French aero engines and electronics group Safran yesterday issued a financial warning one day after it revealed that its defence security division is under investigation for accounting irregularities.

In a series of statements issued today, Safran also said KPMG has been appointed to audit the European firm, which Monday revealed that its chairman and chief executive had tendered their resignations over a €100 million ($133 million) irregularity in the files of the former chief financial officer of Sagem Defense Sécurité.

That irregularity will adversely affect the company’s 2006 results, with sales now expected to be €11 billion, and operating margins to be 4%. At an investors’ day on November 30, Safran was predicting an operating margin of between 5.5% and 6% this year.

In a statement Safran notes: “The defense security branch’s contribution to consolidated earnings should be impacted in part by corrections that may result from accounting entries which are currently unexplained and affect 2006 earnings, and in part by revised margins at completion of contracts on certain long-term contracts.

“The communications branch’s contribution will be lower than the objectives, due to the sharp downturn in mobile telephone business during the last quarter, versus the original forecasts, and in consequence, the depreciation of certain intangible assets.”

Safran’s aerospace propulsion and aircraft equipment units, however, are expected to record previously forecast returns for 2006.