Investors back Thales despite €100m loss

City A.M. Reporter
Investors shrugged off a profit warning from French defence company Thales as its chief executive lashed out at previous management for handing him a legacy of flawed contracts and cost overruns.

Europe's largest defence electronics company is to post an operating loss of close to €100m (£84.5m) for 2010 after higher-than-expected charges linked to problems in making Thales's share of the Airbus A400M military plane.

"We now see light at the end of the tunnel regarding this difficult contract portfolio inherited from the past," chief executive Luc Vigneron told a news conference.

Thales makes radars for the French Rafale and Mirage jet fighters, military and commercial satellites and equipment for civil passenger jets and railway signalling equipment.

The warning, issued ten days before the group's results, has put an end to speculation about extra charges, which had weighed on the company's shares.

Thales shares were up 2.6 per cent at €27.05 at mid-session, bucking a slightly weaker market.

"They had the choice – either put it (the bad news on charges) on 2010 or spread it over 2011," said Christophe Menard, analyst at Kepler Securities.

"They chose the first option, which is relatively neutral from a share price point of view, even if the level of charges and provisions seem to me to be excessively high."

Thales said it would book charges and provisions totalling €700m for 2010, while analysts had expected something close to €100-150m.

Amid a spate of negative press reports and staff criticism, Vigneron has been struggling to impose his authority on the company he has led since Dassault Aviation became its largest industrial shareholder in 2009.

French newspaper La Tribune reported last week that France's highest defence policymaking body, chaired by President Nicolas Sarkozy, had discussed a possible ouster of Vigneron on January 31.

Vigneron denounced what he called a "campaign of destabilisation" against Thales, which has been at the centre of political and industrial jockeying for power since well before it was privatised in 1999.

"These rumours have nothing to do with the reality of the company as I see it," a visibly angry Vigneron told reporters.

Vigneron said he believed speculation about his future came from unnamed former Thales staff who were "trying to distract attention from the nice little legacy they left behind them".

Thales said it was aiming for an operating margin of five per cent in 2011, rising to six per cent in 2012. It said revenues should "grow slightly" led by aerospace and transport and its order intake should be "more or less in line with revenues".

Thales said it expected 2010 revenue to rise two per cent to €13.1bn.