Thales Stock Tumbles After Surprise 2009 Loss

Shares in Thales fell sharply Feb. 19 after the French systems company posted an unexpected 2009 net loss of 128 million euros ($173 million), halved its dividend and issued a gloomy outlook for orders.

The net loss followed a 2008 net profit of 650 million euros. Sales rose 2 percent to 12.88 billion euros from 12.66 billion. Operating profit fell to 151 million euros from 877 million euros.

New orders slipped by 2 percent to 13.93 billion euros from 14.29 billion. The dividend would be set at 0.50 euros.

The swing into losses resulted from the crisis in the global civil aviation market and 240 million euros of impairment charges on development costs, the company said in a statement announcing the results.
The stock slumped 17.34 percent to 27.87 euros in afternoon trading in Europe, with the CAC-40 share index down 0.41 percent.

“It’s a bloodbath,” an analyst at a French brokerage in London said. The fall in share price was due to “an uninspiring set of results and guidance that was disappointing,” the analyst said. The company’s Probasis action plan, intended to generate 1.3 billion euros of productivity gains by 2014, looked like a “very long workout, with huge pain before any gain,” the analyst said.

The 2009 results failed to meet analysts’ average forecast for a net profit of 238 million euros and an operating profit of 498 million, according to a survey by Thomson Reuters I/B/E/S. “Our results have been affected by significant difficulties on a number of contracts and by the crisis in the air transport sector,” said Luc Vigneron, Thales’ chairman and chief executive. Uncertainty looms over the Airbus A400M airlifter program, for which Thales is developing the flight management system, and the Meltem maritime patrol aircraft contract, which carried a risk of delayed delivery to the Turkish government, said finance director Patrick Durand.
Exports will be important to the company’s rebound. Thales supplies electronics worth 20 percent to 25 percent of the total price of France’s Rafale strike fighter, for example, depending on the systems ordered by the export client.

The company’s forecast for an operating profit of 3 percent to 4 percent of 2010 sales failed to meet market expectations of 5 percent to 6 percent, and the forecast of a possible fall in the ratio of new orders to sales fueled bearish sentiment, a second analyst at a French brokerage said. “Growing pressure on budgets in Thales’s main domestic markets could lead to lower order intake in 2010 and a book-to-bill ratio substantially lower than 1,” the company said. Cost overruns on the A400M, naval electronic warfare, mission aircraft, avionics, ticketing and simulation led to a 410 million euro hit on the operating profit line, according to the company.
Thales has identified the problem areas and will deal with them, Vigneron said.

Of the 1.3 billion euros in planned productivity gains, the company looked to generate 400 million euros by improving program execution, 650 million euros on its supply chain, industrial processes and information technology, and slashing 250 million euros in overhead.

Restructuring charges in 2010 were expected to rise to 1.5 percent of sales compared with 0.9 percent in 2009.
Thales holds cash reserves of 800 million euros and a net debt of 91 million euros. An acquisition “is possible,” Vigneron said, but noted that any deal would be highly targeted and complementary to existing businesses.
Talks with the Safran group over an alliance of the companies’ optronics activities continued, Vigneron said.
“With a new management team in place, clear targets through the Probasis action plan and an organizational structure that brings us closer to our customers, the entire company is focused on returning to profitable growth,” Thales said.

By Pierre Tran

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