Anglo-French defence group Thales is set to announce "limited growth" in its profits next week, but the markets will be concentrating on the effect of the rising euro and the continuing expense of restructuring the company.
The euro has been strengthening against most other currencies for the past year and more, costing Thales hundreds of millions of euros in revenue from sales made outside the euro zone. The company's 2003 sales of €10.6 billion ($13.2 billion) would have reached €11 billion had it not been for the strength of the euro, says Thales. The bottom-line impact is estimated in the tens of millions - €11 million in the first half alone. The damage was worst in Thales' North American markets, where sales dropped 20%, almost entirely due to the falling dollar, and a 15% drop in UK sales was also blamed on the falling pound.
Sales in 2003 were slightly lower due to Thales' divestments of various businesses, including the Antennas, Contact Solutions, Geosolutions, Industrial Services, TFSI and Microsonics divisions. But the cost of the restructuring could be up to €150 million, the company says. However, the costs are likely to be partly balanced by getting rid of loss-making operations: this gave operating profits a €5 million boost in the first half alone.
Analysts expect the pay-off from restructuring in its information technology and services business will help lift net earnings dramatically, from €111 million in 2002 to close to €300 million.
ALEXANDER CAMPBELL / LONDON
Source: Flight International