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12 Sep 02. French electronics company Thales SA said Thursday that its net profit surged more than six-fold in the first half of 2002 thanks to strong growth at its defense division and lower taxes. Net profit came in at EUR88m – at the high end of analysts expectations ranging from EUR40m to EUR100m – from EUR14m in the first half of 2001.

Fortified by the improved profitability of its defense operations, Thales continues to target a 10% growth in revenue and a 5%-to-10% rise in operating profit for the full year, company Chief Financial Officer Ross McInnes told reporters at a briefing.Thales, Europe’s largest defense electronics supplier, said operating profit rose 8.4% to EUR297m (2001: EUR274m).

The pro-forma figure was calculated as if changes in accounting methods, under which some employee incentives must now be incurred at the operating level, had been applied in the first half of 2001, McInnes said. The company had already published a 15% increase in first half revenue to EUR4.98bn. Restructuring costs stemming from the closure of a cellphone parts unit and the loss of a major contract in the U.K. rose to EUR32 million in the first half from EUR19 million a year earlier.

In the full year, restructuring cost should remain roughly stable from the level of EUR160m in 2001, McInnes said. Taxes fell sharply to EUR55m, which McInnes described as a “normal level”. In the first half of 2001, a hefty one-off gain from the sale of Thales’s 49% stake in satellite maker Alcatel Space had pushed taxes to EUR100m.

The company’s defense arm faired well with a 29% jump in revenue to EUR2.91bn and a 20% increase in operating profit to EUR235m. McInnes said the company should post double-digit growth in both revenue and operating profit in the full year. Operating profit at the Aeronautics division, which makes flight simulation and air traffic control equipment, remained flat at EUR51m despite lower demand for civil aerospace hardware.

The Information Technology & Services division, which comprises a disparate collection of civil operations inherited for Thales’s recent acquisition spree, posted a 59% drop in operating profit to EUR11m. However, excluding the sale of profitable units and foreign exchange losses, operating profit rose 6%, McInnes said. McInnes said Thales aims to reduce its net debt of EUR1.80bn as of June 30 to the level of EUR1.46 billion recorded in late 2001.

The Thales CFO said the latter target doesn’t include potential proceeds from the sale of Thales IS, the company’s computer services arm. Earlier this month, Thales said French computer services company GFI Informatique (F.GFI) had axed a plan to buy Thale IS due to the difficult financial markets. The original share and cash offer by GFI valued Thales IS at around EUR340m, or 70% of the unit’s 2001 revenue.

Comment: With the increase in French spending announced (See INCREASE IN FRENCH GOVERNMENT DEFENSE SPENDING – NEW CARRIER CONFIRMED), and the new carrier in particular, the only way for Thales is up, with the write downs experienced earlier in the year now history. Its exciting C4ISR comms segment which we are covering in our US issue together with developments at Thales Inc., put the company on a strong growth path.

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