruments, and a positive impact from the revaluation of certain equity investments.
The tax rate on our core business continues to be around 27%.
The effective tax rate on net income is 19%, including a net release of deferred tax asset impairments.
The resulting net income is $4 2 billion euros with earnings per share reported at five euros 40.
Yes.
Turning to our U S dollar exposure coverage.
As a reminder.
Before its portfolio in the Euro conversion was presented altogether, both in terms of volumes and associated rates.
The mark to market figures on the other hand, our only associated with the Florida instruments, there's no mark to market associated with Euro conversion deals we have ventured into.
In fiscal year, 2022, $23 billion of forwards matured with associated EBIT impact and euro conversion realized at a blended rate of 122.
Is $1 21 in fiscal year 2021.
This volume includes $6 $2 billion in the fourth quarter had a blended rate of one point to 23.
In fiscal year 2020.
Also implemented implemented $16 $4 billion of new coverage at a blended rate of 116 of which $3 5 billion in Q4 2022 at a rate of one seven.
Seven mainly for the years 2023 through 2025.
As a result, our total U S dollar coverage portfolio in U S dollars.
$93 9 billion.
With an average blended rate of $1 24, as compared to $98 3 billion.
At $1 25 at the end of 2021.
Our portfolio is currently being adjusted by implementing some rollovers.
To reflect the latest ramp up trajectory and our delivery targets for 2023.
Now, let's look at our cash evolution in fiscal year 2022.
Our gross cash from operations of $5 5 billion euros, mainly reflects our EBIT adjusted.
Our working capital has decreased by $1 4 billion euros. It includes a positive phasing impact from the timing of receipts and payments, including PDP.
And is supported by a strong U S dollar.
The <unk> hundred <unk> continued to weigh on our free cash flow, but less so than in fiscal year 2021.
Our fiscal year 'twenty, two capital expenditures amounted to around minus $2 5 billion euros versus minus one 9 billion in fiscal year 2021.
We expect our capital expenditures to slightly increase in 2023.
Free cash flow reported was plus four 3 billion.
And includes M&A activities for minus 210 million euros, mainly reflected related to the acquisition of <unk> F look fantastic and helical by customer financing cash flow amounted to minus $146 million.
You might see additional usage of cash going forward, even though overall the aircraft financing environment remains solid.
With sufficient liquidity and financial markets for our products.
That 2021 dividend of one euro <unk> 50 per share or $1 2 billion euros in total was paid in Q2.
On our pensions, we contributed $1 6 billion euros for the full year 2022.
The pension deficit, taking the surplus in our UK schemes into account stood at $2 9 billion as of December 2022.
A $4 2 billion reduction during the course of 2022, mainly driven by the increases in interest rates.
We are currently benefiting from the higher interest rate environment to reduce the sensitivity of the pension deficit to interest rates, but also to other parameters such as inflation credit spreads and volatility in the equity markets.
Our net cash position stood at $9 4 billion as of the end of December 2010 to two and our liquidity position further strengthen to $31 6 billion euros.
Looking back at the last three years, we have managed to weather multiple challenges to our balance sheet, including the pandemic and the DPA payments.
Closing the year 2022, with a net cash position exceeding our net pension deficit by $6 5 billion euros.
On a positive note back to you.
Thank you Denise.
Onto commercial aircrafts in 2022, we delivered 661 aircraft to 84 customers.
Looking at distribution by <unk> <unk>.
On 220 <unk> aircraft.
We continue to ramp up and are still on track for rates of 14 that we envisaged by the middle of the decade.
On <unk>, we delivered 516 aircraft of which 264.
<unk>.
Too much supply and we have adapted the ramp trajectory. We are now progressing toward a monthly production rates of 65 aircraft by the end of 2024 and 75 in 2026.
We continue to progress on the ground work to secure rates 70, fives and all our sites are now 821 capable, including our funding Tianjin.
On the <unk>, we expect the <unk> to <unk> to take place from Q2 2024 no change.
On the wide body, we delivered 90 to a cost of which 32 <unk> hundred <unk> and 16 <unk>.
On the <unk> hundred 30, we increased our monthly production rates to around three <unk> at the end of 2022 State Health plan and we now target to reach late fall in 2024.
On <unk> we.
We are now at a rate of around six aircraft per month.
In order to meet growing demand for wide body aircraft and.
And after a full feasibility assessment with our suppliers.
We have now decided to target and monthly production rates of nine <unk>, which we plan to reach at the end of 2025.
We are also pleased to have reached an amicable settlement with <unk>, which will enable us to move forward and work together on a spark nos again.
This includes an agreement on terms for the delivery of 50 between Q1 news in 'twenty three.
<unk>.
It's Luke.
Abbas conventional financials for 2022 revenues increased by 15% year on year, mainly reflecting a higher number of deliveries and the strengthening of the U S below the EBIT adjusted increased to $4 6 billion from $3 6 million euros in 2021, reflecting an increase in deliveries and supported.
By some nonrecurring elements.
The offset by less favorable hedge rates compared to 2021 none.
None of the cooling elements included positive impacts from retirement obligations and compliance related to fees, partially offset by the impact resulting from international sanctions against Russia.
Looking at helicopters in 2022, we delivered 300.
<unk> 44 helicopters six more than in 2021 revenues increased 8% year on year, two 7 billion.
Many reflecting growth in services and the civil boutiques in programs EBITA.
EBITA adjusted increased by over 20% year on year to $639 million.
Nonrecurring elements, including the positive impact related to retirements obligations.
As a result, the profit margin stood at nine 1% in <unk>.
2022.
I am pleased with the solid performance of the division and the strong program execution will done helicopter.
Sure.
And this completes our review of 2022 weeks defence and space.
Revenues increased 11% year on year, mainly driven by higher volume in military aircraft and your dream the decreasing EBIT adjusted.
<unk> reflects the impairments related to the loss of two play adds new satellites in December caution.
<unk>.
And to the delays on IL, six as well as the impact of rising inflation.
This is partly offset by higher volume in military aircraft home pretty new old room, and a positive impact related to retirement obligations booked in Q1.
On the phone with them, we delivered 10 aircraft in 2022.
We continue with development activities towards achieving the resigns capability roadmap retrofit activities are progressing in close alignment with the customer.
In 2022 and updates of the contracts EAC estimated at completion.
It means the homes and an additional charge of $4 5 billion euros recorded.
This mainly reflects updated assumptions, including installation and risks related to the remaining so frequent flexible development milestones.
That's remained to be achieved.
Risks remain on the qualification of technical capabilities and associated costs on aircraft OCA Honeywell gorgie liability on cost reductions and on securing export orders in time.
As per the revised baseline.
Overall room for defense and space.
Similarly environment remained challenging.
Do you need to disappointing results in 2022, a lot of headwinds.
Turning to our <unk>.
Guidance <unk> guidance.
As the basis points 2020 guidance the company assumes no additional descriptions to the world economy Air traffic.
<unk> chain, the Companys internal operations and its ability to deliver products and services.
The company's 2020 guidance is before M&A.
On that basis.
The company targets to achieving 2023.
Around 720 commercial aircraft deliveries.
And EBITA adjusted of around 6 billion euros.
And free cash flow before women and customer financing of around 3 billion euros.
This guidance reflects the adjusted growth projects already yoga commercial aircraft business, taking into account the staging of pre delivery payments and the investments we are making to prepare for future and the adverse operating environment.
Continue to face.
This now brings me to our key priorities, which by the way Havent changed.
This year more than ever our main priority is to <unk> commercial aircraft production, including the senior light aircraft as we progress towards rate 75 now in 2026.
Again in this adverse environment, we will closely collaborate with our suppliers to much of production with suppliers.
In parallel we will continue the long term transformation of our company.
Becomes more short term and midterm, though to digitalize and decarbonize, our processes, our products and our services.
The geopolitical disruptions of 2022.
First and foremost the wall Europes doorstep has clearly demonstrated the need for his tongue and silver in Europe in particular in defense and high end technologies.
We are proud of contributing to Europe's ambition by taking immediate award in major defense programs that <unk> drawn the Tiger Omar.
And the future combat Air system, which all made significant progress last year.
When it comes to assistant DDT.
As highlighted at our last Airbus submit we endeavor to set the system the beauty agenda for the aerospace sector.
This is a pilot that's mine pyrites.
Our focus is now to transition to give them the border hostess ecosystem.
Ambitions two actions.
Last year.
We decided we define near term reduction targets for scope, one scope two and scope three emissions.
Happy to announce that our targets have now been approved by the <unk> and the science based targets initiative.
This is an important milestone as these objectives going forwards will influence decision, making at all levels of our company.
And we continue more on this topic during our annual press conference just after this quarter so stay tuned.
Sure.
<unk> also made concrete progress on our roadmap to achieve these objectives that we mentioned some of the highlights.
On staff sustainable aviation fuel, we continued our efforts to drive the production and use of <unk>.
As illustrated by our landmark partnership with Qantas.
And our recent Mou witnessed one of the largest producers in the world.
On hydro Jamie.
We continue to mature our innovative technologies in preparation for entry into service of a hydrogen powered aircraft by 2035.
And the <unk> program, we announced the development of the hydrogen powered fuel cell engine in parallel we signed a partnership agreement with CSM to Dow.
<unk> combustion engine fueled by hydrogen.
Having said that in the short term Decarbonising edition stops first by efficient thousands of order and our cost with our latest generation fuel efficient aircraft.
All of <unk> lines to significantly reduce their emissions and use soft in large quantities. Those aircraft are already certified for the use of 50% of staff.
Decarbonization is not only a challenge it is.
For us a very important opportunity.
Before taking your questions.
Let me finish with a few words about <unk> Dominik has been a real pleasure and privilege to work with you in the last four years and I think the numbers of 2022 in spite of all the challenges speak for very important.
<unk> contribution you made to this company and bottom line has been a real pleasure to work with you. So I wish you all the best.
<unk> in your feed sure Jud ACP, but in the meantime, we will.
<unk> together.
This has been done this being said.
Maybe it's emotional and robotics.
And I.
I guess to you.
We now start our Q&A time.
Please introduce yourself and your company when asking a question.
Please limit yourself to questions at this time. This concludes our question.
Also as usual, please remember to speak clearly and closing.
To help all participants, particularly asked us to understand your question.
So Melanie please go ahead and explain the procedure for the participants.
Thank you we will now be.
Beginning the question and answer session, ladies and gentlemen, if you wish to ask a question. Please press star one on your silicon spot.
The first question comes from Daniela Costa from Goldman Sachs. Please go ahead.
Hi, Good morning, Thank you very much for taking my question.
I wanted to focus on the free cash flow guidance with two related questions to that well.
First of all if you could just.
Elaborate a little bit sort of what are the.
Headwinds in the tailwind that that make up the 3 billion. This year given it is a little bit below where the market was expecting.
Any one offs or anything that we should test.
The market might have forgotten there.
And then related somewhat related to that but I think in the past you have mentioned that once you've reached a situation of off net cash potentially around 10 billion that you would consider exiting distribution to shareholders in the form of fatigue.
<unk> buyback.
To understand if there were any updates regarding that thinking given I guess sort of where your balance sheet is now in the cash you expect to generate this year might put you in that in that situation. Thank you.
Yes, Thank you Daniela maybe a step at VM the.
The headwinds on free cash flow I think you always have to look at this in the context also of 2022.
Recall that initially we thought in 2022.
We will reach lower number.
So we now exceeded the initial guidance by $1 2 billion. So we had a strong tailwind there, especially on contract assets, but also very favorable timing of accounts payable. So each of these two items accounted for a positive $3 3 billion in 2022, and now you'll see that the flip side in <unk>.
So if you look at the kind of cumulative of the three years is actually quite close to the cash conversion of London, we stick to our commitment that over the five year planning horizon from 2022 through 2026, there will be a cash conversion of one as we've stated already on the capital market space, So that notoriously difficult and volatile swing in working capital.
Of course also not made any easier with the cutoff deferrals from the write offs some deliveries on the PDP side.
And kudos.
And when it comes to the reaching the 10 billion.
Net cash when we at nine four.
<unk>.
In the first half of the year and there would be the payment of the dividend that you see what we expect for 2023 in terms of free cash flow. So I have to repeat what we said.
Thank you.
On a year last year, that's a discussion we expect to have more in 2024 and 2023 and we have a discussion when we cross that bridge.
IPO.
Although results of 2022.
Because this was a much stronger free cash flow.
Net cash position at the end of the year than what we thought at the very beginning of the year.
Very clear thank you very much.
Thank you.
The next question.
It comes from.
How about from Jesse Keller results, Jeff. Please go ahead.
Thanks, so much good morning.
Couple of questions from Me Festival.
Jim on your revised ramp target given all the challenges that <unk> had in 2022, how confident are you that.
You in your supply chain can now deliver.
This revised plan and then secondly, there's been some reports that it's not just the supply chain is having some challenges, but also Airbus internally, having some process difficulties. So I wonder if you could comment on that as well. Thank you.
Yes, good morning, Robert So.
<unk>.
Indeed, we have to update all of one per plan, taking the lessons and just facing the hard facts of.
The supply environment winning.
In 2022 to <unk>. The situation has been mainly if not sooner the driven by the very complex and Bud supply environment. So thats for the year, which we had to face and we know.
I mean, we now target to deliver one of 720 by the end of 2023, which means we will have taken two years to do the homework, we had anticipated in one year.
When we entered into 2020 to ensure that.
Some thing.
We like but thats, the such and we have to beat the plan for 2023.
Based on the facts and today's situation and hold the headwinds we've seen the supply chain and we believe this situation should ease progressively moving forwards, but we have designed our homebuilder for 2023 based on the two days situation of supply.
And therefore, we believe in that.
The trajectory that's a trajectory that is facing the brutal flex on the labor environments within them.
On the second point.
<unk> <unk>.
Exactly where things came from.
On those reports we need to.
Deliver in spite of the adverse environment, we mean.
And Thats basically.
The situation remains.
Yes of course, we have to compensate a lot of the supply problems by adapting ourselves by reorganizing when we have acquired <unk>. When we are suppliers of small or very large equipment that they won't be able to deliver with that plan in a given quarter. So it's a lot of additional work.
And if the problems are not necessarily coming from internal operations, we have to find the solutions.
<unk> and <unk>.
And that's what I shared with my management earlier this year on its maybe with some comments outside but it's just facing the fact that it's a difficult environment and therefore, there's a lot of work to be done to compensate to be creative and to find solutions.
To constantly adapt our solutions to.
To the to the declines that are popping up here and there that's what we've done in 2022, we have <unk> by <unk>.
FTE across more in 'twenty to 'twenty, one and whats the OTC base for 2023 is a bit of the same kind of we are targeting 60 across more of <unk>.
<unk> 60 compared to what we have done in 2022, and we really believe that's feasible in the current environment. So it's a bit of a long answer, but that's probably the most important questions. When it comes to our guidance in 2023.
That's great. Thank you very much.
Okay.
Okay.
The next question comes from Doug <unk> from Bernstein.
Please go ahead.
Thank you good morning.
I wanted to continue on on the supply chain issues on the <unk> hundred 20.
The first question is.
If you look at last year during much of last year.
Engines appeared to be the main issue with respect to.
And our production and delivery delays on the <unk> hundred 20 family.
Our understanding is that shifted now and theres some more diverse set of suppliers.
It may be an issue in Europe . So on the first question if you could help us understand.
How you are dealing with the supplier environment right now given that it may be a little bit different than you saw for much of last year.
Second question is.
And with high demand.
Four.
<unk> hundred 20 family.
We would assume that when you've got some delays now that.
This pushes back the timing of deliveries and May put.
Sort of you may have escalators that are frozen or some penalties to customers from compensation can you help us understand if there is any material issue there with respect to margins tight.
Tied into delays.
Okay.
So thank you when it comes to the.
<unk>.
The supply situation in 2022.
Indeed lots of.
Delays on the deliveries of engine in the first half of the year.
With all engine manufacturers and that has led us to.
To revise the production planning several times.
To a very difficult Q2, and Q3 in terms of deliveries as we were really missing engines.
In Q3 to 4 million in Q4 engine manufactured homes came back to this <unk>.
This planning so we had stability in the second half of the year, but we had issues across the board.
We had issues with the supply chain coming from the lack of supply of it.
Tony components.
Very low in the supply chain impacting a lot of our TLC egfr suppliers and therefore indirectly.
US at a later stage with a lot of issues with.
Onboarding workforce after COVID-19, finding the skills and competencies delay in the <unk> of a number of suppliers.
Issues with <unk>.
Logistics around the world supply of raw material.
There's a long list of problems.
Impacted.
All the supply chain not on the engine makers and that's what led us to.
Revised the planning several times in the euro to come back to the market with the revised guidance twice and the.
The number you saw at the end of the year. This is the other study launched in let's say in the supply chain environment is better I'm, just saying I think he does.
Stops degrading.
And we think it's going to be.
Improve progressively moving forward, but we don't count on the complete.
Because of the supply chain in the short term and we will continue to face problems in 2023, that's what we have factored in our guidance including on engines.
Yes, we have two very actively managed to backlog when we face.
Securities and challenges on the digitally.
As you have seen we know see.
Reaching rates 65 by end of next year, which is one year later than what we were targeting when we entered into 2022.
And we continue to invest.
Invest in Capex, all around the world to <unk>.
<unk> coating systems for a rate 75, or <unk> hundred 21 capable that's at any moment.
The opportunity to visit tested into news on the new <unk> hundred 21 fund in the years when you're planning on their own.
Building.
And this will be achieved by 2026. So we continue to do the work to ramp up to <unk> 75 as soon as we can we count on the supply chain.
We will deliver us pay our plans this show and this revised plan that Nick it's much much easier.
But they are a constant negotiation and discussion with <unk>.
<unk> to hit plan and to be able to do it in a way that works for US maybe to meet you on this if you will on the.
On the matter.
I mean of course them because of the deferred of the all discussions I mean, the key question, which has to be answered case by case and what is excusable labor and we talked about engine delays, which are really excusable delays. So this is the task of the current year and really focus item. This year to readjust to recall that we have been asked by customers to re Facebook time.
In 2020, because of Covid and has accommodated these requests and now we have to cope with the consequences on the supply chain of the Covid impact and the Ukraine crisis later on.
Thank you Dan.
Thank you.
The next question comes from what do you view bullshit from read them. Jeff. Please go ahead.
Yes, good morning, good morning Dominic.
Im going to ask two questions. The first one on the on the Chinese.
Final Assembly line deliveries were extremely low in December and January how do you think of the improvement path and when do you expect to return to a normal situation.
This one.
Second is on the <unk> hundred 21 final Assembly line extensions that you mentioned.
He is now.
Being being done when do we have the entry into service.
<unk> for the various lines in mobile.
Introducing and Tianjin please.
So when it comes to two.
Challenging.
Hum.
<unk> do you have in mind that we have converted the line from <unk> to flexible FY 'twenty FY 'twenty. One we have stopped the assembly line for some weeks to do a more than weeks by the way a couple of months to do this conversion so im not getting.
And my answer, but we have to do this transition and this has led to some descriptions on top we had some.
Covid events.
When the.
I mean zero credit policy of China was lifted so he's been quite turbulent.
No specific issue with it.
Are you anticipating changing.
When it comes to delivery. So that's not something that is critical in my own agenda when it comes to Lumpiness.
<unk> hundred 21 capacity into new funds around the world.
Mobile is moving forward as planned I think.
Its first delivery plan in 2024, five I don't have it top of my mind and when it comes to <unk>.
<unk>.
The new <unk> hundred 21 funding to lose.
Delivering its first aircraft very first by end of this year. So we are moving forward as planned.
This will support the capacity of accelerating the hump of the FY 'twenty FY 'twenty 170 next year very significantly.
Thank you.
The next question comes from clearly from Jefferies. Please go ahead.
Yes. Good morning. Thank you for taking my questions I have a first one on the on the.
EBIT.
Rich from Tony Thank you Tito and strange three because 2020 performance reflected a number of one off I'm thinking of the kitchen catch up as a positive headwind recording in defense and space. So could you shed a bit more light on the key moving parts going forward, notably aircraft contribution cost and inflation.
Good question.
On the Hfcs, DRAM, it's slower volumes and dinara, but arguably much faster.
So are there any specific pressure points that you're watching within the supply chain that could slow this.
I'm thinking of is your titanium that maybe some other product as well. Thank you.
So they have a stab at the bridge from 2022 into 2023. So first of all there is of course, the incrementals on aircraft and don't forget that on that incremented, a cutoff high margin <unk> hundred 90. There is also a very significant increments from <unk> to <unk>. So that is important to take into account.
There is a little bit of a step up but really marginal I would say very low triple digit million on investment in the future of the R&D has already reached a very high level. Our ramp is already very expenses in 2002. So that's not a big delta slightly better Forex couple of hundred million I'd say.
You mentioned some nonrecurring items.
We had I.
I think of them.
Pension.
Past service adjustment of $400 million, but there was also $4 3 million negative.
Ukraine, we had $300 million on compliance and then they want to do you guys see couple of hundred million loss. So that gives you a net of minus <unk> four because the net was positive in 2012 and with too.
Two zero next year.
And that pretty much gives you. The bridge. So this is how you can quite easily bridge and then of course, all kinds of smaller puts and takes.
Material in the overall context Tobey there is some negative and plays an impact, but we are trying to to compensate that.
When it comes to the widebody ramp up activity. When you look at our numbers the products, where we have the steepest pumped up all the 2000 and the wide body.
Of course in volumes.
<unk> is the one that dominates the supply chain agenda.
As we say once bitten twice shy, we are very prudent on the on the widebody and <unk> and we've seen a lot of time with our supply chain assessing the capabilities.
A number of critical items small to large engines will be something we will be monitoring very closely.
And thats something that <unk>, probably.
On the critical path.
We are as well and number of equipment and system. When it comes to titanium Thats something we are managing and as new volume risk as long as we can continue to source so thats.
That's something that we believe is going to be a big problem for this year. So again, yes, Steve pumped up on wide bodies very strong human that's something we saw coming already at the beginning of last year, you'll remember I was talking to.
Flagged a sign that the demand for wide bodies was coming.
Coming back and now we see it in the bookings and all the campaigns and therefore, we prevail.
<unk> system for this new situation.
Thank you very much.
Your next question comes from Chris Thompson from BNP. Paribas example, Jefferies go ahead.
Yes. Good morning. Good morning, Thank you for taking my question.
The first one would be.
Jane on the Diminishment Thomson Rhonda aircraft production.
Can you tell us whether there are specific.
Actions are being taken to address the issues that you faced in Q3 Q4, Jim offer.
Monitoring the supply chain or increase control in <unk>.
Yes.
No.
Yes.
Sure start changing your approach of these zones.
Diesel is the same.
Same as last year and the second question is a follow up on the cost inflation.
Crime.
In September of last year, how escalation analyzed.
Predicting overtime CDT from ups.
The veracity of your cost base.
It could be temporary headwinds.
And for the investors that plan is Tomas loose enough of an answer you robots in salaries, you don't seem to be so stressed about it for 2023% you would be quite interesting many thanks.
Good morning C stone.
While indeed, we are.
Spending a lot of time in a false managing the supply chain situation. We are already a very high level of visibility and transparency when it comes to the supply chain and it's something we have.
Kept increasing and improving.
Although the course of 2022.
We are improving is when is the ability to.
OTC Bates and manage quite decent and much faster than we did earlier.
Going deeper into the supply chain.
And we are used to do that's something we are organized as what we some of our tier one suppliers.
So thats, probably the more collateral at Ts.
Accelerated wave.
Understanding the situation finding alternatives, we've also invested in <unk>.
Applications and resilience of the supply chain, we will continue to do this in 2023.
So theres a long list of actions that we keep running.
And we have.
So called listened zoning size of 2022 in a very structured way.
To keep improving the way we are managing these although new and very adverse situation of supply chain that we have not experienced in the last <unk>.
<unk> probably.
So we are adapting to that situation and we have also adapted our own planning as you see we are now anticipating two Olympics in.
In a much slower than what we had targeted beginning of 2022.
Listens alone of the environment as we see the environment is improving and we see some signs that this is happening.
Will.
We will adapt to gain in <unk> 2020 one.
The meaningful and the next question, Jeff maybe on the inflation topic, yes.
<unk> is actually a negative I'd say a couple of hundred million dollars in the bridge from 2002 to 'twenty three that's the net and the way. It works is we have a very significant increase in cost but to some degree you can offset by our escalation clauses, which on the one hand, our capital on the other hand apply to the entire revenue base some of commercial.
And some of the inflation related topics, especially on contracts, which are so-called estimated completion contracts has actually been embarked already in our financial statements. In 2022. So this is why it's still a burden on us so it's not something that can take easily.
Not a huge item in our 'twenty two 'twenty three rich.
But as it will come in case of compounds, which is of course, not our current expectations given what's happening in the market, but in case of compounds that can become a more material emphasis what we continue to highlight here.
That's very useful thank you for your comments.
Your next question.
It comes from Leland <unk> from Barclays Madam. Please go ahead.
Yes, Hello. Thank you for taking my question I have two please.
Appointed.
Challenges in 2023 in your view, how long will it take the industry to be back.
Productivity you had 2018.
And then my second question is for Dominic and I will Echo what Jim said it was a real pleasure interacting with you over to yours.
My question is that you had close to 24 billion of gross cash at the end of December .
The benefit of the rising interest rates environment.
<unk> expense going forward. Thank you.
I'll take the first one.
Switching to finger on a on a difficult.
So peak, which is the productivity of industry and actually the productivity today.
Much lower.
Subsidiaries.
Mitch good oil and what it was before Covid.
We are still not recovered from COVID-19 from that perspective, and for many Ingalls and Thats something we are focusing very much on this year.
Coming from many different sources. This very dislocated environment that he is making is very inefficient to be honest.
That's also the.
Large renewal of the workforce.
On.
Joe.
Technical and it takes time to onboard people to find the skills, but also to train them into our people back to work.
We experienced before Covid and Tim.
Highly skilled highly trained.
Manuel and intellectual schemes of people that something that is.
Maybe less material.
With the launch Oems, the large companies and entities in the supply chain and the smaller companies have a lot of difficulties to manage that situation.
We have seen the impact of.
Lockdowns to networking.
That has been taken and not completely recovered from so it's a complex picture in terms of productivity and efficiency of launching the skill the signals and thats something with technical hearing. So your question of when we did that for 2018 levels of productivity honestly I don't know.
The jury is out but we wanted to work.
Hold on those topics because thats very much.
Driving our performance so that statistic, which is iron my own personal agenda into one of my team but.
But it's a it's a cyclical issue.
Interest rates then yes, you are right in mentioning that in a separate way of higher interest rates purely on the cutoff Treasury site.
Positive for us.
You mentioned the interest on our large cash balance, but don't forget we also have swapped system called liabilities.
The cross sell multiple 24 is not what you should look at that you have to deduct the liabilities, we carry the financial liabilities and then also in the 'twenty four there is a.
I think six 7 billion of bond portfolio with relatively short tenure of three to five years, which is also about one to one reacting.
But there is a benefit there.
But the most important benefit is actually on the pension liability, where you have a very long duration portfolio emphasis why over the last couple of years, you have seen that pension deficits going down to now $2 9 billion from formerly $10 billion.
We are now starting at higher interest rates to stop hedging and we've already made good progress in our financial statements. You can look at the sensitivities of our pension deficit to interest rates and you will see it has already reduced we're continuing that derisking and that's actually the biggest lever we have some on the interest rate side in the treasury.
Thank you.
The next question comes from Debbie.
From Jpmorgan, Sir Please go ahead.
Hi, Yes, good morning Dominic.
Dominic good luck to you.
I'm sure it won't be Asics like Tengiz Civil Ireland.
Two quick questions for you.
Graham.
You've given us delivery guidance to 720.
For 2023, but that leaves a much bigger step up now to the kinds of numbers.
Aiming for in 'twenty four 'twenty five pack at the CMT.
I just wondered if you could talk a little bit about how you see the journey and what gives you confidence of accelerating production over the next few years and I guess related to that the second part is.
There's a line in the press release, we talked about the longer term transformation of the company that you haven't really elaborated on it signor and Youll speech. So maybe you could talk about some of the plans you have I think the two are linked appropriately. Thank you.
Yes.
<unk>.
Thank you David.
Electrical comments.
On.
On Dominik future challenges I agree with you that there's nothing comparable to that.
Aerospace.
[laughter] yeah, when it comes to the marketplace and the points you make on the exploration of the hump up moving forward will actually.
<unk>.
Yes.
Target for 2023, which is 720 planes. That's the objective we had for last year. So basically we have lost a year on moving out of COVID-19 and re accelerating.
But when it comes to the midterm targets, reaching rates <unk> and reaching rates 75, we have pushed them out or sold by year.
Beginning of last year, we said we wanted to reach rate 60 by the end of 2023, we said end of 2024.
Basically we have more reasons to believe that this is going to.
Layouts appropriately as we know where we are in the.
Manufacturing of the new production systems of the new filings, we've made progress on those funds. We have done the same joke with also fragrance suppliers and supply chain. So we have a much better understanding of what's going to happen in 2020, but also in 2024 and 2021 and therefore this acceleration of the ramp up in <unk>.
<unk> thousand 12, compared to 23 <unk> by a lot of activities, we have completed with our suppliers and we see also a deadline.
<unk> of the investment they are making their own equipment.
The capex spending on preparing for that one purpose.
It is also something we have done with our widebody suppliers returning to the question that was raised before.
The long term transformation, where that's basically what we've done on which we have initiated last year.
The reorganization of.
Production system, that's going to be some team members discussing too much here on those scores with its major four numbers to have decided that I almost cryptos is make that we deploy on digital solutions across the board, including what we call no analysts Atlantic and help us in our switches and.
On retail pumps and that's the work we're doing on the ecosystem for the digital and Decommunization transformation. That's also what we're doing on all the assist enabled edition should activities you see that we have been.
Approved by DTI will now scope, one scope two and scope three objectives and Thats something where we are working very closely with a lot of external stakeholders.
<unk>.
To succeed in this decarbonization of the planes, but also of the operations, including the use of those new shoes. So that's maybe something we could address at a later stage and our team is very much available to do this we are driving a transformation plan that is.
Relying on four panels, which are mainly people.
Projection systems in which we call the ecosystem, meaning orders.
Players around us that have a big impact or will have a big impact.
On the speed at which we will detail. The Nice addition, and Thats some.
The high level sectors of what I mean by driving the more midterm and long term transformation of our company.
Okay. That's helpful. Thank you and good luck.
The next question comes from.
Please go ahead.
Yes, Thanks for taking my question and good morning again for.
Dominic and then.
Just my two questions and please forgive me if I missed something earlier maybe deal.
In terms of sales campaign activity.
The order intake last year was clearly very good experienced significant upturn in terms of the level of activity.
How do you see at a moment in terms of the level of interest and demand out there in the market.
And then maybe one maybe a little bit most abdominal dominate with defense and spaces, it's become a little bit of a difficult business for us to try to forecast from the outside of Airbus probably from the inside to last year with the impact of the situation with Russia that play out these charges cost inflation.
Ariane six delayed.
So when can we think about defense and space getting back to the old margins of around 8% eight 5% can we get maybe half way back net this year should we think about that or can you give us some help to think about that thank you.
Yeah.
Okay. Thank you for your questions I will.
Dominican silver.
Twisting second one I'll take the first one and the first one the answer is quite easy.
The market is very dynamic.
We have a lot of demand for products a lot of ongoing campaigns not only for wide bodies and try to have it as well for the senior line.
Products. So you will see a lot happening this year again.
That just highlights the need to further accelerate on our homepage and that's why we're putting so much time and energy on the supply chain on now.
<unk> investments at Emmis, because the neutral while the demand for the product is really not.
Getting weaker moving forward and we are starting the year with us.
<unk>.
Success.
Both on wide bodies, and senior line and I anticipate that we will continue to see 2023 playing out.
On the same node Dominik on the margins of different staffing I mean, as you mentioned yourself in 2022 was a little bit of an allo soybean list for defense and space with a lot of exogenous shocks that were really nonrecurring in nature and they had to digest <unk>.
Of course, the consequent focusing on return on sales in 2022.
It needs to be to deploy in order to some degree and that means there should be let's say some upside even though we had the six 8% in 2021, I don't think recover that entirely but there will be a quick move back we anticipate in 2023 now with regards to the 8% exploration I have to say that these are kind of more long term grinding targets. So it's smooth.
<unk> out towards the outer years of the forecast horizon of five years and.
The slope at which you can do that is really structural improvement grinding.
Similar to the slope you might see on helicopter you'll see also we have some margin every year. So don't expect any miracles I think there is a quick snapback opportunity in 'twenty three because of the nonrecurring nature of the 2002.
Not all of which was in adjustments as you.
I have seen.
And then there will be a more heavy lifting to be done over several years.
Maybe if I may complement Dominik I think a lot of that situation comes from the way historically complex where structure and.
We are working hard on the new contract to prepay on a different picture for the.
As the future. This will take time to bvd building on numbers because those contracts are very long term contracts with when I think of the gas on the Johan <unk>.
They are structured in a very different way to avoid the situation where today were headwinds of a very direct impact on our members.
Thank you both thank you.
And best of luck to Dominic.
Thanks.
Yeah.
The next question comes from Chris <unk> from Deutsche Bank, Sir. Please go ahead.
Yes. Good morning. Thank you for taking my questions and also good luck to dominion's annual certain euro.
Two questions. The first one is on the free cash flow bridge again 2023.
<unk>.
Should we expect some PDP down payments to us shifted to 2024, because you are in.
In fact, lowering the number of probably expected deliveries you had in mind initially.
And also last year on this is any cut or settlement cash payments included in that bridge for 2023 or was it already in 2022 and the second question is more on the transformation of the company you mentioned a few elements I was wondering whether you ask suite also considering quite okay.
A more regional supply chain going forward.
Because it is something that we've seen in other sectors like automotive or cap goods.
And probably a way to address the.
The issues that you are adding supply chain.
David quite as last year.
Okay may I start on the free cash flow.
So first I think there is two different buckets in this discussion at the more operational discussion about the.
Phasing of Pdp's versus the ramp of course as you've already seen in 2021, when we shift orders for <unk>.
To the right there is an impact on PDP.
Famous $3 3 billion net PDP flow and contract assets and liabilities in 2022 will not repeat so that will go down and.
But we are not.
Not giving pdp's back I think you imply that you might repay PDP is it really a phasing question about future Pdp's payable.
You mentioned, one legal case here.
I don't want to comment on any significant specific numbers, because we have agreed confidentiality on that.
It is actually the one thing I can say it's to be paid in 2003.
But I'm focusing more on the overall kind of a bucket of nonrecurring items in load as other headwinds temporary headwinds in free cash flow. We've mentioned before there is still the <unk> hundred <unk> certainly agree that still some long and stuff from business partners and.
That's also a reason why in 2023, and we have a certain headwind, but it's not the major items a major item is really.
From from the working capital phasing of payments and receipts.
On your question on the transformation.
I think we had the opportunity already in previous calls last year and many interactions to explain what we're doing in terms of resilience of our activities.
And basically de risking the supply chain in the sense of.
Multiple sources of supply.
Have you seen the number office, which we call single points of failure and that needs to have more visualization of the supply chain. So we do more of a local for local and global.
Yes.
Bye and logistics.
Something that goes progressively and we don't do it as a policy, but more on a case by case in any of the exposure. So that leads to mortgage amortization. Indeed, that's the consequence thats not the aim and.
And we don't put it as part of the transformation, which we call the transformation of the company that's more the way we run the business and the way we we.
Constantly adapt to the reality of the world.
But basically as we do it and that's also something we can explain more in details and you are right in saying that that's something we see.
Many industries and Thats, something we feel swing many companies large companies operating in aerospace.
Thank you very much sir.
Thank you.
The next question is from Ian Douglas pennant from UBS.
Jeff. Please go ahead.
Thanks for taking my question at the end.
I just want to think about margins for a little bit please.
And specifically margins beyond.
2023 can you.
Firstly can you give us any directional commentary here, which is anything vague at the.
More in detail could you give us a sensitivity to inflation here.
If inflation.
It comes in at 2%, so 5% seven 8% can you give us some indication of the timing impact of how that might impact your margins.
And then secondly on the wide body production increases can you help us think about the marginal profitability of those programs as they go forward.
My understanding is that roughly breakeven today I mean, maybe you could correct me on that and just to give a commentary on how a 50% increase in <unk>.
50, <unk> hundred 50 production volumes impacts profitability of that line. Thank you.
So on inflation I mentioned that on our current assumptions for 'twenty three we see a couple of hundred million net impact and.
That's a kind of year on year deterioration.
If you assumed a similar environment going forward every year would pick up that order of magnitude. It may be compounding I mean, if you compound stuff extending to grow exponentially.
It all depends on the inflation itself in the market and as you'll see in the.
Capital markets for inflation linked product is actually in anticipation of mean reversion back to levels of two 5%.
If we were on such a trajectory inflation would not be a topic for us to be blood test. So that's hooked up this is.
Where we're going and I cannot give you any more details because again these inflation caps super sensitive topics and commercial debates with customers.
In terms of production increases.
Feeding through to margin, yes, I can confirm that we actually brought both wide body programs to a break even situation, which was a great success and really heavy lifting but there is more upside coming and we can see of course certain.
Upside as we ramp production.
The other thing I always remind people to do it.
Got some volatility in deliveries.
Of overall end.
Clearly on the <unk> hundred 20.
Not much impact on margin because they are still a cutoff.
Zero contribution margin more or less.
But for the other programs.
You look at the way the deliveries change and then you look at the kind of evident depollute for nonrecurring Forex.
And if you then take averages you'll get some feeling of where these contribution margins life.
But I don't want to go into details there either because it's also very sensitive commercial topic with our customers and competitive.
Thank you.
Yeah.
This concludes our conference call today.
If you have any further questions. Please send an email guest.
Yes, Tom myself, and we will get back to you as soon as possible.
Thank you and we are looking forward to seeing you are speaking to you again very soon.
Everyone have a good day.
Okay.
Ladies and gentlemen, the concerns.
And you May now disconnect. Your telephone thank you for joining and have a pleasant day goodbye.
The conference will begin shortly to raise and lower Johan during Q&A you can dial.
One one.
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Yes.
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