Dassault Aviation société anonyme (AM) Earnings Call Transcript & Summary

Good afternoon. Thank you For coming for this presentation of our half yearly accounts. And thanks to those who are online who are not here on the barge. So as soon to begin with a short film telling you about the highlights of this first half of 2024. Dassault Aviation has received the order for Batch-5 42 Rafale meant to equip the French Air Force. This contract was awarded at the end of December 2023 by the Defence Procurement Agency. These 42 aircraft will be delivered between 2027 and 2032, the Rafale was designed to be upgraded as new standards are developed for us to adapt the latest technologies -- to the needs of the users. Standard 4 is geared to connectivity. Standard 5, which is in preparation, will provide new capacities, particularly in terms of sensors, [indiscernible] warfare and armament, particularly for nuclear missions. Export order under way to which is 0fifth batch is added with rent or the production of Rafale more sustainable for the next 10 years. The last batch of 8 of Asian Rafale for Indonesia came into first on the 8 of January. It's is a follow-up of the first and second batches of 6X and 18 Rafale and we complete a number of aircraft ordered by Indonesia in the contract signed on February 2022 for the acquisition of 42 Rafale. Rafale's technical operation and commercial successes with 7 [indiscernible] countries will allow France to maintain sovereignty in aviation in regions. Dassault Aviation is one of the most attractive companies in France. Clarify -- this year under Statista, our companies recognize #1. Dassault Aviation of the top 3 of the preferred companies among students and young graduates according to the [ Epoca ] 2024 ranking. We are second as an employer of choice among young graduates. Dassault Aviation is among the top 5 of the favorite companies according to the engineering schools, whatever sector of activity in 2024. Dassault Aviation [indiscernible] Falcon Services and the AB Group have partnered make [indiscernible] a pioneer in the field of the stable aviation. We're going to strengthen decarbonization of the airport in many areas as in the distribution -- utilization of the stable aviation fuel, the use of electric needs for all the operations on ground -- refueling taxi, and towing. We could use -- thermal energy to supply the buildings and hangers of the airport. The protocol also has a section to increase the attractiveness of Paris la bûcherie as a labor pool. Dassault Aviation was awarded the very prestigious [ Aviation Week Lawrence Award ] during the ceremony organized in Washington on the 14th of March. This prize attributed to the Falcon waste application in the Business Jet category was given to our company represented by [ Carlos Brana ], this route optimization software will allow us to choose the best itinerary and reduce the fuel consumption. This will be a price for several years of work from our Digital team. It was also developed colaboration with the operational center and our pilots. The annual charity sale allowed us to collect more than EUR 31,000 for the [indiscernible] dose and the state of the development of social work by the Navy. Our CEO gave a check to the Vice [ Admiral Filipe [indiscernible] ]. The adults provides aid to the Widows orphans and former Navy members who are facing serious difficulties. The very first Safety Award event was held in [indiscernible] on April 9. 5 people who have industrial safety were rewarded by valuing the virtuous behavior at every level in our company, that we give the best example in safety culture. Once again, the team of the Dassault Group has won the [indiscernible], a quite demanding sporting event where employees of our various sites will display and demonstrate the values of our company. [indiscernible] performance posting oneself and team spirit. Further to the question in November 2021 of 12 Rafale by the Croatian Air Force. The first 6 Rafale operated by pilots who are trained in France took off on April 25 in Marinac and set course to the operational base 91 next to Zagreb. They joined the 191 quadrant of the Croatian Air Force, and the next aircraft will be delivered as from the end of 2024, completing this quarter by mid-2025. The Red August 2024 Tour in partnership with Dassault [indiscernible], took off from Strasbourg on May 10 and landed in [indiscernible] on May 18. It's [indiscernible] de France in the air, serving the cause of underprivileged children and children with disabilities. Crew of our sites in [indiscernible] have taken part in this event. Dassault was present at eBay Air Show in Geneva last May on the Falcon 2000 LXS and Falcon 8X and Falcon 6X. Our latest model were displayed. It's a new aircraft, which is pretty much appreciated by our customers and pilot for its impressive flight qualities and unique cabin comfort. Visitors could also admire the full-size mockup of the full content as well as various booths dedicated to the layout of our aircraft. Dassault Aviation is carrying on its recruitment plan with 2,000 people plant recruitment this year. We have taken part in a [indiscernible] dream event in [indiscernible]. Our booth was displaying technological workshops and offered the opportunity to discuss with our employees. It was a nice opportunity for the young, who are interested -- in the career in the Aeronautics. On June 27 and 28, the French air and space force celebrated its 90 years in Versa, where it was created in 1934. We were partners of the Light and sound show led by [indiscernible] in the Botero Versa, which was displaying the institution, its evolution and our aircraft. One has to move move up. Time is for a response. The response calls [indiscernible]. It's the first jet of the French Air Force, the first line of the Dassault house with the Aclar propeller, which was put on the [indiscernible]. We also presented a battle lab preventing our unique expertise in collaborative warfare, and our booth offered many visitors, including many young people, an HR area with the immersive reality center and a helmet of mixed reality elements, which is used in our sites for assembly. The demonstrations which were taking place above the [indiscernible] Palace Gardens were led by [indiscernible], a member of Merignac's staff, and the celebrations ended up with a fireworks and a drone light show. So we're going to go back to Earth to the sea or on rivers, still at our doors -- in Ukraine, which is still in the Middle East, which is creating this tension and therefore, this war economy that was wilt by the French President of the Republic, and we are part of it we are prioritizing the production of Rafale in France and for the armed forces for export. There were elections in Europe and in France, and today, there is an idea of this government. We don't know what will happen. There's a lot of uncertainty of concern. We're waiting for the coming weeks. The elections in the United States are disturbed by the fact that President Biden has decided not to represent himself. And here again, there will be a lot of things happening in the coming months. Now let's go back to aeronautics -- the highlights, the entry into force. We've said this several times. We said at the beginning of the year, the 18 extra Indonesia Rafale -- the 495 Rafale have been ordered altogether. And the first 6x after certification in 2023 and the entry into force at the end of 2023, we'll see the first 6Xs soon. The highlights for 2024, these are the difficulties that we still have with our supply chain, especially in our aero structures but also the supply of small equipment is difficult, and this is mobilizing our teams to come out of these difficulties, and this is destabilizing our production. So therefore, we are subjected to delays in our assembly lines. We're trying to do our best to deliver our clients on time, but it is difficult, and this is going to continue. This is not just for Dassault. You've seen the announcements from Airbus and the difficulties of this aeronautical supply chain in all the different areas. And we are here to help our suppliers, the SMEs discuss the price increases because there are also financial issues behind all this. And we are there to help them up to a certain point. But of course, this is [indiscernible] today, this is the major point in the delivery of aircraft. The activities, Rafale, as you saw it in the film, we've delivered 6 Rafale to France during the first half. We have 18 more Rafale for Indonesia in our backlog. A continuous evolution of the Rafale, we're working on the F4 standard, and we are preparing the Rafale F5.This is an ongoing discussion with the Armis and the DGA in order to obtain a first contract for the preparation of this future F5 standard with a combat drone. We are continuing our export prospections and their discussions right now in a certain number of countries. Future comat air systems here in [indiscernible], we have our German, Spanish and French teams. And we are assuming a role as prime contractor, we are in Phase B. We are carrying out the studies. We've finalized the formal studies the wind tunnels, and we're beginning Phase 2 to build the first demonstrator. But first, we have to agree on the sharing of the construction and manufacturing with our partners. As for the Falcon, 11 orders versus 12 last year. So we have a sluggish market as far as we are concerned. The main reasons for this is that we are changing our range. The 6X is arriving. It went through a certain number of delays because of the delays in certification, and the first deliveries are not easy because of the problems in the supply chain. And since the backlog is full in terms of 6X, it is doing things and not promoting orders. Second thing, the 10X our -- our competitors already have the range, the 10X is going to rise. So we have changed our program, considering the difficulties we had with our supply chain so to be able to deliver by 2027 for this 10X, therefore. Now to go back to the 6X, the demonstration flights that were carried out around the [indiscernible] is more than 400 flights, 600 flying hours -- very good reliability, which is very good for new aircraft. We had more difficulties for the last aircraft -- which was the next 7X -- and the clients really appreciate this reliability, the comfort, the silence. It's highly appreciated. And this wide cabin, which makes comfort really extraordinary with the performances of this new aircraft, which is equipped with a very powerful engines compared to the 5X, that we had to replace with Pratt & Whitney. Falcon 10X, I talked about this the schedule that we had changed at the beginning of the year is such that now the deliveries are planned for 2027. The manufacturing of the first aircraft is underway in our plans. And we are continuing and we are strengthening the support of our focus around the world. There's a new maintenance center, which is called MRO, which was opened in Malaysia to cover the Southeast Asia sector. We've also changed the maintenance center in Brazil. We are in Catarina, which is a larger, more modern center to welcome our future aircraft in the U.S.A. as I said, we are still manufacturing a new center in Melbourne in Florida, which will welcome the whole maintenance for the Eastern Coast of the United States and a little more because Florida is a place that is very attractive for all our Falcon clients and for their maintenance. And the opening will be in 2025 for the center in Florida. The other 2, it will be done in the first half of 2024. This is aviation. We are still committed to be mutually [indiscernible] in the Film. We've worked with the Paris Airport to reduce our CO2 emissions with the SAF during our flights and also on the ground by using electricity, we are trying to work with the commission to promote SAF with the refuel and new aviation program. We want to have a stronger ambition in the sector, and this will help us improve things with the SAF, because there's a volume issue. We're going to use staff more often. We will save for the Dassault flights of 900 tonnes of CO2, which is positive. It will cost us a little more, but we are doing it with pleasure. And we are continuing our procedure with the European Commission because as you know, we were not in terms of the European taxonomy, unlike the civil aviation, and we are going to have a recourse to say that this isn't very fair because we are committed to reduce our carbon emissions by 2050, just as everybody else in aviation. We have a good performance, because we're already using SAF. And so why aren't we identified in the taxonomy. I want to maintain this procedure vis-a-vis the European Commission. HR, strong recruitment effort, because of the Rafale production pace and also many of our employees who are going to retire. So for 2024, it is planned to recruit 2,000 people more than 1,000 have already been recruited in the first half of this year. And the challenge, of course, is the induction of the young people, so we are reinforcing the support in young people. Not all of them are very young, but there are newcomers at Dassault with tutorship mentorship programs, that's part of the DNA of the company, particularly for a technical aspect to make sure that the more experienced and more senior people will train the new employees, and we want to make sure that we have the right level of labor. We also have specific induction days to help them understand Dassault -- its commitment in defense because we are producing jet fighters for the French Air Force. And this is reinforced through this recruitment effort. We've had a pay policy agreement with the French unions, CFDT, GCCFA and NSA. So you can read a pay rise which was significant from my standpoint, where in spite of the slowing down of inflation. We've also increased the lower salaries by EUR 80 growth per month, particularly for this bracket of the lowest salaries, which is far from the minimum wage, which was pretty much discussed nowadays. We also share the value at Dassault share the profits. And for 2023, the incentives paid will amount to 2.9 months of extra wages for all employees of the parent company. And here again, since there is a cap -- it's also more beneficial to the smaller -- to the lowest wages. We're still upgrading and modernizing our industrial infrastructure. You will remember from previous sessions that we have built a new facility in Merignac for the civil aviation, military evaluation support with integration inches some research labs for technical or industrial labs in the warehouses at Merignac close to where the aircraft are being assembled. Some aero structures like T15 for Falcon 10X and other aircraft will be in Merignac, that's the building you see in the middle. And we also have composite in the Red Swiss have some land available in Merignac. So we take this opportunity to build up a new facility. And for the 10X which will be bigger than the other aircraft of the range, so we need a bigger building. Cergy was also discussed, there was some challenges with the suppliers and figures of this building. This is history now. We have started the transfers from [indiscernible] to Cergy, and this will be completed by the end of 2024. Make in India. We're still building partnerships with engine-based companies who already had the joint venture. Now we are signing partnership agreements such as TATA, DYNAMATIC, AEROLLOY so that all the subcontractors and structures will be in India, close to the local manufacturing needs. We also provide training with the Dassault Skill Academy to train people locally. There is a skilled -- labor there. And we also have an engineering center in Pune, which is fully operational close to Mumbai. It's an important topic. We need to keep on developing this because in case of problems with our subcontractors and manufacturers of aero structures, we can rely on our partners in India. Now the actual business results, Falcon 11 aircraft EUR 1 million, export EUR 3.9 billion, mainly the Indonesian contract. EUR 200 million for France -- for the net sales, EUR 1 billion. That's a delivery of the 12 Falcons EUR 0.5 billion. That's the delivery of support services. We did not deliver exported Falcons over the first half. We mainly delivered in France. And in EUR 1 billion in France for the delivery of the 6 aircraft. With a backlog 83 aircraft as opposed to 84 last year. 159 Rafale, that's EUR 27.3 billion, up compared with 2023 and EUR 9.1 billion in for France. 64 aircraft -- it's going down we have not received other orders as for the tranche or the batch 5 that we received last year. So you see EUR 41.2 billion in our backlog, which is has been on the rise for quite some time now. Now the self-finance R&D, the 6X being now completed, we are focusing on the 10X, therefore, the decrease that you can see for R&D. EUR 200 million versus EUR 247 million, first half last year. Net sales, EUR 2.533 billion and operating income at EUR 170 million, also up compared with last year. The operating margin plus 0.1%, standing at 6.7% of financial income, which is almost equivalent to EUR 106 million versus EUR 110 million. Sales and other equity affiliates, EUR 236 million. [indiscernible] has also reported its business results yesterday, slightly up compared with EUR 210 million of 2023 and EUR 442 million net income with a net income margin at 17.4%, which is quite stable compared with last year. So the cash is going up because we've received the down payments for the exported Falcons. This is allowing us to have the cash to manufacture these aircraft. Therefore, the cash is -- has been up, particularly the free cash flow, as you can read in the press release, our guidance remains unchanged. For 2024, we're still confident as to the delivery of 20 Rafales, 35 Falcons and to achieve a EUR 6 billion revenue approximately. As you know, we have had some buyback -- share buyback program. The Board has met today this afternoon before this press conference and has allowed this new buyback program, and we have to -- until 26 [indiscernible] will be at 66.11% free flow, 23.11%, Airbus 10.53%, and equity data yes, [ 7.25%. ] Now the voting rights will be at 79.62%. The free float is 14.4% and air business at 6.34%. Well, that's all I had for you. And now I'm ready to entertain your questions. Thank you.

The first question is always the most difficult to put.

Mr. Tran i must have been too clear or too fast today.

Thank you, Mr. Trappier. Pierre Tran. You talked about discussions for the [indiscernible]. Can you give us more details -- the for which you're sharing the manufacturing.

No details to manufacture aircraft right. To demonstrate you, we have to decide on who makes what for the moment we had common studies. Each one has his responsibilities about these studies. It's Phase 1 -- it's still not completed. And I have to finalize the discussion, I was going to do what, but I won't tell you more at this moment. And you have a schedule, we have a Phase 2, that should begin in 2026. So that's theory. If you look there are political schedules for '27, et cetera, and we'll see if the countries around the table can mobilize their policies and obtain authorizations. In Germany it's a -- it's a [indiscernible] that decides. And here again, we will need an executive for the execution of the military program launch. So theoretically, it's 2026.

And you have observed this uncertainty in France since a few weeks. A few more months of uncertainty, what do you think?

I don't know. I can tell you for the next few weeks. Ahead of us, I don't know we will wait to see what the President of Republic will say tonight. There'll probably be a truce during the Olympic Games, but it's in September that we will really have to know what's going to happen, which government what program for the government, what measures, what lows. There's no absolute majority empowerment. So what relative majority can govern the country for the coming months and years. It is a concern for us, industrialists in general because, well, we at the [indiscernible], we are protected. We have a family that is investing its money in the Dassault Aviation too, but for the others, it's not the same. According to the investors, according to the taxation, the changes in the tax law standards. We've been going through this for months. We will see how investors will behave family investors, mainly because you're at UMM. It's 90% of SMEs, a lot of family companies. And they're all worried. And the others, these are foreign investors and they can be worried too, and when people worry they don't spend.

You might have seen -- next to the channel, there is an uncertainty on the Tempest project. What do you think about that?

Yes, I saw that. I saw the presentation of the mockup. I reread the statements. They're trying to promote their aircraft, and we felt some reservations on whether it's going to be launched or not, but it's up to them to answer your questions, not up to me.

Can you go back on the supply chain because that's a major issue. And are you confident about the fact that you will deliver and can you confirm your net sales? And if look further, can you go back on the schedule of deliveries of export Rafales? What could lead us to increase our net sales next year?

So to answer your second question, we're not guiding the future deliveries. As you know, I'm saying it again. We have a full backlog full order book and for the Rafale, our orders have been signed. So we have to deliver on time. That's what we're doing until today. We had a little bit of delay for our aircraft last year. We were trying to keep up with this pace. We have a lot of aircraft to deliver in the coming years. We are in the middle of it all, we have to check [indiscernible] subcontractors and ourselves. We shouldn't underestimate that the disorganization because of what is missing, this has caused some catch-up plans, which are difficult to implement, and we have to be careful about that. But I'm optimistic. I think that we'll be able to deliver all the Rafales in our orders, and I'm ready to take in new orders. So that should reassure you. And as for our subcontractors. Well, we have teams that go to our subcontractors that help them do their jobs because there are difficulties with labor, with process. And in the negotiations we have with them, we try to help them to -- we can make prepayments so that the working capital requirements are covered. That's the role of the banks that you know with the inflation that skyrocketed banks were a bit more tense. We have the funds, the fund that we set up the Aero fund with the 4 major partners who are Airbus, [indiscernible], Safran and ourselves, and we have funds that will allow us to increase the equity of some companies so that we can face this ramping up. This is not only at Dassault, but it's also at Airbus. So we have all kinds of resources, but we're in the middle. It's slightly harder for the Falcon to tell you the truth because we have an additional factory in the U.S. in Little Rock. And when the aircraft is still not yet fully completed, and we send it there, we have to continue making certain changes. There are delays. We use the equipment in the U.S. and from France is creating a lot of disorder. It's going to go on for some more time. I hope that the current situation won't get worse for all our suppliers, though, and I'm saying this without really knowing what's going to happen in the future. But if the investors are hesitating, that's not very positive. There has to be stability in all our measures so that the investors might want to invest. So we're right in the middle of it all right now.

And as for the Falcon total sales, you're talking about the American elections. Is that a risk?

As for the Falcon market, we've made a bet. We're good to keep selling for Falcon 2000 and 8X, but our bet is to sell a lot of 6X and in the future a lot 10x's. So this is a turning point right now with the older range and the very modern range. It was difficult for us to develop these 2 aircraft. At the same time, there was a COVID in the middle of it all. We had the difficulties with the supply chain. But we are very happy to have these 2 aircraft in our portfolio. We hope that this will boost our sales in the coming years. And don't you think that the elections might slow down things on the market. We are always afraid of all kinds of things when you're at the top of the company. We don't have the choice. So we will have problems. We will have other problems too, what worries me most right now is the local environment in France.

Good evening. As for the combat controls, what is the positioning of your project considering the FCAS? Is it a question of Export?