Safran SA (SAF) Earnings Call Transcript & Summary

Welcome to the Safran Full Year 2019 Results. At this time, I would like to turn the conference over to your host, Philippe Petitcolin, Safran's CEO; and Bernard Delpit, Group CFO. Mr. Petitcolin, please go ahead.

Thank you. Thank you very much, and good morning, everyone. Thank you for joining us for this fiscal year 2019 earnings presentation of Safran. As usual, the press release, presentation and consolidated financial statements are available on our website. In 2019, we delivered very strong organic growth, further high-margin expansions across all our divisions and a good cash flow generation in the context of the MAX grounding. Our challenge in 2020 is to further demonstrate our ability to adapt to the situation. I will come back on this point later on. Let me sum up the key events of the past year. Operational performance was solid. Safran enjoyed another year of strong organic revenue growth, up 9.3%. Due to strong performance across all the Safran businesses, 2019 represented an exceptional year. Despite of the 737 MAX grounding, we shipped 1,736 LEAP engines versus 1,118 in 2018, a number which is very close to our initial target and will continue to decrease our cost of production. We have recorded 1,968 new orders and commitments for the LEAP. The ex-Zodiac businesses integration continued, and we delivered the expected synergies, which allows me to confirm the EUR 250 million targeted for 2022. On the financial side, we delivered very strong results in all divisions. I will come back on our detailed results in a few moments. The buyback program of EUR 2.3 billion launched in 2017 is now fully executed. The free cash flow conversion to our recurring operating income was good despite the MAX grounding. Lastly, we continued to prepare the future of Aerospace with new key strategic partnerships, with MTU of Germany for the next-generation of European fighter engine and with Airbus and Daher to develop a distributed hybrid propulsion aircraft demonstrator. Looking at the financials on Slide 6. Safran's performance in 2019 was excellent. I remind you that 2019 figures include a 12-month contribution of Zodiac Aerospace versus 10 months in 2018. The adjusted revenue reached EUR 24.6 billion, up 17.1% and up 9.3% on an organic basis. Adjusted recurring operating income stood at EUR 3.8 billion, up 26.4%, representing 15.5% of sales, which are 110 basis points up, and up 24.6% on an organic basis. Adjusted net profit grew 34.5% to reach EUR 2.6 billion. Basic EPS grew 34.8% at EUR 6.2 per share. Operations generated almost EUR 2 billion of free cash flow, an 11.3% increase in spite of the grounding of 737 MAX. This represents a 62% conversion to our recurring operating income, slightly above our guidance that I remind you was around 60%. The net debt position is EUR 4.1 billion. I remind you that it includes the impact of IFRS 16 on our opening balance sheet for a negative impact of EUR 529 million. Going to Slide 7. An update of the CFM56-LEAP transition. Regarding the LEAP, our engine confirmed its status of engine of choice for airlines. At the end of December, the total LEAP backlog reached 15,614 engines. At January 31, 2020, our market share on the A320neo family is 60.5%. With regards to production, we delivered 1,736 LEAP in 2019, of which 420 units in Q4 2019. LEAP-1A and LEAP-1B before the grounding of the MAX have accumulated together 7.2 million of flight hours. For the CFM56 engine, the production ramp-down continued as planned. 391 units were shipped in 2019, a 62% decrease compared with 2018. Finally, our civil aftermarket revenue was up 9.9% in U.S. dollars, driven by spare parts sales. On Slide 8, a few words on our Equipment, Defense and Aerosystems division. For the last quarter of 2019, the nacelle business has continued to benefit from the ramp-up of the A320neo family and A330neo, and from a strong growth in its service activities. Safran has been selected for the complete nacelle of the new Gulfstream Aerospace G700 new biz jet. Carbon brakes benefited from air traffic growth in 2019, and we signed new contracts covering 850 additional aircraft. In Electronics and Defense, we signed major contracts, notably with a Swiss Army for infrared and night vision goggles and with the NATO Support and Procurement Agency for long-range multifunctional thermal imagers. In Electrical and Power unit, we were pleased to install our ENGINeUS electric motors on the hybrid-electric aircraft developed by VoltAero that started to fly. Lastly, in Aerosystems, we reached the threshold of 5 million life vests. I remind you that Safran is a world leader in emergency evacuation technologies with a complete range of products: life vest, evacuation slides and rafts. Let's turn to Aircraft Interior on Slide 9. As I mentioned each quarter, this division is improving, which is good sign that customers' confidence has returned. But we have to continue our efforts, particularly in the context of an organic decrease anticipated in 2020, which is a result of the nonoperability with Airbus and Boeing in 2017. If we focus on Q4, some very good news for each unit. In cabin, we have been awarded by a major Asian airline to provide galleys for its large fleet of future A330neo. We have also been selected by Turkish Airlines to provide our new Hybrite Trolleys line. In seats, we have been selected by several major Asian airlines and Pacific airlines to provide first class, business class and premium economy class for wide bodies. Lastly, in our new passenger solutions activity, we welcomed several new contracts on IFE and Connectivity solutions. We now enjoy a customer base of more than 50 airlines. To conclude this first part, a couple of words on our R&D on Slide 10. Total R&D, including R&D sold to customers, reached EUR 1.7 billion. The R&D expenses were EUR 1,337 million, representing 5.4% of our sales. The R&T and innovation stood at EUR 442 million, up 7% on an organic basis. For 2020, as indicated in our guidance, R&D expenses will decrease to reflect the adaptation plan-s that we implemented at the beginning of the year with non-priority expenses postponed, no NMA spending, but increasing -- I insist on this one, increasing efforts on R&D and Innovation to prepare the future and notably to address the challenges of climate change. Now Bernard for the financial portion of the presentation is on.

Thank you, Philippe. Good morning to everyone. I'm on Slide 12 with 3 brief remarks. First, 2019 results are established considering IFRS 16 rules. I already presented the impact in the opening balance sheet. It's EUR 529 million debt on the 1st of January. Second, ex-Zodiac activities are now consolidated for 12 months. It was 10 -- there were 10 months in 2018. Third, we changed our segment information in July last year as part of the reorganization of Equipment and Aerosystems businesses, and today's, of course, presentation is made under this new format. Slide 13 and 14, a few words on FX and hedging. Average spot rate was $1.12 in 2019. It was $1.18 average last year, creating a positive translation effect of nearly EUR 700 million on revenues. Hedge rate was $1.18 in 2019, same as in 2018. And the mark-to-market effect was a noncash gain of EUR 175 million, resulting from a change in fair value of the portfolio of hedging instrument compared with dollar spot rate at $1.12 at close. This mark-to-market effect is restated in adjusted data, so it does not impact earnings. But I draw your attention on the meaning of this mark-to-market effect. It says that the average hedge rate of the portfolio is just slightly above $1.12, which is good news for the future. And that is exactly what Slide 14 is telling us. Total portfolio is now EUR 28.1 billion with existing instruments. It allows to fully hedge 2020, 2021, almost entirely '22, and '23 is already hedged for EUR 4 billion. Considering the features of our instruments with barriers set at different levels of the spot rate between $1.16 and $1.33, we can improve our targeted hedge rate to $1.16 in 2020 in the range of $1.14 to $1.16 in '21, from $1.12 to $1.14 in '22, and from $1.10 to $1.12 in '23. And as you know, $0.01 improvement in the hedge rate is worth EUR 70 million EBIT. On Slide 15 is the bridge between consolidated and adjusted data. It is exactly the same methodology year-on-year. I circled 2 usual restatements. The first one is the EUR 175 million financial gain from the mark-to-market of our portfolio of hedging instruments, and it's restated in our adjusted data. The second one is a PPA amortization, EUR 315 million out of the EUR 354 million circled here are coming from the Zodiac acquisition. In '16 -- Slide 16, sorry, is the P&L for Safran in 2019. And as I will comment on revenue and recurring operating income in the next slide, I will only draw your attention on other items. Sharing profit from joint ventures decreased in 2019, mainly due to a lower contribution of ArianeGroup, notably because of flight deferrals to 2020. One-off items were slightly positive for EUR 13 million in 2019. It was negative for EUR 115 million in 2018. We booked capital gains generated by a building disposal and divestiture of a subsidiary of Zodiac in the U.S. and also the depreciation of one intangible asset. We also supported some restructuring costs in 2019. Net financial income was negative for EUR 89 million. It was negative for EUR 211 million in 2018. It reflects, first, lower cost of debt, thanks to the more favorable credit condition and restructuring of the hedging of our USD debt. And it also reflects a foreign exchange loss of only EUR 9 million. It was EUR 86 million negative in 2018, mainly due to the almost near FX impact on USD-denominated balance sheet items. Income tax charge was EUR 1,012 million representing an apparent tax rate of 27%. So our adjusted net income group share was EUR 2,665 million. EPS was EUR 6.20, an increase of 35% in 2019. On Slide 17, adjusted revenue has reached EUR 24,640 million in 2019, up 17.1%. It includes EUR 929 million of change in scope, mainly due to the additional contribution for 2 months from ex-Zodiac activities. A positive currency impact of EUR 704 million, notably due to the strengthening of euro -- of dollar, sorry, against euro and achieved 9.3% organic growth coming from all our businesses. Organic growth is 10.8% in Propulsion, 7.4% in Equipment and 8.8% in Aircraft Interior. Recurring operating income, Slide 18, grew from EUR 3,023 million in 2018 to EUR 3,820 million in 2019, up 26.4%. It includes 2-month additional contribution of ex-Zodiac activities for EUR 41 million. On an organic basis, recurring operating income grew 24.6%. It comes from growth from both OE and services and cost reductions in all activities mitigated by higher R&D charge to the P&L as expected and the negative impact of EUR 98 million from the CFM56-LEAP transition. A short comment at that stage on the CFM56-LEAP transition. We ended in the upper range of the target given at the beginning of 2019. The contribution of LEAP slightly improved as the 12% decrease in unit cost balanced volumes increase and the net negative impact comes from the sharp decrease in CFM56 deliveries. Provisions for retrofit plans have also been booked, offset by a stronger mix of spare engine in 2019. Slide 19, a few words on R&D. Total R&D was EUR 1,725 million, of which EUR 1,337 million were R&D expenses. This represents a EUR 111 million increase. Amortization and depreciation of R&D increased by EUR 52 million, mostly due to the depreciation of an asset for the A380 program. As a result, R&D in P&L stood at EUR 1.1 billion, almost stable at 4.5% of sales and creating an additional EUR 143 million negative impact on the recurring operating income. Slide 20 gives an overview of business performance. A quick word on corporate center. The recurring operating income is negative for EUR 62 million. It was EUR 80 million negative in 2018. We expect to keep it like that in 2020. Page 21, Propulsion. The performance in 2019 was very strong. Revenue stood at EUR 12,045 million, up 13.9%. OE revenue grew 13.5% despite the impact of the 737 MAX grounding on LEAP-1B deliveries. Total narrow-body engines deliveries almost stable, whereas M88 engines deliveries amounted to 62 units. They were 23 last year. Services revenue increased notably due to the civil aftermarket revenue growth, but also from military MRO and helicopter services sales. As a total, services revenue in Propulsion were up 14.2%. The civil aftermarket growth of 9.9% comes from parts 7% up and services 7% up. Recurring operating income grew at EUR 2,485 million, with an operating margin at 20.6%. The profitability of this division benefited from a higher contribution of civil aftermarkets, military activities and the helicopter services. Military business enjoyed a strong contribution in H1 as we booked at once revenue with margin at completion related to contract with the French DoD. Slide 22, the Equipment division. 2019 performance was also very strong. EUR 9,256 million sales, up 16.5%. It was driven by a strong momentum in OE for nacelles for the A320neo and A330neo, from the 787 program for wiring and landing gear, but it also comes from services which grew 8.7% on an organic basis, mostly for nacelle and carbon brakes. Lower A380 volumes negatively impacted OE sales in this division. Profitability improved at EUR 1,209 million or 13.1% of sales, up 60 basis points. I would like to underline here that on an organic basis, recurring operating income increased by more than 100 basis points with an operating margin at 13.6%, thanks to continuous cost reductions in all businesses, productivity actions and aftermarket growth. Slide 23, Aircraft Interiors with cabin, seats and passenger solutions. 2019 revenue were EUR 3,321 million compared to EUR 2,511 million in the year ago period. On an organic basis, revenue grew 8.8%. All activities contributed, especially seats. OE was up 7.7%, driven by business seat programs, toilets, floor-to-floor activities and in-flight entertainment. Services up 11.9%, mainly driven by seats, aftermarket and in-flight entertainment as well. Recurring operating income increased by more than EUR 100 million at EUR 188 million. Operating margin increased from 3.2% in 2018 to 5.7% in 2019. Cash generation, Page 24. Free cash stands at EUR 1,983 million, that's 52% of recurring operating income or 75% of net income, which is very good in the context of the MAX grounding. EBITDA stands at EUR 4,968 million, up 33%. We have a headwind coming from working capital for almost EUR 900 million in 2019 due to inventories up for almost EUR 600 million. Receivables up also due to the MAX and as we did not receive any prepayments from customers. This slide also shows a tight control on CapEx. CapEx and cap dev is a total of EUR 1,162 million for total amortization and depreciation of EUR 1 billion. So we keep our capital base at the same level. Page 25 is the net debt bridge. The net debt at the end of December 2019 reached EUR 4,114 million. It reflected growing free cash generation; our shareholding policy, including 2018 dividend, paid in May; and the completion of the buyback program now fully executed, which represented more than EUR 1 billion in 2019 and EUR 2.3 billion as total since we launched the program. It also includes changes in liabilities from long-term lease agreements. On Page 26, the highlights of the balance sheet. Nothing really to mention here except that operating working capital was a negative contributor to free cash generation due to receivables and inventories. Page 27 is our dividend proposal to the next AGM for 2019 results. We will propose a EUR 2.38 per share. It's a 30% increase versus the EUR 1.82 of last year. Thank you for your attention. And now I will leave the floor to Philippe for the 2020 guidance.

Thank you. Thank you, Bernard. On Slide 29, our outlook for 2020. To take into account Boeing's decision of 737 MAX production halt starting in January 2020 and an estimated return to service by mid-2020, Safran has set its 2020 outlook using the assumption of an annual production of around 1,400 LEAP based on an average production of 10 LEAP-1B engines per week over the year, and the agreement between CFM International and Boeing for the payment of its engine. Safran has implemented an adaptation plan to adjust to this situation. It includes savings on direct costs, overheads, hiring freeze and a reduction in R&D and CapEx for 2020. On this basis, the adjusted revenue is expected in 2020 to decrease in the range of 0 to a max of 5% compared with 2019 at an estimated average spot rate of EUR 1 -- at $1.13. And the situation is about the same for -- in organic terms. There is no change between this number and organic terms. The adjusted recurring operating income is expected to grow around 5% at a hedge rate of $1.16 to the euro, which represents around 150 basis points of improvement. The free cash flow is expected to be higher than in 2019. Going to Slide 30, this outlook is based notably on the following assumptions: decrease of aerospace OE deliveries, civil and military engines; civil aftermarket growth is high single digits as long as the disruption created by the coronavirus on air traffic does not extend beyond Q1 2020; transition CFM56-LEAP neutral impact on Propulsion adjusted recurring operating income; Equipment, Aircraft Interior slight organic growth in Equipment and organic decrease in Aircraft Interiors, but a continued improvement in the recurring operating income in these 2 divisions; a decrease of R&D expense in the range of EUR 50 million to EUR 100 million; positive impact on recurring operating income after activation and amortization; and a stable level of tangible investments between 2019 and 2020. This is the end of our formal presentation between Bernard and me. Thank you for your attention, and we are now at your disposal for any Q&A. Any questions?

[Operator Instructions] And we have our first question from Olivier Brochet from Crédit Suisse.

I would ask actually 3 quick questions, if I may. The first one on the agreement that you have with Boeing on the payment, just to check that it is for all production that you will be doing or if it is only partial. And whether there is any imbalance throughout the year or whether it will be at the rate of 10 per week as you've flagged. Second question is on shareholder returns and buybacks and dividend. How do you think of it in the context that we have at the moment? What recommendation do you have for the Board on that? And third, it's probably a detail on the patroller accident. You've not mentioned it in the presentation. Is there any financial impact? Is it in the EUR 21 million of one-offs that we can see in the Aircraft Equipment business?

Okay. Thank you, Olivier. I will try to answer the first question and the last one. I will let Bernard answer the second one on the buyback and maybe give more details if I don't give enough on this first question. Regarding the agreement with Boeing, of course, it is a confidential agreement so we cannot give you the details of this agreement, and it's a CFM agreement with Boeing. But all the engines which are going to be delivered in 2020 will be fully paid, net paid. And there is also in this agreement a portion for the engines which have been delivered in 2019, which will be also paid between 2020 and 2021. So it's a complete payment of the engines by 2021. Regarding the question on the patroller, we know what happened in terms of failure of the system during the fly test. We are now doing our job in order to clean all this system and make it completely in line with the requirement of our customer. And there will be absolutely no specific cost included in 2020. All of this has been provisioned and all the costs which are needed to bring back the system as the state-of-the-art are already in our books.

Yes, so more stable, Olivier. On the Boeing agreement, we are talking of price net of [ progress, ] all right? So it's a price without anything on prepayments. So it's only a net price, all right. And the payment of 2020 engine is in the free cash guidance. It's not the case for 2019 engines, which is something specific. On the buyback, our proposal to the Board was to -- not to start a new buyback program in 2020 as we have a lot of uncertainty around some of the key elements of our business. But it's something that we will rediscuss with the Board at some stage because we think that our cash generation will continue to be very strong. But now that we have completed the EUR 2.3 billion buyback program for the Zodiac acquisition, let's make a pause and we'll review the situation in 2020. But it's not something that we're going to start right now. For the patroller accident, as Philippe said, we have taken all the consequences of the accident in the 2019 results. It's not only on the one-offs that you mentioned, but it's part of the current business. And current cost and additional costs that we will bear are taken into account in 2019.

So we have another question from Robert Stallard from Vertical Research.

Philippe, a question for you, perhaps, on the aerospace aftermarket and the potential impact of this coronavirus. Where do you think the biggest vulnerability could be, looking at Propulsion or Equipment? Have you seen any early signs of airline customers pushing out retrofits in the interiors business?

No. We have seen, so far, absolutely no sign related to the -- to this coronavirus situation. We have estimated for the year of 2020 that this peak of the situation will be done by the end of March. We -- in fact, we saw that-- we looked at what happened on the SARS in 2003, and we saw it was a kind of V shape. It was -- it started to decrease very fast and came back as fast as it started to decrease. So it's a really sharp V shape of this virus in 2003. And when we look so far at the situation in 2020, we don't have any signs so far of reduction, for example, in the aftermarket, as you mentioned, of our businesses. If we look at what is going on in the aerospace commercial industry, domestic flights in China have been reduced. Long haul flight on widebodies have been reduced in -- with some of European and American Airlines or Middle East airlines, but it's quite limited. The biggest impact today is domestic impact in China. And again, because we have about between 60% and 80% of the flights which are a concern in China for domestic flights, but it has a limited impact so far. And if it -- and when you look at the airlines, if you look at all the international airlines, they all plan to restart their flights progressively between end of February and end of March. And when you look at the Chinese, they restarted already because, to give you an example, we were at 80% of cancellations a couple of weeks ago. Last week, we were only at 68%. And so they are recovering also. So we wish that by the end of March, again, that's what we have taken in our assumptions, we are back to normal. But so far, we have seen no impact on our spare part business, for example.

Okay. And then maybe one for Bernard, if I may. On the progress payments related to the 737 MAX. Can you size and what the negative impact was in 2019 and what the anticipated impact could be in 2020 and beyond?

Okay. In 2019, I would say that 40% of the EUR 700 million negative impact on free cash due to the grounding is more or less due to the absence of any prepayments, all right? And in our assumption, we think that in 2020, at least, airlines won't resume prepayment. So we haven't taken any in our 2020 guidance.

So we have another question from George Stahl (sic) [ George Zhao ] from Bernstein.

So just more on the cash cost road map in 2020. How much of a headwind do you think is timing related and will be pushed out to 2021 at MAX deliveries ramp up versus how much of the headwind do you think is onetime cost from disruption that will essentially be lost and not recoup? And related to that, what is Safran doing to ensure the health of the LEAP supply chain or as the smaller suppliers navigate through the production suspension?

George, if I may. We have -- in December, we, with our partner, GE, looked at the minimum production we needed to have in order to have industrial cost of our products. And we came to the conclusion that we needed around 10 engines a week in order to have a cost of production, which would be an industrial cost and not a kind of prototype cost. And so this is the base of the discussion we had with Boeing, and we came to an agreement with them where we would support the assembly line of Boeing by providing them, starting in January, with 10 engines a week for the full year of 2020. Of course, we are working end-to-end with Boeing and if there is a need for further expansion of production, we will look at it carefully with our supply chain and see how we could react and how fast we could react to the requirement of Boeing. But this is the base we have today. And as Boeing -- Bernard just said, we came to an agreement with Boeing, where all these engines would be fully paid by going between 2020 and 2021.

We have another question from Harry Breach from MainFirst.

Can I just ask you a couple? Firstly, with the reduced production rate on LEAP, I think previously you were indicating expected gross profit breakeven around 2023 with LEAP. Can you give us any feeling about how far to the right did the breakeven might have moved? Second, can you give us any feeling about spare engine mix? And how that might be changing in 2020 and '21 versus '19? And then maybe, just finally, has there been any change in the supply chain situation, both in regard to tightness in forging and casting supply and any sort of late deliveries there? And secondly, whether any of your suppliers are affected by any coronavirus-related shutdowns and whether that's an impact?

Okay. Harry, I'll take the first one on the LEAP breakeven. But of course, the reduced volumes have an impact on the learning curve. We think that LEAP unit costs will stabilize in 2020, where we expected a new decrease if we have been on the same learning curve. So it should delay the breakeven, but not more than what is delay in the ramp-up of the MAX. So we are not yet ready to give any new horizon, but I think it's going to be a little bit late here.

For the spare engine, Harry, as you know, the spare engines we provide today are -- is a mix between the CFM56 and the LEAP spare engines. CFM56 is going to remain at a very nice level, we believe, in 2020, even if it's a bit less -- it is our forecast today, it's a bit less than 2019, but it would remain, nevertheless, at a very high level. For the LEAP, we believe that compared to the forecast we had a couple of months ago, we will have a need for more LEAP-1A and a bit less of LEAP-1B and it's understandable. The airlines are not going to take spare engines if they don't have the airplanes line. So all in all, I believe it's going to be a little bit less in 2020 compared to 2019. It's too early to tell you exactly if it's very little or just little or a bit more than little. Again, our forecast today, reduction -- slight reduction of CFM56 spare, an increase of LEAP-1A and a decrease of LEAP-1B, which is, again, understandable. Regarding the supply chain and the forging part supplies that you mentioned which are -- which were an important factor in our decisions of supporting and not some additional requirements of our customers. Today, we are in discussions with Airbus, which is requesting us to increase our production of LEAP-1A. And of course, we are more optimistic to find an agreement with Airbus on an additional increase of their requirements, based on the fact that the total capacity of our forging base is, today, more open to this additional quantities that we are going to request from them. So in terms of supply chain, the big guys are supporting the requirements from Airbus. And for the smaller ones, we try really to support them the best we can because it could be a little bit brittle. They have some financial situations, which are not so good for some of them, and we are supporting them the best we can, in order to avoid any big problem for them. Regarding your final question on the coronavirus impact on our supplier base. As of today, I have been -- I have seen nothing coming from our supply base in terms of reduction or shortages, which could have been impacted by the coronavirus. If I look at my supply chain in China, for example, we have between 40% and 100% of the workforce, which are back to -- in our suppliers' plants. In our own plant, we have, for your information, between 74% and 95% last week of people present in our plant. So -- and with -- in our plants, I am 100% sure there's nobody impacted by this virus with our suppliers. Our suppliers claims that they have none either. So I told them. And so far, we have seen no impact on our supply chain coming from this coronavirus.

So we have another question from Tristan Sanson from Exane BNP Paribas.

Yes. Three question on my side, please. The first one is a catch-up or flow up on the cash flow dynamics in 2020. So you had an impact of the MAX grounding in 2019, that it had EUR 100 million per month. Can you tell where we stand actually in your 2020 outlook? What's implicit? Is this EUR 100 million per month going to 0 or is it still a small negative? That's the first question. The second, in your press release, you're hinting at a change in 2022 dynamics and the need over time to revisit your midterm forecast. And talking about a few drivers here, including the much better contribution to be expected from FX, the better organic momentum in '19, and the headwind from MAX grounding, but the way it's phrased makes me feel that the revision risk is actually rather positive -- positive change. Is it the right way to see this? And the third question is on aftermarket dynamics in 2020. Can you tell us how you see the mix of aftermarket growth to evolve between a number of shop visits, work scope and pricing? And third question, do you expect any change in aircraft retirement patterns in 2020 and the availability of used service materials, which affect pricing over time?