PARIS (Reuters) - France’s Thales (TCFP.PA) signaled a continued offensive in emerging markets on Wednesday after Gulf defense contracts helped boost its order intake in 2013, while in western Europe military cuts continued to bite.
Chief Executive Jean-Bernard Levy announced a drive to reduce the dependence of Europe’s largest defense electronics firm on domestic defense markets as it tries to break out of a pattern of several years of sluggish revenues.
“To me, Thales is not yet a truly global player. Despite improvements in profitability, we still have a gap to close with most of our peers,” Levy told analysts after reporting a slightly better than expected rise in operating profit.
However Levy, a once active dealmaker in the media industry who joined Thales last year with a mandate to reduce internal tensions and increase profitability, dampened expectations of an acquisition drive to increase its international footprint.
Pressed by analysts how Thales would spend its cash, Levy listed options including acquisitions but said these would not be the first priority.
“At this stage, I don’t believe that for Thales acquisitions are the key for current performance.”
Thales opted instead to increase its payout for 2013 and hiked its proposed dividend 27 percent to 1.12 euros a share.
Thales said annual operating earnings rose 8 percent to 1.0 billion euros ($1.38 billion), lifting its core profit margin by more than half a percentage point to 7.1 percent, on sales which remained flat at 14.2 billion euros.
The order intake, which had lagged behind sales in 2013, rose 7 percent to 14.2 billion euros to give the group a book-to-bill ratio of 1.
Analysts were on average expecting a 2013 operating profit of 984 million euros and sales of 14.3 billion, according to Thomson Reuters I/B/E/S data.
Thales shares closed earlier down 0.6 percent at 46.92 euros.
For 2014, Thales predicted a 5-7 percent rise in operating profit, while forecasting another year of stable sales.
“It is absolutely mandatory for Thales to restore some significant growth. It is a race against the clock - we really need to grow our emerging markets orders as quickly as possible,” said finance director Pascal Bouchiat.
Although orders are expected to be stable overall in 2014, Thales sees double-digit growth in emerging markets business.
Western defense companies are expanding a drive for exports to offset weaker domestic defense spending. Thales also benefits from a strong upswing in commercial aerospace demand.
Order intake in the largest division, Defence and Security rose 14 percent last year as sales there dipped 1 percent.
Thales said 10 of the 19 major contracts it won across the group in 2013 - deals worth more than 100 million euros each - came from emerging markets compared with just two in 2012.
New defense contracts included a Saudi frigates upgrade and air defense radars in the United Arab Emirates.
However, while rising regional powers across the world are spending more on defense, recent currency volatility has cast doubt on the economic prospects of some key emerging markets.
Levy said Thales would have been able to add 1.5 percentage points to its operating profit growth forecast for 2014 if it had not been for currency declines in some customer nations.
($1 = 0.7271 euros)
Reporting by Tim Hepher, Cyril Altmeyer; Editing by Andrew Callus and David Evans