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Thales Group – 2006 review

Thales Group released its 2006 report in March 2007, reflecting mixed results yet demonstrating its solid management skills. Gaining 16% increase in net income to 388 million euros despite flat growth in revenues (10,264 million euros in 2006, compared to 10,263 million in 2005). Following strategic changes in its holdings, Thales is bullish about 2007, forecasting revenues of about 12 billion euros, with an operating margin of 7.5%. Provided that the two mergers with Alcatel-Lucent and DCN are fully implemented, Thales expects to add another billion euros to its revenues.

Thales Aerospace Division recorded +6% organic growth in 2006, reflecting strong performance of the division's civil business, particularly for in-flight entertainment systems while military aerospace business fell slightly overall. Increased sales of avionics systems and higher billings on the Watchkeeper program in the UK were only partly offsetting the reduction in revenues on a number of major export programs currently being completed. Among the top programs carried out in 2006 were the Mirage F-1 upgrade for Morocco, supply of avionics for the British Army Lynx and continued progress with the Rafale program, particularly the development of the active phased array radar for this aircraft.


Thales Air Systems Division remained stable compared with 2005, with only a moderate impact on revenues from new orders for surface radars by the end of 2006. The main programs pursued by the division included the renovation of Saudi-Arabian Shahine and Crotale air defense systems, upgrades for Brazilian ATC radars and new orders for air traffic management systems.

MBITR hand held radio systems are widely used by US forcesThales Land & Joint Systems Division recorded a 10% increase in revenues in 2006, with the sharpest increase in the US, with the supply of secure communications networks for NATO forces, providing terrestrial and satellite communications, providing equipment for the British Falcon tactical network, and increased deliveries of MBITR tactical radios to the US military.

Thales Naval Division income fell sharply by 33% reflecting the completion of several programs, particularly the Saudi Arabian Sawari 2 frigate program. New programs for 2006 included a contract with Spanish shipbuilder Navantia to equip several corvettes and offshore patrol vessels, the supply of naval systems for the new patrol frigates of the Danish Royal Navy and the progress of definition study for the future aircraft carriers program of the British Royal Navy. Despite the reduced income, the overall reduction in revenues of the naval division was limited to 10% however, as the division commenced billings on several major programs awarded in 2005. Thales Security division recorded a 13% growth, driven by strong performance in the security and communications market.

Sawari II (La Fayette class) frigate provided by Thaless Maritime Systems for teh Saudi Navy
Strategic changes, reflected in two agreements concluded in 2006 will have their mark on the future performance of Thales, beginning 2007 and particularly in 2008. These include the merging of Alcatel-Lucent business into Thales, according to a shareholders agreement concluded on 1 December 2006 and the convergence between naval businesses of Thales and DCN, signed on January 30, 2007, which will include the transfer of Thales naval business to DCN, against the acquisition of 25% DCN shares by Thales, (Thales has an option to increase its holding to 35% after two years). Thales is expecting to generate consolidated revenues of about 13 billion euros in 2007 and 14 billion euros in 2008, considering the DCN deal is approved and implemented according to plans. Resulting in the completed mergers, restructuring costs are expected to drop compared to past years, representing 0.5% and 0.75% of revenues in the next two years..



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