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THALES RESULTS IN LINE WITH EXPECTATIONS

THALES RESULTS  IN LINE WITH EXPECTATIONS

thales26 Feb 15. The Thales (Euronext Paris: HO) Board of Directors met on 25

February 2015 to close the financial statements for financial year 20141.

Patrice Caine, Chairman & Chief Executive Officer, stated, “Thales achieved a very good commercial performance in 2014, with a significant increase in order intake in all our business segments. Excluding the impact of DCNS, the Group’s profitability improved yet again. This positive momentum should continue in 2015, with the return to a growth in sales and increased results”.

Key points

. Order intakes: €14.36bn up 11%

. Sales stable at €12.97bn

. EBIT4: €985m, after the deduction of €117m for the impact of the net loss by DCNS

. Adjusted net income – Group

share4: €562m

. Dividend per share: €1.12

1 On the date of the press release, the account audit procedures were complete and the Statutory Auditors’ Report was in the process of being issued.

2 In this press release, all of the 2013 data have been restated to take into account the introduction of the IFRS 10/11 standards.

3 In this press release, “organic” means “at constant scope and exchange rates”.

4 Non-GAAP measure, see definition in the appendix.

5 In this press release, “excluding DCNS” means “excluding the impact of the 35% share in the net income (loss) from DCNS”, i.e. a loss of €117m for 2014 and profit of €40 m for 2013.

6 Operating cash flow before interest and tax + change in working capital requirements and provisions for contingencies – net financial interest paid – pension benefits (excluding payments to reduce deficits and changes in the United Kingdom) – taxes paid – net operating investments.

The new orders entered in the order book during 2014 amount to €14,363m, representing an increase of 11% compared to 2013 (+8% at constant scope and exchange rates1). At 31 December 2014, the consolidated order book totalled €27,285m, i.e. more than two years of sales. The book-to-bill ratio amounted to 1.11 at the end of 2014.

1 Taking into account a positive exchange rate effect of €16m and a positive scope effect of €441m linked to the full consolidation of Thales Raytheon Company Systems SAS (Defence & Security) and Trixell SAS (Aerospace) from 1 January 2014 following changes to the shareholders’ agreements and the first consolidation of Live TV from 1 July 2014 (Aerospace).

2 “Emerging markets” refers to all countries in Asia, the Middle East, Latin America and Africa.

Sales

Group sales1 totalled €12,974m at 31 December 2014 compared to €12,698m at the end of December 2013, which represents an increase of 2% (-1% at a constant scope and exchange rates).

1 The exchange rate impact on sales is positive and amounts to €43m while the scope impact amounts to €384m, taking into account the full consolidation of Thales Raytheon Systems SAS (Defence & Security) and Trixell SAS (Aerospace) from 1 January 2014, following changes to the shareholders’ agreements and the first consolidation of Live TV (Aerospace) from 1 July 2014.

In the Aerospace segment, sales amounted to €5,014m, up 6% compared to 2013 (+1% at constant scope and exchange rates). Avionics continued to grow thanks to commercial on-board avionics, which benefited from increased production rates at aircraft manufacturers and the growth of aftermarket activities, while the military business (helicopters and simulation) sales were lower. There was also continued growth in in-flight entertainment sales, following large orders in 2013. Space sales were relatively stable; the increase in new programmes (Brazil, observation satellites) did not offset the reduced contribution of constellation programmes (Iridium, O3b).

The Transport segment recorded sales of €1,402m compared to €1,447m in 2013, representing a decrease of 3% (-4% at constant scope and exchange rates). The main line signalling business reported sales growth, thanks in particular to several projects in Europe (Poland, Hungary, Austria). Nevertheless, this trend did not completely offset lower sales in the ticketing business which saw several contracts come to an end, and in urban rail signalling, in which several projects have had delays.

Sales for the Defence & Security segment reached €6,480m, almost identical to that of 2013 (-2% at constant scope and exchange rates). Excluding the positive impact of the full consolidation of the French

Thales Raytheon Systems unit, Land and Air Systems reported lower sales compared to 2013, despite the good performance of airborne optronics. There was also a drop in sales in Defence Mission Systems, despite the growth of the sonar business driven in particular by the ramp-up of the SSOP contract in the United Kingdom. Finally, Secure Communications and Information Systems reported a slight fall in sales; the performance of the cybersecurity and secure networks business failed to fully offset the decline in the radiocommunications business, mainly in the United States.

Results

For 2014, the Group reported an EBIT1of €985m, which represents 7.6% of sales compared to €1,011m (8.0% of sales) in 2013. This decline is entirely attributable to the strongly negative contribution of DCNS (-€117m compared to a positive contribution of €40m in 2013) due to significant negative variances on several contracts, particularly in civil nuclear activities as well as the Barracuda submarine programme. Excluding the contribution of DCNS, the Group’s EBIT totalled €1,102m (8.5% of sales), up 13% compared to the previous financial year, as performance plans continued to be deployed.

1 Non-GAAP measure, see definition in the appendix.  The EBIT1 for the Aerospace segment increased further to €505m (10.1% of sales) compared to

€420m (8.9% of sales) in 2013. Avionics reported significant growth in their results, due to the higher sales volume in commercial avionics and in-flight entertainment and the results of competitiveness measures. Space reported a stable EBIT1 compared to the previous year, the positive impact of performance plans offset by research and development expenses and increasing restructuring costs.

The Transport segment reported an EBIT1 of €32m (2.3% of sales) compared to €97m (6.7% of sales) in 2013. The Transport business was affected by execution difficulties on several projects, particularly in urban rail. Corrective measures have been implemented in order to improve the quality of programme execution. These measures should gradually produce benefits.

Despite globally stable sales, the EBIT1 for the Defence & Security segment increased significantly in 2014 totalling €620m (9.6% of sales) compared to €499m in 2013 (i.e. 7.7% of sales). The EBIT1 for Land and Air Systems rose sharply as better execution of contracts offset the increased costs in self-funded R&D. Secure Communications and Information Systems reported an increased EBIT1 in 2014, thanks to the good execution of projects and reduced restructuring costs. Likewise, the Defence Mission Systems Business reported an increase in EBIT1 as a result of the better execution of contracts and lower restructuring costs.

The adjusted financial costs1, remained practically unchanged at -€25m compared to -€23m in 2013. Adjusted financial income on pensions and other employee benefits1 came to -€77m compared to -€70m during the previous financial year, since the interest rates at the end of 2013, which were used to calculate the 2014 financial cost, were higher than the 2012 rates.

Thus, the adjusted net income – Group share1 for 2014 was €562m, compared to €642m in 2013, after an adjusted tax charge of €258m compared to -€234m, i.e., an effective tax rate of 29% compared to 30% in 2013. The adjusted net income, Group share, per share1 amounted to €2.75 compared to €3.20 at the end of December 2013.

Financial position at 31 December 2014

The free operating cash flow1 increased compared to 2013 totalling €501m compared to €477m in 2013, despite a 24% increase in operating investments (€443m compared to €358m in 2013) as part of the optimisation of the Group’s industrial base.

1 Operating cash flow before interest and tax + change in working capital requirements and provisions for contingencies – net financial interest paid – pension benefits (excluding payments to reduce deficits and changes in the United Kingdom) – taxes paid – net industrial investments.

At 31 December 2014, net cash amounted to €1,006m compared to €1,077m at the end of December 2013, taking into account in particular the acquisition of the US company Live TV for €287m and a significant increase in the dividend distributed (€242m over the year compared to €181m for the previous year).

Shareholders’ equity, Group share, amounted to €3,771m compared to €3,847m at the end of December 2013, taking into account net consolidated income, Group share of €714m and the significant increase in provisions for pensions and long-term benefits (€2,557 m compared to €1,858m in 2013) linked to the extremely low interest rates at the end of 2014.

Proposed dividend

At the Annual General Meeting on 13 May 2015, the Board of Directors will propose the distribution of a dividend of €1.12 per share to the shareholders.

If approved, the ex-dividend date will be 27 May 2015 and the payment date will be 29 May 2015. The dividend will be paid fully in cash and will amount to €0.78 per share, after deducting the interim dividend of €0.34 per share already paid in December 2014.

Governance

As announced on 27 January, it will be proposed that the General Meeting to be held on 13 May 2015 approves the creation of two new board members positions and the appointment of Guylaine Dyèvre and Thierry Aulagnon to these positions.

In addition, it will also be proposed at this General Meeting to approve a change in the company’s articles of association to raise the age limit for the Chairman of the Board. If approved, Thales will implement, as planned, the separation of the roles of Chairman of the Board and of Chief Executive Officer, to be respectively held by Henri Proglio and Patrice Caine.

Outlook

After an order growth of almost 20% over the last two years, order intake should remain high in 2015, with a new increase in order intake expected from emerging markets.

The continued growth in order intake over the last two years should result in a low-single digit increase in sales in 2015.

This positive trend, combined with competitiveness improvement efforts and the progressive return to profitability of DCNS should result in an EBIT1 increase of around 15% compared to 2014 (based on current exchange rates), to total €1,130m to €1,150m.

1 Non-GAAP measure, see definition in the appendix. Over the medium term, Thales confirms its objectives of a moderate increase in sales and an improvement in its EBIT1 margin to reach a rate of 9.5 to 10% by 2017/2018.

. Definition of financial indicators that are not strictly accounting-

related

To facilitate better monitoring and benchmarking of its operating and financial performance, the Group presents two key indicators, which are not strictly accounting related, which allow it to exclude non-operating and non-recurring elements. They are determined as follows:

. EBIT, an adjusted operating metric, corresponds to income from operations plus the share of the

net income (loss) of equity-accounted companies, excluding the amortisation of intangible assets acquired (purchase price allocation – PPA) recorded as part of business combinations;

. Adjusted net income corresponds to the net income attributable to shareholders of the parent company, excluding the following items, net of the corresponding tax effects:

. amortisation of intangible assets,

. results of disposals of assets, change in scope of consolidation and others,

. change in fair value of derivative foreign exchange instruments (recorded in “other financial results” in the consolidated accounts),

. actuarial gains on long-term benefits (accounted within the “finance cost on pensions and other long-term benefits” in the consolidated accounts).

 

 

 

 

 

 

 

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