Tuesday, May 13, 2008
Thales Q1 2008 revenues and order intake
Thales Q1 2008 revenues and order intake
13 May 2008
Solid growth in revenues, up 7.3% on a like-for-like basis to EUR 2.3 billion at 31 March 2008. Very sharp rise in order intake, up 34% on a like-for-like basis to EUR 2.9 billion.
Scope of business - The 2008 financial year is the first to reflect the 'full effect' of the major strategic operations completed in 2007. Only the transportation and security businesses transferred from Alcatel-Lucent were consolidated as from 1 January 2007. The space businesses acquired from the telecoms group were consolidated as from the second quarter. Thales France's surface naval business sold to DCNS at the end of March were still within Thales's scope of business in the first quarter of the year. To analyse the Group's performance within its newly extended scope of consolidation, the organic change figures reported in this release have been calculated on the basis of the 2008 scope of consolidation.
The length of Thales's business cycles should also be taken into account when examining these figures, as billing schedules are to a large extent contingent on the achievement of specific technical milestones on each contract. Variations in full-year revenues can thus be markedly different from the trends observed in the first quarter alone, which are thus of limited significance. This is particularly true in the analysis of the figures for individual sectors.
Q1 2008 consolidated revenues
Consolidated revenues amounted to €2,308 million, compared with €2,193 million at 31 March 2007, representing overall growth of 5.3% (7.3% on a like-for-like basis).
Additions to the scope of consolidation since Q1 2007 have contributed €260 million to Q1 2008 revenues and correspond primarily to the space businesses acquired from Alcatel-Lucent (consolidated as from 1 April 2007). The businesses deconsolidated as from 31 March 2007 generated combined revenues of €156 million in Q1 2007. These correspond primarily to Thales France's surface naval business, sold to DCNS at the end of March 2007 (€90 million in Q1 2007), the Faceo facility management subsidiary divested in September 2007 (€22 million) and the electronic payment businesses divested at the start of 2008 (€30 million).
Exchange rate fluctuations from Q1 2007 to Q1 2008 resulted in an overall reduction in revenues of €101 million, primarily due to the translation into euros of sales by subsidiaries in other currency zones (-€81 million), mainly Thales UK (-€45 million) and Thales North America (-€28 million).
In Aerospace/Space, revenues increased by almost 14% on a like-for-like basis. The Space Division recorded particularly robust revenue growth (+22%), driven by sales of civil and military communication satellites. The Aerospace Division reported sales growth of 9% at constant exchange rates, with a marked increase in military business (+12%) due to a sharp rise in billings on ISTAR programmes (UAV-based tactical surveillance in the United Kingdom) and a 5% rise in civil activities.
In Defence, revenues increased by 7% compared with Q1 2007 on a like-for-like basis, with some activities reporting higher growth than others, largely correlated to the billing schedules on the various contracts in progress. The Land & Joint Systems Division recorded sales growth of 13%, driven in particular by the optronics and land systems business. Naval Division revenues were virtually stable (-1%) at constant exchange rates. The Air Systems Division recorded an increase of 4%, with sustained growth in missile systems and air operations and stable revenues in air traffic control equipment and systems.
In Security, revenues were virtually stable, with some variations between sectors. Revenues were higher in security systems for sensitive sites and infrastructure and in enterprise services. Billing levels were constant in rail signalling. Sales were down, however, in simulation and encryption-based security equipment, as well as in ticketing and passenger access control. In ticketing and access control, this slowdown is the result of difficulties encountered on certain complex contracts and is expected to continue into Q2, affecting operating margins in this sector for the first half of the year.
Consolidated revenues by destination
The decrease in sales to France is essentially due to defence contract schedules. Revenue growth in United Kingdom was severely affected by the weakening of the pound sterling from Q1 2007 to Q1 2008. On a like for like basis, sales to the UK rose by 21%, driven mainly by the military aerospace (UAV-based tactical surveillance programmes) and optronics businesses.
Sales to the Asia-Pacific region grew by more than 28% on a like-for-like basis, with sharp increases in revenues in all three of the Group's main business segments. Similarly, the strong revenue growth in the Middle East was driven by all three segments and was boosted in particular by the first billings on the major space contracts signed in 2007 (Yahsat et Arabsat).
Order intake at 31 March 2008
New orders booked in Q1 2008 were close to €3 billion, at €2,947 million (compared with €2,151 million in Q1 2007). This equates to an increase of 37% (34% at constant exchange rates and 2008 scope of consolidation). This figure includes two orders worth more than €100 million each . These corresponded to the launch of the FSTA tanker aircraft programme in United Kingdom (€320 million recorded by Thales UK) in partnership with the AirTanker consortium and the Lorads III contract (€153 million) to supply a next-generation air traffic control system for Changi Airport in Singapore. No new orders booked in the first quarter of 2007 were valued at more than €100 million. Growth in orders worth €100 million or less was also significant (+15%) compared with Q1 2007.
In Aerospace/Space, the sharp rise in new orders (+65%) is the result of strong performance in both sectors. The Aerospace Division, which books most of the orders placed with Thales under the FSTA programme, recorded an increase of 47%. The Space Division recorded an increase of 114%, with two satellites on order under the Eutelsat and Nilesat contracts and several orders under the Galileo programme.
In Defence, order intake also rose significantly (+40% at constant exchange rates), with particularly sharp rises recorded by the Air Systems Division (+80%), as a result of the Lorads III air traffic control programme mentioned above, and the Land & Joint Systems Division (+36%). New orders for the Naval Division increased by 6%.
In Security, order intake grew by a satisfactory 9% on a like-for-like basis, reflecting favourable developments in service activities as well as the order for simulators included in the FSTA tanker aircraft programme in the UK. In the ground transportation market, first-quarter order intake was comparable to Q1 2007.
Consolidated orders by destination
Growth was particularly strong in the United Kingdom and the Asia-Pacific region, where the two orders worth more than €100 million were booked. The more modest growth in North America reflects the impact of the weak dollar (at constant exchange rates, orders in this region rose by 14%).
In March 2008, Thales sold its electronic payment terminal business to Hypercom Corporation of the United States in return for a cash payment of $120 million, with an additional amount of up to $30 million based on the performance of the divested business in 2008. This operation is expected to translate into a capital gain of approximately €50 million in the first half of 2008.
Financial position and outlook for 2008
Despite various currencies continuing to weaken against the euro, and a temporary slowdown in certain security activities which the company is addressing as a priority in 2008, particularly by refocusing on the new strategy of the domain and on strengthening project management, Thales confirms the 2008 objectives announced on publication of its 2007 consolidated financial statements: organic growth of approximately 6% within the new scope of business and a further improvement in operating performance to achieve an EBIT margin (income from operations after restructuring costs) of at least 7.25%, compared with 7% in 2007, based on income from operations of approximately 8% of revenues.