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Thales Full-Year 2016 results

28 Feb 17. Thales Full-Year 2016 results

. Order intake: €16.5bn, down 13%

. Sales: €14.9bn, up 6.8% on an organic basis1

. EBIT2: €1,354m, up 11% (up 15% on an organic basis)

. Adjusted net income, Group share2: €897m, up 11%

. Consolidated net income, Group share: €946m, up 24%

. Free operating cash flow2: €954m, 106% of adjusted net income

. Dividend3 up 18% to €1.60

. 2017 objectives: Mid-single digit organic sales growth

EBIT between €1,480 and €1,500m

1 “organic” means on a constant scope and exchange rate basis.

2 Non-GAAP measures, see definitions in the Appendices, page 10. The definitions of EBIT and adjusted net income were adjusted as of 1 January 2016 to

exclude expenses recognised in income from operations that are directly attributable to business combinations. These adjustments impacted 2016 EBIT in an amount of €19m and 2016 adjusted net income in an amount of €12m (nil in 2015).

3 Proposed to the Shareholders’ Meeting on 17 May 2017.

4 At the date of this press release, the audit procedures have been completed and the Statutory Auditors’ report was in the process of being issued.

Thales’s Board of Directors (Euronext Paris: HO) met on 27 February 2017 to close the 2016 financial statements4.

Patrice Caine, Chairman & Chief Executive Officer, stated: “2016 represents another successful milestone for our profitable growth strategy. The order intake remained at a high level, outperforming sales for the fourth year in a row. Sales grew by 6.8% organically, with all of our businesses contributing to this performance, and profitability continued to increase in line with our medium-term targets. At the same time, we have increased our investments in innovation, digital transformation and talent development.” He added: “On behalf of the Board of Directors, I would like to thank all of our teams for their commitment in support of the Ambition 10 strategy. Their implication enables Thales to drive a deep transformation that will foster profitable and sustainable growth.”

Key figures

Order intake in 2016 amounted to €16,514m, down 13% on the record high of 2015 (down 11% at constant scope and currency). Commercial momentum was solid in all of the Group’s businesses, with the decrease explained by an exceptional volume of large orders booked in 2015. At 31 December 2016, the Group’s order book stood at €33,530m, which represents almost 2.3 years of sales and improving the visibility for the businesses in the coming years.

Sales came in at €14,885m, up 5.8% on a reported basis, and up 6.8% at constant scope and currency (“organic” change). Emerging market1 sales maintained a high level of growth (+14% organic growth, after +16% in 2015), while sales in mature markets1 regained momentum (up +4%, after +1% in 2015). 1 “mature markets” include Europe, North America, Australia and New Zealand. “Emerging markets” include all other countries: Asia,

Middle East, Latin America and Africa.

2 Non-GAAP measures, see definitions in the Appendices, page 10.

3 Proposed to the Shareholders’ Meeting on 17 May 2017.

In 2016, consolidated EBIT was €1,354m (9.1% of sales), versus €1,216m (8.6% of sales) in 2015. EBIT benefited in particular from the first effects that began to filter through from the operational

recovery of the Transport segment, as well as the continued solid performance of the Aerospace and Defence & Security segments.

The Group exceeded all the financial objectives it had set for 2016: an order intake of between €15.5bn and €16.0bn, organic sales growth slightly above 5%, and an EBIT of between €1,300m and €1,330m, based on February 2016 exchange rates. Adjusted net income, Group share rose 11% to €897m, in line with EBIT growth. Consolidated net income, Group share was €946m, up 24% year-on-year, benefiting from EBIT growth and from a sharp rise in disposals of assets.

Free operating cash flow came in at €954m in 2016. This continued strong cash flow performance was boosted by the rise in adjusted net income and by advance payments received on orders during the year. At 31 December 2016, net cash was €2,366m, up almost €400m compared to 31

December 2015.

As a result, the Board of Directors decided to propose payment of a dividend of €1.60 per share, a rise of

18% compared to 2015.

2016 order intake amounted to €16,514m, down 13% on 2015 (down 11% at constant scope and

currency2). The book-to-bill ratio was 1.11 for the year, compared to 1.34 in 2015.

The order intake significantly outperformed sales for the third consecutive year. Powered by this strong sales momentum, the consolidated order book was €33.53bn at 31 December 2016, an increase of €9.1bn over three years (from €24.47bn at 31 December 2013).

Thales received 14 large orders with a unit value of over €100m, representing a total amount of €4,665m:

. One contract booked in Q1 2016, covering support for the Watchkeeper unmanned aerial vehicle

for the British army;

. Two contracts booked in Q2 2016: one covering the security of 170 Ministry of Defence locations

in the Netherlands and the other relating to the production of a military satellite for a Middle East

customer;

. Three contracts booked in Q3 2016:

o one relating to the order of 36 Rafale fighter aircraft by the Indian government;

o one to provide satellite operator SES with a satellite specifically designed for onboard

Internet connectivity (SES 17); and

o in-flight entertainment systems (IFE) for Emirates’ future Boeing 777X aircraft;

. Eight contracts booked in Q4 2016:

o four additional tranches of contracts with the European Space Agency and the European

Commission in the fields of observation (Sentinel 1C/1D and Sentinel 3C/3D), space

exploration (Exomars) and navigation (Galileo program);

o one signalling contract for the extension of the Dubai metro;

o one contract to modernise civil and military air traffic management across Bolivia;

o one contract to supply airborne radars to the UK Ministry of Defence (Crowsnest project);

and

o one additional contract within the scope of the Franco-British MMCM autonomous mine countermeasures programme.

Orders with a unit value of less than €100m remained robust, growing 8% year-on-year. The total order intake was as expected down on 2015, which had been boosted by an exceptional volume

of large orders with a unit value of over €100m (€7.9bn). These included in particular five major contracts (with a unit value of over €500m): orders placed by Egypt and Qatar for Rafale fighter aircraft, the signalling of four lines of the London underground, an order from the Australian army for over 1,000 Hawkei vehicles, and a military satellite communications system for France (ComSat NG).

From a geographical point of view1, orders fell as expected in mature markets (€10,138m, a decrease of 20%), where the clients of three of the five major 2015 orders listed above were located. Emerging markets continued to report a solid order intake (€6,376m, up 3%), driven by good momentum in both the Middle East and Asia.

Order intake in the Aerospace segment fell 7% to €5,872m, compared to €6,281m in 2015. Avionics continued to report a good level of orders in both civil and military segments. In-flight entertainment (IFE) posted an excellent commercial performance, announcing two major airline successes: Singapore Airlines and Emirates. The Space segment benefited from good commercial momentum, although the order intake was understandably down on the high 2015 figure.

 

Order intake in the Transport segment represented €1,504m, down 47% on 2015. The Group landed a large contract (worth over €100m) in the United Arab Emirates, to supply leading-edge signalling, surveillance and telecommunications technologies for the extension of the Dubai metro. In

2015, the order intake had been driven by three large urban signalling contracts (Doha, Hong Kong and London).

Order intake in the Defence & Security segment remained very high, at €9,052m. The 7% year-on-year decline reflects fewer large contracts booked in this segment (six large contracts in 2016 versus nine in 2015).

Sales for 2016 were €14,885m, compared to €14,063m in 2015, up 5.8% on a reported basis, and up 6.8% at constant scope and currency2 (“organic” change), driven by very good momentum in all segments.

As expected, sales fell slightly in Q4 20163 (down 1.6% based on reported figures, down 0.7% on an organic basis), affected by a strong basis of comparison, particularly in the Transport and Defence & Security segments.

From a geographical perspective4, this good performance reflects both continued strong growth in emerging markets (up 14.0%, following on from +16.0% in 2015) and a return to organic growth in mature markets (up 3.9%, after +0.5% in 2015). Emerging markets accounted for 30% of the Group’s sales, up from 28% in 2015 and 25% in 2014.

Sales in the Aerospace segment came in at €5,812m, up 7.9% compared to 2015 (up 8.5% at constant scope and currency). Sales of commercial and military aircraft avionics and in-flight entertainment proved particularly buoyant. However, sales of helicopter avionics, and of microwave and imaging systems were down. Sales in the Space segment experienced strong growth, lifted by the ramp-up of contracts signed in 2014 and 2015 in both observation and telecommunications activities.

In the Transport segment, sales totalled €1,603m, up 5.5% compared to 2015 (up 8.3% at constant scope and currency). This growth reflects the start of invoicing on the three major projects won in 2015, combined with the recovery of activity after the execution difficulties that had impacted 2015. The decline in sales in the fourth quarter was not a reflection of a slowing momentum, but of a tough comparison basis, due particularly to the catch-up impact of certain project execution delays.

Sales in the Defence & Security segment were €7,383m, up 4.3% compared to 2015 (up 5.0% at constant scope and currency). Almost all businesses contributed to this momentum. The Land & Air Systems segment posted strong growth, specifically in air defence, civil and military radars, optronics and missile electronics. The Defence Mission Systems segment delivered vigorous growth in fighter aircraft systems, surface ship systems and in intelligence, surveillance and reconnaissance (ISR) solutions. Only the Secure Communications and Information Systems segment witnessed a slowdown, due mainly to the delivery in 2015 of several large military network projects such as the new French Ministry of Defence site (“Balard”).

As expected, sales for this segment fell slightly in Q4 20161 (down 3.5% based on reported figures and down 2.7% on an organic basis). This is explained by a contract phasing effect and a tough prior-year comparative basis.

In 2016, consolidated EBIT2 was €1,354m, or 9.1% of sales, compared to €1,216m (8.6% of sales) for the same period in 2015. EBIT advanced by 11% based on reported figures, and by 15% on an organic basis.

The Aerospace segment posted EBIT of €571m (9.8% of sales), versus €518m (9.6% of sales) in 2015. The EBIT margin was driven by a good performance in the avionics and Space segments. Margin growth was slowed down by a rise in restructuring costs, particularly for microwave and imaging systems activities, and by a change in the rules for allocating shared sales and marketing expenses to operating segments1.

EBIT for the Transport segment increased sharply, at €11m (0.7% of sales), compared to a negative €37m (negative 2.4% of sales) in 2015. The operational recovery plan implemented by the new management team continued on track, but low or zero margin contracts still weighed on profitability. Ongoing transformation efforts and the gradual phasing-out of low-margin contracts should help this business regain its past profitability levels by 2018/2019.

EBIT for the Defence & Security segment was €788m (10.7% of sales), compared to €760m (10.7% of sales) in 2015. On a reported basis, the EBIT margin for this segment remained stable (down 0.1 points), affected namely by the sale of interests in two joint-ventures. The EBIT margin gained 0.3 points on an organic basis.

The contribution made by DCNS to EBIT stood at €34m in 2016, compared to €22m in 2015, benefiting from the gradual upturn in its profitability, and from a non-recurring, non-operating item.

Net interest income remained low at €6m versus €4m in 2015. The same can be said for other adjusted financial income (expense), which represented a net expense of €10m in both 2016 and 2015. Adjusted finance costs on pensions and other employee benefits3 decreased (€66m versus €72m in 2015), due mainly to the fall in the deficit between 1 January 2015 and 1 January 2016, and changes in the EUR/GBP exchange rate.

Adjusted net income, Group share stood at €897m versus €809m in 2015, taking into account an adjusted tax charge3 of €314m (€266m in 2015). The effective tax rate was up slightly, at 27.2% compared to 26.7% in 2015. Following the French parliament’s adoption of a reduction in corporate income tax as from 2020, the Group recognised a one-off tax charge of €18m reflecting the revaluation of its net deferred tax position. The effective tax rate would have declined if this one-off item had not been recorded. Adjusted net income, Group share, per share came out at €4.25, up 9% on 2015 (€3.89). Consolidated net income, Group share climbed 24% to €946m, buoyed by EBIT growth and by the sharp rise in disposals of assets.

Financial position at 31 December 2016

Free operating cash flow, at €954m (€1,110m in 2015) remained high, lifted by EBIT growth and by advance payments received on orders during the year. The Group slightly increased its operating investments as part of the optimisation of its industrial base (€472m, up from €458m in 2015). The cash conversion rate from adjusted net income into free operating cash flow was 106%. At 31 December 2016, net cash amounted to €2,366m compared to €1,978m at end-2015, after the distribution of €297m in dividends (€234m in 2015).

The net balance of acquisitions and disposals is an expenditure of €94m: the acquisition of Vormetric, finalised in March (€372m expense) was partly offset by the balancing cash payment received in connection with the change in scope of the Thales Raytheon Systems joint venture (€81m) and by cash received in relation to the sale of the shareholding in Hanwha Thales (€204m). In November 2016, the Group entered into exclusive negotiations with a view to selling its ticketing business1, which reported sales of €190m in 2016. This project is currently in consultations with employee representative bodies, and will be subject to customary closing procedures.

1 Payment collection for transport operators, road toll and car park management systems.

Equity, Group share remained stable year-on-year at €4,640m, compared to €4,646m at 31 December 2015, as the rise in the net pension obligation and the dividend payout offset the impact of consolidated net income, Group share (€946m).

Proposed dividend

At the Annual General Meeting on 17 May 2017, the Board of Directors will propose the distribution of a dividend of €1.60 per share, an increase of 18% on 2015. If approved, the ex-dividend date will be 31 May 2017 and the payment date will be 1 June 2017. The dividend will be paid fully in cash and will amount to €1.20 per share, after deducting the interim dividend of €0.40 per share paid in December 2016.

 

 

 

 

 

 

 

 

 

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