December 5, 2018 / 6:28 PM / 5 days ago

REFILE-UPDATE 1-Latecoere sees new contract costs reducing 2019 profits

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Dec 5 (Reuters) - French aerospace equipment maker Latecoere cut its 2019 earnings outlook on Wednesday, saying additional start-up costs related to new contracts would temporarily weigh on margins and cash flow.

Group Chief Executive Yannick Assouad said in a statement that the size of new contracts won by its Interconnection Systems division, from Thales among others, required additional capacity and would thus generate "material" start-up costs.

"Seizing these opportunities will grow our market share but will impact the division's profitability in 2019," she said.

The division produces wiring systems and harnesses.

The group as a whole now expects a low single-digit recurring operating margin and a negative 2019 free cash flow. However, the contracts are expected to make a positive contribution to margins in following years.

At its Aerostructures division, which supplies fuselages and doors to Airbus and Boeing, Latecoere sees some of the cost reductions originally planned for 2019 now occurring one year later. That is in part due to having to bring some activities back in house after the loss of a key supplier.

Latecoere previously expected 2019 earnings and free cash flow to be comparable to 2017, when its adjusted recurring operating income grew 6.7 percent to 51.1 million euros ($58 million) and its free cash flow was 29.4 million euros.

That forecast was already revised downwards in September from a "profitability level and cash generation above 2017 levels", announced in March.

The company confirmed its targets for 2018, with revenues seen in line with 2017 excluding currency effects, and the second-half recurring margin to be better than in the first-half.

Latecoere added that it expected 2019 organic revenue growth to be "significant", excluding currency effects. ($1 = 0.8811 euros) (Reporting by Piotr Lipinski in Gdynia Editing by Susan Fenton and Kirsten Donovan)

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