March 14, 2016 / 7:58 AM / 4 years ago

Safran sees potential acquisitions, shares fall

LONDON (Reuters) - France’s Safran tied its future to aerospace and defence on Monday as it announced a review of its security activities, but its shares took a pounding as investors took fright at a weaker margin forecast and new acquisition plans.

Philippe Petitcolin (R), Chief Executive Officer of Safran, and Bernard Delpit, Chief Financial Officer of Safran, arrive to attend the company's 2015 annual results presentation in Paris, France, February 25, 2016. REUTERS/Philippe Wojazer

The partially state-owned aerospace and defence group said it would put its explosives detection business up for sale and consider all options for the rest of its Morpho airport security activities, which include biometric passport control gates.

At the same time it expressed an interest in adding to its aircraft equipment business, its second most profitable activity after jet engines, which already makes up 28 percent of revenue, led by sales of brakes, wiring and landing gear.

Despite boasting an ample warchest for acquisitions thanks to record engine sales, the company’s chief executive declined to say if it was still interested in seatmaker Zodiac Aerospace, which fended off Safran’s advances over five years ago.

“I won’t comment on names because today there is nothing on the table,” Philippe Petitcolin told reporters.

“We are simply saying that as part of our strategy, we are open to looking at all opportunities that could present themselves in the equipment area.”

In 2010, Safran withdrew a bid for Zodiac, whose shares have been hit recently by seat production problems and a series of profit warnings.

Two years later, an activist investor warned Safran against launching a new bid for the family controlled company.

Concerns over acquisitions weighed on Safran again on Monday, along with what appeared to be a downwards revision in its medium-term profit forecasts for the engine business.

“Those are unlikely to be seen as positive for a stock that’s highly rated on the basis of anticipated organic earnings growth,” said Agency Partners analyst Nick Cunningham.

In late trading the shares were down 6.6 percent at 55.3 euros.

Petitcolin was named CEO last year with a mandate to secure the smooth ramp-up of the LEAP engine for Boeing and Airbus medium-range jets, co-produced with General Electric through their CFM International joint venture, and to review its strategy.

Petitcolin said Safran’s future was in aviation and defence but did not rule out any options for its remaining security business, which makes machines for biometric ID checks.

He said Safran had received several expressions of interest from potential industrial buyers of its Morpho Detection business, which had revenue of $300-400 million (£209-278 million) last year.

The security business as a whole earned revenues of 1.9 billion euros (£1.5 billion) last year.

Meanwhile Safran said margins from its propulsion business would be in the mid-to-high teens in percentage terms in 2016-2020 as it switches to LEAP, weaning itself off high profits from the mature CFM56 engine.

In 2013, it had forecast medium-term margins in the high teens, though this covered a slightly shorter period.

Finance Director Bernard Delpit said the transition had been affected by stronger than expected sales of the CFM56 engine since the last mid-term forecast.

“The starting point has changed since two to three years ago. It’s true the market can say (the forecasts) are more cautious but we will accept being cautious,” he said.

Additional reporting by Cyril Altmeyer; Editing by Keith Weir, Greg Mahlich

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