Saft Chief Says Infrastructure So Far Proving Resilient to Debt
Saft Groupe SA (SAFT), a French maker of batteries for aerospace, railway and telecommunications uses, said Europe’s sovereign-debt crisis hasn’t reduced sales as slowing economies hurt its customers later than other companies.
“We don’t think we’ve seen anything notable in terms of change in the third quarter,” Chief Executive Officer John Searle said in an interview in Paris yesterday. “It would seem that the financial market pessimism hasn’t yet hit the real economy.”
Moody’s Investors Service cut Italy’s credit rating by three levels on Oct. 4, and said it may lower those of some other European countries, citing potential for a “profound loss” in investor confidence stemming from the debt crisis. The International Monetary Fund forecasts economic growth for euro countries of 1.6 percent this year and 1.1 percent in 2012.
Saft, based in the Paris suburb of Bagnolet, may benefit from the euro’s decline against the dollar as 40 percent of the company’s sales are in the U.S. currency, a greater proportion than its costs, Searle said. Saft also stands to gain from a recent drop in the price of nickel, for which at least 60 percent of needs are hedged six months in advance, the CEO said.
Many of Saft’s activities tied to infrastructure are “late-cycle” businesses, Searle said. “If there is something bad coming in 2012, we wouldn’t expect to be one of the companies that would necessarily see that first.”
Cash From Disposal
Searle, who predicted in July that revenue in 2011 will rise at least 7 percent, is looking at options for using $145 million in cash the company got from selling its stake in a car- battery joint venture to Johnson Controls Inc. (JCI)
The French manufacturer must refinance about 330 million euros ($440 million) of bank loans due in July 2012 before potentially using the disposal’s proceeds for acquisitions or returning part of the money to shareholders, he said.
Saft’s gross debt is about 3 times earnings before interest, taxes, depreciation and amortization. The net-debt ratio, which amounted to 1.24 times Ebitda in late 2010, may fall below 1 at the end of this year, Searle said.
The best position may be “somewhere between” the net and gross figures, as Saft needs to fund sales growth of the lithium-ion batteries that it started making last month at a plant in Jacksonville, Florida, he said.
Lithium-ion technology will probably help Saft boost revenue by 10 percent a year from 2012 to 2016, helped by demand for metering systems installed by utilities and applications in renewable-energy storage and the aerospace industry, the company said in June. The manufacturer plans to reduce the cost of making these high-power batteries, which boast a faster recharge time and longer life cycle.
Provided that the “ideal capital structure leaves us with an excess of cash” once the company has refinanced bank debt, one option would be to look at “ways to distribute some of that to our shareholders,” Searle said.
The company needs to keep flexibility for “relatively modest” acquisitions in emerging markets to reduce the share of sales from Europe and the U.S., he said.
Saft may also seek to buy some niche makers of specialized batteries, or some technology companies whose valuations “seem much more realistic” than a year ago, the CEO said.
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