Safran Aims For Repeat of 2010 Profit Jump

February 24, 2011

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France's Safran posted a stronger-than-forecast 20 percent rise in 2010 core profits, growth it aims to repeat in 2011, as its jet engine business reinforced signs of economic recovery in the fourth quarter.

Safran said it expected to raise revenue by at least 5 percent and recurring profit by at least 20 percent this year, but shares fell on disappointment it had not been even bolder.

"The results reflect a more favourable context in 2010 and a similar outlook for 2011. But the valuation already includes these," Paris brokerage CM-CIC Securities said in a note.

Safran, which makes aero engines, infra-red goggles and biometric equipment, delivered further evidence of rapid growth in the security markets in 2010, driven by global uncertainty.

Chief executive Jean-Paul Herteman said underlying growth in the civil aviation market remained strong, despite the immediate concerns over travel and airline profitability caused by unrest in the Arab world and a resulting spike in oil prices.

"These events are driving up oil prices and operating costs of our customers, but hopefully they will ease pretty quickly; the aerospace market is healthy," Herteman said on Thursday.

Net profits at the state-controlled group grew 29 percent to EUR€508 million (USD$699 million) in 2010. Recurring operating income rose 20 percent to EUR€878 million on sales up 3 percent to EUR€10.76 billion. Like-for-like sales eased 1 percent.


Safran joined other major French companies this week in reporting a pick-up in activity in the fourth quarter.

Herteman said Safran had seen the first signs of a recovery in the crucial "after-market" that includes spares for the CFM56, the world's best-selling jet engine which it co-produces with General Electric of the United States.

The after-market for spares and support is an indicator of health in the economy since it is related to the trips flown by aircraft, which in turn reflect the movement of people and goods. Safran sees this market growing by 10-15 percent this year.

In 2010, Safran's recurring operating margin exceeded an 8 percent target to reach 8.2 percent, up from 7 percent.

It said it was on the way to a double-digit recurring operating margin "as early as 2012" and raised its annual dividend to 50 euro cents a share from 38 cents a year ago.


Safran's 2011 forecasts do not include recently acquired L-1 Identity Solutions, a US face-recognition software maker, or the propellants and explosives unit of French state chemicals firm SNPE. Both deals are awaiting formal approval.

Safran agreed last September to buy most of L-1 in a USD$1 billion deal designed to strengthen what it describes as its number one position in the fast-growing biometrics industry.

The use of biometrics, allowing machines to identify people through unique characteristics of each human body, is spreading quickly due to growing security fears. However, privacy concerns have slowed their adoption in some markets.

In 2010, Safran's security profits rose 49 percent to top EUR€1 billion. They surpassed the profitability of engines by generating margins of 12.3 percent, due in part to acquisitions.

Safran, which backed away from efforts to buy French aero equipment supplier Zodiac for about EUR€3 billion in December, ended the year with EUR€24 million in net cash.

Herteman said without elaborating that this positive cash position gave Safran "strategic capability".

The turnaround from net debt of EUR€498 million a year earlier came in part from a French stimulus package and "commercial settlement" with plane makers.

Herteman declined to give details but said these payments were tied to delays outside Safran's control. Safran said its 2010 revenues had been clipped by production delays on the Airbus A380 and the Boeing 787 Dreamliner.

Strong cash generation at Safran was also helped by a quicker than expected recovery in payments from France's defence ministry which had been hit by a computer fiasco last year.