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France's Thales keeps 2021 goals after contract blow

Stock MarketsSep 16, 2021 11:06
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PARIS (Reuters) -French defence group Thales moved swiftly on Thursday to reassure investors its 2021 financial goals remained intact after the reversal of a major French arms deal with Australia.

Thales has a 35% stake in French military shipyard Naval Group which was due to supply submarines to Australia in a $40 billion deal jettisoned in favour of a new cooperation pact between the United States, Britain and Australia.

"Thales does not expect any material impact of this announcement on the group’s 2021 EBIT (earnings before interest and tax) through Naval Group’s contribution," it said.

Thales, which makes acoustic sonar for warships, was also due to supply sub-systems to Lockheed Martin (NYSE:LMT) as part of the Australian contract, independently of its stake in DCNS.

But Thales said on Thursday the corresponding order book so far was just 30 million euros ($35 million), which was also not material.

Defence contracts typically generate revenue spread out over a number of years.

Thales confirmed 2021 targets including a book-to-bill ratio above 1, sales in the range of 15.8-16.3 billion euros and an operating margin of 9.8-10.3%. It also reaffirmed its medium-term outlook including a 12% operating margin.

Shares in Europe's largest defence electronics supplier rose 1.3%, slightly ahead of the rest of the market, as analysts said it had acted quickly to quell any uncertainty surrounding the axing of the export contract.

Some analysts said concerns had been raised over the speed at which the deal was being implemented and the pace of French technology transfers towards Australia, with the United States and Britain agreeing to transfer precious nuclear know-how.

"It gives Thales a headwind in one of their most important non-European markets. They had expected a large order intake which they will need to replace with something else," said Agency Partners analyst Sash Tusa.

The United States, Britain and Australia said they would establish a security partnership for the Indo-Pacific that would now involve Australia acquiring U.S. nuclear-powered submarines, resulting in the scrapping of the French deal.

France had lobbied intensively to win one of the world's most lucrative defence contracts against competition from Japan and Germany in 2016, with Thales at the time hailing a "great day" for France's defence industry.

After winning the deal, DCNS said it would create around 4,000 French jobs, benefiting shipyards and industrial sites in Lorient, Brest, Nantes and Cherbourg.

($1 = 0.8498 euros)

France's Thales keeps 2021 goals after contract blow

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