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PARIS, July 24 France's Thales SA
reported a 15 percent increase in first-half operating income to
422 million euros ($568 million) on Thursday and reaffirmed its
objectives for 2014 and beyond.
Thales, Europe's largest defence electronics company, said
the improvement came despite a 1 percent dip in sales due to
pressure on Western defence budgets and a lower contribution
from 35 percent owned naval shipyard DCNS.
Thales said its order intake also dipped 1 percent in the
first half to 5.22 billion euros as weaker transport and defence
units blurred a 17 percent increase in future aerospace
business, in a sign of continued strength in the civil aerospace
Aerospace, buoyed by the commercial aircraft sector, was
also the only division to post higher sales, which grew 2
percent, while Defence and Security revenue fell 5 percent.
Thales, whose products range from civil air traffic control
systems to combat radar, said orders from emerging markets grew
13 percent, lifted by demand in Latin America including a
security contract for Mexico City.
"Order intake in emerging markets should continue to
increase, with double-digit growth expected for 2014, offsetting
the fall in order intake expected in mature countries,
particularly in defence markets," Thales said in a statement.
Sales should remain stable in 2014, returning to "moderate
growth" over the medium term, it added.
The company plans through ongoing cost cuts to boost its
operating profit by 5 percent to 7 percent in 2014.
It also expects to reach operating margin of 9.5 percent to
10 percent by 2017/2018, up from a stronger-than-expected 7.4
percent in the first half of 2014.
The company had higher cash outflow in the first half as
defence companies traditionally get paid at the end of the year,
but said it expected this to be corrected in the second half.
Thales said state-controlled DCNS, facing overspending in
its civil nuclear activities, would provide a lower contribution
in 2014 than last year.
Former Airbus Group defence executive Herve Guillou this
week took up an appointment as chief executive officer of DCNS,
taking over from Patrick Boissier, who is retiring six months
"It will be up to Herve Guillou to look at the situation and
restore an improved profitability at DCNS, Thales CEO
Jean-Bernard Levy said.
Thales said it would not be significantly affected by the
diplomatic rift between the West and Russia over Ukraine.
"Russia is a potential growth area for Thales, coming from
quite a low base, hardly more than 1 percent of our sales,"
Levy told analysts during a conference call.
DCNS partly builds two Mistral-class helicopter carriers
sold by France to Russia.
French President Francois Hollande has rejected U.S. and UK
calls to halt the sale of the first ship, but has said the fate
of the second would depend on the outcome of the Ukraine crisis.
"Obviously the current situation in Ukraine means this
growth potential may be delayed for quite some time, especially
as we have to expect that authorisation for export of sensitive
technologies may happen more slowly," Levy said.
He said this would have "no significant effect" on the
company's finances. ($1 = 0.7425 Euros)
(Reporting by Gwenaelle Barzic, Tim Hepher; Editing by Andrew
Callus and Jeffrey Benkoe)