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UPDATE 2-Safran hit by defence equipment delays, U.S. weather
April 23, 2014 / 8:06 AM / in 3 years

UPDATE 2-Safran hit by defence equipment delays, U.S. weather

* Sees strong year for jetliner engine sales

* Defence revenue down, security sales recover

* Aftermarket revenue below expectations, shares fall

* CEO declines to say whether wants new mandate

* French group still interested in Avio Spazio (Adds analyst, Boeing earnings, GE comparison)

By Tim Hepher and Cyril Altmeyer

PARIS, April 23 (Reuters) - France’s Safran rattled investors with first-quarter aerospace revenue hampered by pressures ranging from delayed deliveries of defence equipment to weaker helicopter sales and cold weather in North America.

The aerospace, defence and security group stood by an upbeat forecast for the commercial aviation sector, driven by emerging-market demand, and maintained a 2014 revenue target despite a strong euro.

But its shares fell as much as 3.6 percent, leading France’s blue-chip CAC 40 index lower.

Overall revenue at the maker of products ranging from jet engines to ‘green’ taxiing systems and from precision bombs and bomb detectors, rose 3.3 percent to 3.443 billion euros, compared with market expectations of about 3.6 billion.

Defence sales fell by a steeper-than-expected 12 percent due to delayed deliveries of missile guidance systems, but Safran said this would steady itself for the year as a whole.

Safran is a major supplier to Airbus and Boeing , which are both producing record numbers of aircraft to keep up with expansion in emerging markets - demand which helped Boeing beat expectations for the quarter.

Safran is a joint partner with General Electric in the world’s largest engine maker by units sold, CFM International, which reported 402 deliveries and 1,163 orders in the quarter, bringing its backlog to seven years of production.

“The market remains very active and there are a number of sales campaigns under way,” Safran Chief Executive Jean-Paul Herteman told journalists. “We are expecting a very, very solid year in 2014.”

A recent rise in the value of the euro dampened revenues by 53 million euros, illustrating growing headwinds for export-driven European companies that report in the single European currency and have to collect revenues in dollars.

Safran said its 2014 goal of mid-single-digit growth in adjusted revenue would be “achievable” if the euro stayed at its first-quarter rate of $1.37, up from $1.32 a year earlier.

On Wednesday, the euro stood at $1.3830.

Safran said it had softened the current impact by reining in its average hedge rate by 2 cents to $1.27 from a year earlier. Profits from U.S.-based operations also provided a cushion.

Smaller French aerospace supplier Zodiac Aerospace said on Wednesday it too remained exposed to risks from the rise in the euro, which penalizes especially the European aerospace sector against dollar-based U.S. rivals.


Safran reaffirmed other targets including a low-double-digit percentage improvement in core operating income and a 10-15 percent increase in the “aftermarket” for civil spares and services, where engine makers often make most of their profits.

The benchmark civil aftermarket grew 12.4 percent in dollar terms in the first quarter, compared with market expectations of closer to 15 percent. Safran’s engine partner GE posted 17 percent higher spares revenue for the same quarter.

“The figure is solid, but given the weaker comparable basis, a more positive surprise could have been expected,” said Christophe Menard, head of aerospace and defence research at Kepler Capital Markets in Paris.

The strongest quarterly gains in revenue came in equipment such as landing gear for the Boeing 787, which is catching up following earlier output delays and technical problems.

Boeing reiterated on Wednesday it expected to deliver 110 of the high-tech 787s in 2014, almost twice the 65 seen last year.

Also on the positive side, Safran’s Security revenue rose for the first time in three quarters, adding 1.5 percent to 345 million euros after a boost from sales of detection systems.

Herteman said Safran was continuing to work on a possible purchase of Italy’s Avio Spazio, but had no further plans for acquisitions in the United States beyond completion of the $270 million purchase of some assets from Eaton Corp, expected in the first half.

British private equity fund Cinven wants to sell its 81 percent stake in Italian space propulsion company Avio and has said several buyers, including Safran, have expressed interest. Airbus Group is also seen as a bidder.

Herteman however sidestepped speculation about whether he would seek to remain chief executive when his mandate at the partially state-owned aerospace group expires in May 2015. Such a decision would require a change in retirement age.

Herteman, 63, said there was no proposal to discuss this at the company’s annual meeting on May 27, but declined to say whether he would like to stay for another term after 2015. ($1 = 0.7248 Euros) (Additional reporting by Blaise Robinson; editing by James Regan and Tom Pfeiffer)

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