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THALES SHARES DIVE ON RESULTS

19 Feb 10. Reuters reported that Thales shares plummeted after the release of the Company’s latest figures.

Thales (TCFP.PA) shares slumped to their worst ever daily loss on Friday after the French defence firm’s new boss took a raft of provisions and predicted a “marathon” effort to rid its books of loss-making aerospace deals.

Investors sent shares in Europe’s largest defence electronics company down as much as 17.5 percent, slicing over a billion euros off its value, as CEO Luc Vigneron also struggled to steady market nerves over a wan outlook for 2010 and beyond.

“We want to put energy in the machine and wood in the boiler to get the company recovering as quickly as possible,” he told a news conference after issuing his maiden annual results.

Provisions and impairment charges pushed Thales to a 128m euro loss in
2009 from a 650m profit in 2008. Operating profit dived 83 percent to 151m euros, equivalent to just 1.2 percent of sales in 2009. The company said it expected this margin to reach 3-4 percent in 2010, half what analysts had hoped.

“You were waiting for bad figures? Well it’s worse…,” headlined Natixis
Securities in a note which said Thales’s expectations of sharply lower orders would damage growth into 2011.

Several brokers including Natixis cut their target prices, and Cheuvreux dropped Thales from its selected list.

At 1340 GMT, Thales shares were down 15 percent at 28.63 euros in more than eight times the normal daily volume.

Thales was the second major European arms firm to be hit by writedowns this week after provisions and fines dragged rival BAE Systems (BAES.L) to a net loss.

However, markets had rewarded underlying profits and a share buyback at BAE, lifting its shares on Thursday and trimming them back by less than one percent after Thales. (See: BATTLESPACE UPDATE Vol.12 ISSUE 08, 18 February 2010, BAE REPORTS LOWER PROFITS)

Both companies are exposed to concerns about Britain’s finances and the prospect of harsh defence cuts in coming years but BAE said it expected to grow its global business overall.

Thales says it is Britain’s second biggest defence supplier.

Its full-year earnings were hit by 535m euros in charges against losses on projects from electronic warfare to the delayed Airbus (EAD.PA) A400M military plane, for which Thales makes the main flight computer. Most of the A400M charges had already been taken in the first half.

Vigneron, who replaced long-serving CEO Denis Ranque when Dassault Aviation (AVMD.PA) took a key stake last May, said his internal assessment had indicated a pattern of risky deals in certain aerospace areas, though not in the defence and security divisions.

“It is not a superficial or passing phenomenon but a more profound one,” he said.

He denied piling on provisions to push the blame for any problems at the state-controlled firm onto his predecessor, but said Thales had been prone in some areas to taking on risk.

“The accounts have been drawn up by an army of auditors. I have no desire to blame anyone,” Vigneron said, but added: “There must have been a way of functioning for several years which involved taking risks on particularly complex contracts or where there was an effort to break new barriers.”

Vigneron declined to make forecasts for 2011, disappointing analysts who had hoped the lull in growth would be short-lived.

He said a plan to improve performance including cuts in general expenses would not be a sprint “but a marathon”.

Thales forecast stable revenues in 2010 but said new orders would fall “substantially” due to pressure for defence cuts.

Thales: Full-year results 2009

The Board of Directors of Thales (NYSE Euronext Paris: HO) met today to close the financial statements for 20093. Thales Chairman and CEO, Luc Vigneron, commented: “In a persistently depressed global economic environment, our revenue growth and robust order intake are
testimony to the solid foundations of our customer

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