Recherche

Business growth of 20%, driven by acquisitions and solid organic performance:
-  Revenues increased by 20% overall, and by 6.4% with constant scope and exchange rates
- New orders rose 19%, with further growth in the diversified base of recurring orders

Financial performance improved significantly:
-  Income from operations increased by 24% to €936m, boosting operating margin to 7.6%
   of revenues compared with 7.3% en 2006.
-  EBIT (Income from operations after restructuring costs) increased by 53% to €858m, driving
   Ebit margin substantially higher to 7.0% compared with 5.5% in 2006, due to a sharp
   decrease in restructuring costs.
- Net income, Group share, stood at €1,009m compared with €388m in 2006, an increase of
  160%, as a result of both improved financial performance as well as net capital gains of
   €432m.

Higher internal resources limited net debt at year-end to €291m:
- Operating cash flows before WCR rose by 16% to €1,101m.
- Free operating cash flow rose by 23% to €549m.

Proposed dividend of €1 euro, compared with €0.87 for the previous financial year, an increase of 15%.

Changes in the scope of consolidation
The Thales Group completed a large-scale reconfiguration of its business portfolio in 2007 with the finalisation of the major strategic operations initiated the previous year. These included the acquisition of Alcatel-Lucent's transportation and security businesses and space businesses (consolidated as from 1 January and 1 April 2007 respectively) and the sale to DCNS of Thales's surface naval businesses in France (deconsolidated as from end-March 2007). With respect to this second operation, Thales's 25% interest in DCNS is accounted for under the equity method and is therefore not included in Thales revenue figures.
The Thales Group's scope of consolidation was also affected by the divestment of its interests in the propulsion businesses of Protac and Bayern Chemie (deconsolidated as from 1 July 2007), the divestment of its interest in FACEO (deconsolidated as from 1 October 2007) and the full-year impact of the sale of its GPS positioning and navigation equipment activities in mid-2006.

Revenues

Consolidated revenues

Total changes in the scope of consolidation in 2006 and 2007 correspond to a net increase in revenues of €1,583m in the financial statements for 2007. Exchange rate fluctuations, mainly due to the weakening US dollar, had a negative impact, reducing revenues by €162m in 2007. Taking these various factors into account, the Group's historical core businesses contributed €611m to overall revenue growth in 2007. This equates to organic growth of 6.4%, a significantly higher rate of growth than had been recorded in recent years.
In addition, the businesses acquired from Alcatel-Lucent achieved overall growth of almost 10% in 2007.

New orders

New orders totalled €12,856m in 2007, representing a book-to-bill ratio of 1.05, an overall increase of 19%, and an increase of 1% within the Group's historical scope of consolidation.
This growth was mainly driven by strong momentum in the intake of small and medium-sized orders. Only six contracts with unit values greater than €100m were booked in 2007. Together, these six contracts are worth €1,092m. This compares with eight contracts in this category booked in 2006 for a total value of €1,268m.
At 31 December 2007, the order book was worth €22.7 billion, representing close to 22 months of revenues.
 
Results

Significant increase in income from operations, which rose by 24% to €936m, leading to a further improvement in operating margin to more than 7.6% of revenues compared with 7.3% in 2006.
This very favourable development reflects the positive overall effect of the reconfiguration of Thales's portfolio of businesses, combined with a general improvement in performance by the historical core businesses, and comes despite the negative impact of exchange rate fluctuations, estimated at €30m and largely linked to the weakening of the dollar.

In Aerospace/Space, income from operations stood at €255m, equating to an operating margin of 7.1% of revenues. This figure is 26% higher than income from operations recorded in 2006 for the Aerospace division (€203m) and now includes a contribution of €56m by the Space businesses integrated as from 1 April 2007, which represents an operating margin of 5.3% of these businesses' revenues. Income from operations for the Aerospace division stood at €199m, which is slightly lower than the year before because of cost overruns on one of the division's defence programmes. Excluding this impact, which caused a slight decrease in operating margin, from 8.1% in 2006 to 7.9% in 2007, the division recorded a marked improvement in operating performance in both its civil and military businesses.

In Defence, income from operations improved strongly, rising by 8% to €459m compared with €424m the previous year, with a further improvement in operating margin to 8.8% of revenues in 2007 from 8% in 2006. The surface naval businesses sold to DCNS contributed to the 2007 operating performance of the Defence businesses only for the first quarter of the year. On a like-for-like basis, income from operations for the Defence segment increased by 19%. All three divisions in this segment contributed to this improvement in operating performance.

In the Security segment, income from operations increased by 41% overall to €237m compared with €168m in 2006. This increase was driven by the substantial contribution of the transport and security businesses acquired from Alcatel-Lucent. The operating margin of the Security segment nonetheless decreased from 7.4% in 2006 to 6.9% in 2007 as a result of non-recurrent problems on some complex projects.

• After two years with particularly high provisions for restructuring costs, these costs decreased significantly in 2007 and stood at €78m, the equivalent of 0.6% of revenues, compared with €193m and 1.9% of revenues in 2006. As a result of this reduction, EBIT (defined as income from operations after restructuring costs) stood at €858m, which is 53% higher than in 2006 (€562m). EBIT represented 7.0% of revenues in 2007, a significant improvement over the 5.5% in EBIT margin reflected in the 2006 financial statements.
  
  Thales recorded a very sharp increase (107%) in income of operating activities, which rose to €1,194m from €576m in 2006. This figure includes substantial proceeds from disposals (€432m ), of which €316m involved the sale to DCNS of the French surface naval businesses and €119m the sale of Faceo, the facility management subsidiary jointly held with Cegelec. The overall figure for income of operating activities also includes €(96)m in impairment of assets, two-thirds of which involved avionics businesses and corresponds to the impact of the weaker dollar on the profitability of several ongoing research programmes and on goodwill. Impairment tests were run on the basis of a recurring exchange rate of $1.50 to the euro.
• Net financial expense was comparable to the previous year, at €(79)m compared with €(73)m in 2006, despite the increase in average net debt for the full year. A positive figure of €65m was recorded for other components of the pension charge, compared with a negative figure of €(19)m in 2006, after inclusion of €93m further to successful negotiations in the United Kingdom and France. In addition, the unfunded status of pension commitments in the United Kingdom and the Netherlands (where pension programmes are externally funded) was significantly lower at the end of 2007 (€187m) than at the end of 2006 (€706m). This very substantial reduction is largely due to higher interest rates in these two countries, changes to pension schemes negotiated in the United Kingdom, and cash payments made by the Group to reduce the funding shortfall.

Net income , Group share for 2007 stood at €1,009m, an increase of 160% over 2006 (€388m), after income tax expense of €(217)m compared with €(101)m in 2006 and a contribution of €47m corresponding to the 25% interest in DCNS carried under the equity method in the Thales financial statements.

End-of-year financial situation

In 2007, the Group generated operating free cash flow of €549m, an increase of 23% over 2006 (€448m) and the equivalent of 64% of EBIT. At end-2007, net debt stood at €291m, compared with a positive net cash position of €91m at end-2006. Shareholders' equity, Group share stood at €3,881m at the end of 2007 compared with €2,287m one year before.
 

Recent developments

For possible inclusion: In February 2008, Thales reached an agreement with the US group Hypercom relating to the acquisition of Thales's electronic payment solutions business. Under the terms of the agreement, which should be finalised by the end of March 2008, Thales expects to receive a cash payment of $120m, with an additional amount of up to $30m based on the performance of the divested business in 2008. Thales expects to book a capital gain of approximately €50m from this operation in the first half of 2008.

Proposed dividend

In view of the strong results for 2007, a confirmed outlook of business growth and further improvement in financial performance in the expanded scope of business, the Board of Directors will propose that the Annual General Meeting of 15 May 2008 approve a dividend of €1.00 per share, an increase of 15% on the €0.87 paid in respect of 2006. If approved, the dividend will be paid on 2 June 2008.

Outlook for 2008

The Group confirms its 2008 objectives, namely organic growth of approximately 6% within the new scope of business, and a further improvement in operating performance to achieve EBIT  margin of at least 7.25%, compared with 7% in 2007, based on income from operations of approximately 8% of revenues.

CLICK HERE TO DOWNLOAD COMPLETE PRESS RELEASE AND FIGURES.