French defence electronics company Thales posted lower-than-expected third-quarter sales and issued a surprise profit warning for the second half as it braced for fresh charges due to struggling aerospace deals.
Thales, whose first half was hit by a €102 million charge against delays in the A400M military plane, predicted more charges later in the year and abandoned its quest for a ‘normal’ second-half margin after a steep drop at mid-year.
Finance Director Patrice Durand said the next batch of charges were not related to the A400M, an Airbus-led military transporter plane for which Thales is building the main flight computer system, but declined to say where the new problems lay.
He said the pain was being felt across several contracts.
Pressed by financial analysts on why Thales had failed to spot the new losses when it carried out a housecleaning exercise in June, Durand defended its record but declined to give any indication how deep the next batch of provisions might be.
“You are always more clever afterwards than before,” he said on a conference call.
“We have communicated where we stand, but today it would be premature for me to give you precise figures. We want to be sure everything has stabilised.”
Thales is among a number of European defence and commercial aerospace companies that have been roiled by volatility in currency markets after negotiating keenly priced contracts.
It has also lost money on automated ticketing, where Durand said there had been “some progress but still some challenges”.
Third-quarter revenues fell 2 % on a like-for-like basis to 2.586 billion revenues, pressured by an 8 % drop in aerospace and space earnings to €800 million, drowning a 4 % rise in security products. Defence sales were flat.
New orders fell 12 % to €2.628 billion.
Analysts had been looking for sales of around €2.7 billion and most had expected Thales to reiterate its outlook.
“The downturn in civil business worsened in the third quarter, particularly in regional aircraft and helicopters, whereas support activities have stabilised for the moment,” Thales said in a statement.
The tone jarred with the just-completed earnings season in the United States where several companies reported a gradual increase in optimism in civil aerospace, in the aftermath of recession, coupled with cautiousness on defence.
Recently appointed Thales chief executive Luc Vigneron withdrew detailed guidance at mid-year, when Thales said it was assuming an unspecified rate of growth in like-for-like 2009 revenues and an operating margin in line with previous years.
However, Thales said it could no longer expect to bring its margin back to normal levels in the second half.
In 2008, Thales booked revenues of €12.665 billion and a flat operating margin of 6.9 %. In the first half of 2009, the margin slumped to just 1.2 %.
The profit warning came as Europe’s largest defence electronics group draws up a strategic review under Vigneron, who replaced ousted CEO Denis Ranque when Dassault Aviation became the largest industrial shareholder in May.
Vigneron has said he has no plans to impose significant cuts in Thales’s 68 000 workforce but does not exclude any options.
Thales said it expected to unveil cost cuts and measures to “optimise its portfolio” traditional code for asset sales later this year or early 2010 at the latest.
Thales shares closed at €33.33, down 0.5 percent. They have risen 11.5 % while lagging the French market by 5.5 % this year, prompting some analysts to bet on Thales in the belief that Vigneron will make it leaner through cost cuts.
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 made global headlines in June when speed sensors built by Thales emerged as a focus of an investigation into the cause of an Air France jetliner crash in the Atlantic.
Pic: A400m military plane