Thales hit by A400M charge and shares bounce

The new boss of Thales, Europe’s largest defence electronics firm, unveiled a deeper-than-expected slide in profits, hit by write downs and aerospace weakness, sending the shares into a bounce.
The baptism of fire for Luc Vigneron, the former head of state armaments firm Nexter, included reporting a fresh €102 million (R1130 million) hit from the French company’s role in the troubled Airbus A400M military plane project, which helped to slice first-half operating profit by 82 %.
Delays of the Boeing 787 Dream liner also hit Thales.
Giving his first set of company results since arriving under a change of industrial shareholding in May, Vigneron withdrew detailed 2009 forecasts, telling reporters that when “big programmes are in difficulty, it is much more difficult to predict the future”.
“The results reveal weakness in some areas and my priority will be to put in action what is needed so that the situation is resolved,” he said.
Thales shares fell as much as 6.8 %, removing €400 million (R4434 million) from the firm’s value and pointing to the biggest one-day fall in over 6 years. But later they were up 3 % at €30.5 (R332) as investors looked beyond the one-off items.
Analysts said the results were at least in part a traditional bid by an incoming chief executive to clean the stables, but expressed doubts about his goal of matching recent margins of more than 7 % in the second half.
French broker Oddo Securities called the results, which included losses in both aerospace and security, “catastrophic”.
“Part of these bad results can be attributed to the start of a clean-up of the accounts,” said Natixis Securities in a note.
“But it is too early to gamble on the unavoidable rationalisation which the new CEO will have to put in place.”
Vigneron said he had no plans to impose significant cuts in Thales’s 68 000 workforce but did not exclude any options.
Vigneron has been in his job for two months following the ouster of Denis Ranque in May, when plane maker Dassault Aviation became the largest shareholder after the government.
Dassault, which posted a first-half margin of 8.2 %, is pressing for higher profitability at Thales.
First-half Thales operating earnings fell 82 % to €68 million (R753 million). Its margin fell to 1.2 % from 6.6 %.
Thales blamed a weak civil airline market highlighted by a simultaneous slump in airline stocks yesterday as well as avionics problems and the A400M provision which brought its charges on the Airbus project to €182 million (R2017 million).
A400M compensation
First-half net profit fell to €12 million (R133 million) from 289 million (R3202 million). Sales rose an underlying 2 % to 5.744 billion.
Analysts in a Reuters poll had on average forecast operating profit of €306 million (R3392 milion) and net of 193 million on revenues of 5.7 billion (R63 billion).
Thales said it was working “on the assumption” of growth in like for like revenues this year and a second-half operating margin in line with previous years, but gave no figures.
Thales makes guidance systems and in-flight entertainment consoles for jetliners, radars and avionics for warplanes and a battery of electronics for high-tech infrastructure projects.
It hit headlines in June when speed sensors built by Thales emerged as a central focus of investigation into the cause of the Air France jetliner crash in the Atlantic.   
Vigneron declined to comment on the crash but said Thales was following the French-led investigation closely.
Thales also makes the Flight Management System, or electronic nerve centre, of the A400M, a major military project run by EADS unit Airbus. The transport plane is 4 years late, causing a rift between Airbus and some of its suppliers.
Thales said it would seek compensation from Airbus.
Buyers agreed on Friday to renegotiate the overall A400M contract, Europe’s largest single arms deal.
Thales kicks off a busy week for European aerospace and defence earnings. EADS reports today with BAE Systems, Europe’s largest arms firm, on Thursday.
Last week it was the turn of US arms makers, many of whom reported brisk business even though fears about future spending on weapons programmes weighed on their shares.

Pic: A400 jungle take-off