September 5, 2019 / 6:01 AM / 16 days ago

UPDATE 1-Safran raises annual forecasts after strong H1

(Adds details on profits, context on CEO)

PARIS, Sept 5 (Reuters) - France’s Safran hiked its annual forecasts and extended the mandate of its chief executive to the end of next year, as the world’s second-largest aircraft parts supplier reported stronger-than-expected first-half profits.

The maker of aircraft engines and components such as landing gear said first-half recurring operating income rose 36% to 1.883 billion euros ($2.10 billion) while revenue increased 27% to 12.102 billion euros, reflecting higher margins across three reorganised divisions.

Safran, which co-produces engines for Boeing jets including the grounded 737 MAX, expects its adjusted recurring operating income to grow “comfortably above 20%”. It previously expected growth to be “in the low teens”.

It now expects revenue to grow around 15% in 2019 versus a previous forecast of 7-9% for the year. Safran sees underlying revenue growth of 10%, twice the previously targeted rate, based on its assumptions of engine deliveries to Boeing.

Cashflow is being hit by 300 million euros per quarter due to the decision by worldwide regulators to ground the 737 MAX in March following two fatal accidents, but Safran said this would be reversed in the quarters following any return to service.

Based on an assumption that the plane returns to service in the fourth quarter, Safran expects its free cashflow to represent 50-55% of recurring operating income compared with a previous target of 55%. If the grounding lasts until the end of the year, the rate of cash conversion could dip below 50%.

Safran said its board had kickstarted the process of finding a successor to Chief Executive Philippe Petitcolin, who had been due to retire next May. Petitcolin’s term has been extended to end-2020 “in order to favour a smooth transition”, Safran said.

Petitcolin has overhauled the partially state-owned engine maker and defense firm by selling some security activities and taking over seats maker Zodiac Aerospace. Safran’s shares have doubled to 131.3 euros since he came to the helm in April 2015.

$1 = 0.8973 euros Reporting by Tim Hepher; Editing by Inti Landauro and Himani Sarkar

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