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14 May 03. Thales SA said on Wednesday that its first-quarter revenue fell 7.8%, reflecting the euro’s appreciation that reduced the value of sales booked in foreign currencies.

First-quarter revenue fell to EUR1.98bn, from EUR2.14bn a year earlier. Excluding exchange-rate fluctuations and changes in the group’s structure between the two periods, revenue fell only 1.9% on a like-for-like basis.The company said the depreciation of the U.S. and Canadian dollars and the British pound together depressed sales by EUR108m.

The first-quarter figure was substantially below a EUR2.15bn consensus from three analysts consulted by Dow Jones Newswires. Revenue from defense activities fell 3.8% to EUR1.16bn in the quarter, Thales said, from EUR1.20bn a year before, but was 0.4% higher when adjusted for currency fluctuations. The company noted that defense revenue in the first quarter of 2002 had surged by 26%, and said the relative stability in the first three months of this year reflected steady revenue streams from large long-term military contracts in the naval and airborne systems areas. Despite the three-month decline, the company said it still expects a positive trend in defense revenue over the full year. Revenue from aerospace rose by 3.8% to EUR353m, and by 8.3% on a like- for-like basis. Thales commented that this segment was helped by strong sales in its simulation and training businesses. Despite the weakness of the commercial aviation sector, sales of avionics equipment benefited from growing military sales and sustained after-sale service business.

Information technology and services revenue fell 24% in the first quarter to EUR445m, reflecting impacts of EUR24m from disposals and EUR41m from exchange rates, as well as a EUR72 million organic decrease. The EUR108m foreign exchange impact in the first quarter was larger than expected, a Paris-based analyst said. More worrying was the 24% drop in revenue in the catch-all information technology and services division, she said.

Comment: Not a startling set of results in a period of defence sales growth. The threat by the U.S. to boycott French products could hurt Thales’ aspirations in the huge JTRS programme. Back in Europe reports of growing interest of a Thales EADS tie up will not go away. The lack of progress for EADS in developing a systems segment led by Stefan Zoller may make this a done deal in the near future.

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