NeuillysurSeine, 7 March 2008
HIGHLY SATISFACTORY 2007 RESULTS FOR THALES Business growth of 20%, driven by acquisitions and solid organic performance: ·
Revenues increased by 20% overall, and by 6.4% with constant scope and exchange rates
·
New orders rose 19%, with further growth in the diversified base of recurring orders
Financial performance improved significantly*: ·
Income from operations increased by 24% to €936m, boosting operating margin to 7.6% of revenues compared with 7.3% in 2006.
·
EBIT (Income from operations after restructuring costs) increased by 53% to €858m, driving Ebit margin substantially higher to 7.0% compared with 5.5% in 2006, due to a sharp decrease in restructuring costs.
·
Net income, Group share, stood at €1,009m compared with €388m in 2006, an increase of 160%, as a result of both improved financial performance as well as net capital gains of €432m.
Higher internal resources limited net debt at yearend to €291m: ·
Operating cash flows before WCR rose by 16% to €1,101m.
·
Free operating cash flow rose by 23% to €549m.
Proposed dividend of €1 euro, compared with €0.87 for the previous financial year, an increase of 15%.
Key figures 2006
2007*
Order intake
10,818
12,856
Order book at 31 December
20,676
22,675
Revenues Income from operations
10,264 755
7,3%
12,296 936 * 7,6%
388
1,009 *
Operating free cash flow
448
549
Net debt / (Net cash position) at 31 December
(91)
291
Earnings per share (in euros)
2.30
Dividend per share (in euros)
0.87
5.18 1.00
in millions of euros
as % of revenues Net income, Group share
(*) For better analysis of the 2007 results and easier comparison with the previous year, the figures presented above and commented below have been restated to exclude the accounting of the fair value of the assets and liabilities acquired from AlcatelLucent, and of the 25% acquired in DCNS. This accounting of “Purchase price allocation” reduced net income by €121.5m. The 2007 financial statements record net income, Group share, of €887m €. Detailed restatements on the profit and loss account are provided in appendix.
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Changes in the scope of consolidation The Thales Group completed a largescale reconfiguration of its business portfolio in 2007 with the finalisation of the major strategic operations initiated the previous year. These included the acquisition of AlcatelLucent's transportation and security businesses and space businesses (consolidated as from 1 January and 1 April 2007 respectively) and the sale to DCNS of Thales's surface naval businesses in France (deconsolidated as from endMarch 2007). With respect to this second operation, Thales's 25% interest in DCNS is accounted for under the equity method and is therefore not included in Thales revenue figures. The Thales Group's scope of consolidation was also affected by the divestment of its interests in the propulsion businesses of Protac and Bayern Chemie (deconsolidated as from 1 July 2007), the divestment of its interest in FACEO (deconsolidated as from 1 October 2007) and the fullyear impact of the sale of its GPS positioning and navigation equipment activities in mid2006.
Revenues ·
Consolidated revenues Total changes in the scope of consolidation in 2006 and 2007 correspond to a net increase in revenues of €1,583m in the financial statements for 2007. Exchange rate fluctuations, mainly due to the weakening US dollar, had a negative impact, reducing revenues by €162m in 2007. Taking these various factors into account, the Group's historical core businesses contributed €611m to overall revenue growth in 2007. This equates to organic growth of 6.4%, a significantly higher rate of growth than had been recorded in recent years. In addition, the businesses acquired from AlcatelLucent achieved overall growth of almost 10% in 2007.
·
New orders New orders totalled €12,856m in 2007, representing a booktobill ratio of 1.05, an overall increase of 19%, and an increase of 1% within the Group's historical scope of consolidation. This growth was mainly driven by strong momentum in the intake of small and mediumsized orders. Only six contracts with unit values greater than €100m were booked in 2007. Together, these six contracts are worth €1,092m. This compares with eight contracts in this category booked in 2006 for a total value of €1,268m.
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At 31 December 2007, the order book was worth €22.7 billion, representing close to 22 months of revenues.
Results ·
Significant increase in income from operations, which rose by 24% to €936m, leading to a further improvement in operating margin to more than 7.6% of revenues compared with 7.3% in 2006. This very favourable development reflects the positive overall effect of the reconfiguration of Thales’s portfolio of businesses, combined with a general improvement in performance by the historical core businesses, and comes despite the negative impact of exchange rate fluctuations, estimated at €30m and largely linked to the weakening of the dollar. In Aerospace/Space, income from operations stood at €255m, equating to an operating margin of 7.1% of revenues. This figure is 26% higher than income from operations recorded in 2006 for the Aerospace division (€203m) and now includes a contribution of €56m by the Space businesses integrated as from 1 April 2007, which represents an operating margin of 5.3% of these businesses’ revenues. Income from operations for the Aerospace division stood at €199m, which is slightly lower than the year before because of cost overruns on one of the division’s defence programmes. Excluding this impact, which caused a slight decrease in operating margin, from 8.1% in 2006 to 7.9% in 2007, the division recorded a marked improvement in operating performance in both its civil and military businesses. In Defence, income from operations improved strongly, rising by 8% to €459m compared with €424m the previous year, with a further improvement in operating margin to 8.8% of revenues in 2007 from 8% in 2006. The surface naval businesses sold to DCNS contributed to the 2007 operating performance of the Defence businesses only for the first quarter of the year. On a like forlike basis, income from operations for the Defence segment increased by 19%. All three divisions in this segment contributed to this improvement in operating performance. In the Security segment, income from operations increased by 41% overall to €237m compared with €168m in 2006. This increase was driven by the substantial contribution of the transport and security businesses acquired from AlcatelLucent. The operating margin of the Security segment nonetheless decreased from 7.4% in 2006 to 6.9% in 2007 as a result of nonrecurrent problems on some complex projects.
45, rue de Villiers – 92526 NeuillysurSeine Cedex – France – Tel: +33 (0)1 57 77 86 26 – Fax: +33 (0)1 57 77 87 44 – www.thalesgroup.com
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·
After two years with particularly high provisions for restructuring costs, these costs decreased significantly in 2007 and stood at €78m, the equivalent of 0.6% of revenues, compared with €193m and 1.9% of revenues in 2006. As a result of this reduction, EBIT (defined as income from operations after restructuring costs) stood at €858m, which is 53% higher than in 2006 (€562m). EBIT represented 7.0% of revenues in 2007, a significant improvement over the 5.5% in EBIT margin reflected in the 2006 financial statements.
·
Thales recorded a very sharp increase (107%) in income of operating activities, which rose to €1,194m from €576m in 2006. This figure includes substantial proceeds from disposals (€432m ), of which €316m involved the sale to DCNS of the French surface naval businesses and €119m the sale of Faceo, the facility management subsidiary jointly held with Cegelec. The overall figure for income of operating activities also includes €(96)m in impairment of assets, twothirds of which involved avionics businesses and corresponds to the impact of the weaker dollar on the profitability of several ongoing research programmes and on goodwill. Impairment tests were run on the basis of a recurring exchange rate of $1.50 to the euro.
·
Net financial expense was comparable to the previous year, at €(79)m compared with €(73)m in 2006, despite the increase in average net debt for the full year. A positive figure of €65m was recorded for other components of the pension charge, compared with a negative figure of €(19)m in 2006, after inclusion of €93m further to successful negotiations in the United Kingdom and France. In addition, the unfunded status of pension commitments in the United Kingdom and the Netherlands (where pension programmes are externally funded) was significantly lower at the end of 2007 (€187m) than at the end of 2006 (€706m). This very substantial reduction is largely due to higher interest rates in these two countries, changes to pension schemes negotiated in the United Kingdom, and cash payments made by the Group to reduce the funding shortfall.
Net income 1 , Group share for 2007 stood at €1,009m, an increase of 160% over 2006 (€388m), after income tax expense of €(217)m compared with €(101)m in 2006 and a contribution of €47m corresponding to the 25% interest in DCNS carried under the equity method in the Thales financial statements.
1
Before impact of « PPA »
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Endofyear financial situation In 2007, the Group generated operating free cash flow of €549m, an increase of 23% over 2006 (€448m) and the equivalent of 64% of EBIT. At end2007, net debt stood at €291m, compared with a positive net cash position of €91m at end2006. Shareholders’ equity, Group share stood at €3,881m at the end of 2007 compared with €2,287m one year before.
Recent developments For possible inclusion: In February 2008, Thales reached an agreement with the US group Hypercom relating to the acquisition of Thales’s electronic payment solutions business. Under the terms of the agreement, which should be finalised by the end of March 2008, Thales expects to receive a cash payment of $120m, with an additional amount of up to $30m based on the performance of the divested business in 2008. Thales expects to book a capital gain of approximately €50m from this operation in the first half of 2008.
Proposed dividend In view of the strong results for 2007, a confirmed outlook of business growth and further improvement in financial performance in the expanded scope of business, the Board of Directors will propose that the Annual General Meeting of 15 May 2008 approve a dividend of €1.00 per share, an increase of 15% on the €0.87 paid in respect of 2006. If approved, the dividend will be paid on 2 June 2008.
Outlook for 2008 The Group confirms its 2008 objectives, namely organic growth of approximately 6% within the new scope of business, and a further improvement in operating performance to achieve EBIT 2 margin of at least 7.25%, compared with 7% in 2007, based on income from operations of approximately 8% of revenues.
2
Before impact of « PPA »
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APPENDIX Impact of Purchase Price Allocation (“ PPA” ) on the Profit and Loss account 2007
in € million
PPA Impact
2007
restated 936
174
762
Income from operating activities
1,194
174
1,020
Income tax
(217)
59
(158)
47
6
41
Net income
1,010
121
888
Net income, Group share
1,009
121
887
Income from operations
Unconsolidated affiliates
Summarised profit and loss account in € million
2006
2007 *
Consolidated revenues
10,264
12,296
755
936
(193)
(78)
EBIT
562
858
Gain (loss) on disposals & others
14
336
Income from operating activities
576
1,194
Financial results
(73)
(79)
Income from operations Restructuring costs
Other components of pension charge
(19)
65
Income tax
(101)
(217)
8
47
Net income
391
1,010
minority interests
(3)
(1)
Net income, Group share
388
1,009
Unconsolidated affiliates
* restated before “ PPA” impact
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Summarised statements of cash flows 2006
2007
Operating cash flows before working capital changes
947
1 101
Change in WCR
(24)
107
Payment of pension benefits *
(73)
(98)
Income tax (paid) received
(29)
(56)
Net cash flow from operating activities
821
1 054
(373)
(505)
Free cash flow from operating activities
448
549
(Acquisitions) / disposals
284
(660)
Contribution to UK pension schemes unfunded status
(68)
(70)
Dividends paid
(140)
(169)
524
(350)
in € million
Net capital expenditures
Net cash flow of the period
* excluding contribution to UK pension schemes unfunded status
Consolidated revenues by segment In € million
2006
2007
Total change
Organic change
Aerospace / Space
2,492
3,597
+ 44%
+4.5% + 6.0%
Defence
5,320
5,222
2%
Security
2,278
3,415
+ 50%
+ 8.8%
174
61
ns
Ns
10,264
12,296
+ 20%
+6.4%
Others & disposals Consolidated revenues
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EBIT par domaine In € million
2006
In % of revenues
2007 *
In % of revenues
Aerospace / Space
161
6.5%
240
6.7%
Defence
370
7.0%
424
8.1%
Security
129
5.7%
224
6.6%
Others & disposals
(98)
ns
(30)
ns
EBIT
562
5.5%
858
7.0%
* before “ PPA” impact
Information by segment Aerospace / Space 2006
2007
Order book at end December
5,064
7,228
Order intake
2,389
4,026
Book to bill
0.96
1.12
Consolidated revenues
2,492
3,597
In € million
Income from operations
in % of revenues
203
255 *
8.1%
7.1%
161
240 *
in % of revenues
6.5%
6.7%
In € million
2006
2007
Order book at end December
12,512
10,333
Order intake
5,573
5,402
Book to bill
1.05
1.03
Consolidated revenues
5,320
5,222
EBIT
Defence
Income from operations
in % of revenues EBIT
in % of revenues
424
459 *
8.0%
8.8%
370
424 *
7.0%
8.1%
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Security 2006
2007
Order book at end December
3,078
5,098
Order intake
2,684
3,372
Book to bill
1.18
0.99
Consolidated revenues
2,278
3,415
Income from operations
168
237 *
7.4%
6.9%
129
224 *
5.7%
6.6%
In € million
in % of revenues EBIT
in % of revenues
* before “ PPA” impact
Press contact Christophe Robin Corporate Communication Tel: + 33 1 57 77 86 26
45, rue de Villiers – 92526 NeuillysurSeine Cedex – France – Tel: +33 (0)1 57 77 86 26 – Fax: +33 (0)1 57 77 87 44 – www.thalesgroup.com
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