July 22, 2016 / 6:55 AM / a year ago

Thales first-half sales and profits up, maintains targets

PARIS (Reuters) - French defense and electronics company Thales on Friday posted stronger-than-expected underlying sales and profits for the first half of 2016, but warned these would not set the pace for the rest of the year as it maintained cautious forecasts.

Europe’s largest defense electronics firm said operating profit grew 17 percent to 551 million euros as sales rose 7.9 percent, or 8.9 percent on a comparable basis, to 6.846 billion.Analysts were on average expecting first-half operating profit of 487 million euros on revenues of 6.57 billion, according to Thomson Reuters data.

Shares in Thales were among the best performers of the pan-European STOXX600 index, rising more than 4 percent.

The company, which supplies radar, in-flight entertainment systems and rail infrastructure, kept 2016 targets including mid-single-digit percentage growth in underlying sales.

The partially state-owned company still targets full-year operating profit of 1.3-1.33 billion euros, up 7 to 9 percent.

“You should not expect us to reach such a strong performance in (the second half),” Chief Executive Patrice Caine said,

citing a tough basis of comparison for the loss-making transport division and higher restructuring costs.

Sales were lifted by in-flight entertainment for jetliners and systems for fighters, and included some recovery in mature markets as the frenetic pace of emerging markets growth slowed.

“Growth is also coming from mature markets: that is a new development,” Caine told reporters.

New orders fell 13 percent, weighed by an unfavorable comparison with the same period of last year, which saw major French military and overseas rail signaling contracts.

Sales in the transport division jumped 26 percent, recovering from execution problems a year earlier, but face significantly lower growth in the second half, Thales said.

With margins looking strong in defense, transport is the “main constraint” on profitability, even though it is not big enough to deflect Thales from a restated target of 9.5–10 percent margins in 2017-18, Agency Partners analysts said.

Caine said he did not see much immediate impact from the decision by UK voters to leave the European Union, since Thales UK, which is one of the country’s leading defense contractors, buys few goods from the rest of Europe.

But Finance Director Pascal Bouchiat said the recent drop in the value of the pound, following the June 23 referendum result, could dampen group earnings when translated into euros.

A 10 percent drop in the UK currency has an impact of 15 million euros on operating profit on an annual basis, he said.

Reporting by Tim Hepher, Cyril Altmeyer, Regis Corblin; editing by Jason Neely

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