Thales Raises Sales Forecast as Military Gains Push Profit

  • `Defense budgets are going up,' CFO Bouchiat says on call
  • Ebit forecast at EU1.3 billion to EU1.33 billion in 2016

Thales SA, the maker of missile-guidance systems for Dassault Aviation SA’s Rafale fighter jets, raised its mid-term revenue forecast as orders reached a record and growth in military-equipment deliveries led to a 44 percent surge in profit last year. The shares gained the most in seven months.

Sales excluding the effects of acquisitions or disposals will rise by a mid-single-digit percentage in 2017 and 2018, the French manufacturer said in a statement. That compares with a prediction a year ago of a “moderate increase” in revenue over the medium term. Adjusted net income jumped to 809 million euros ($891 million) in 2015 from 562 million euros a year earlier, while new orders gained 31 percent to 18.9 billion euros, it said.

Thales follows BAE Systems Plc, Europe’s biggest defense contractor, in becoming more optimistic as military budgets in the region and in the U.S. are set to recover from cutbacks during the global recession. Earnings growth at Thales marks a reversal from a drop in 2014 caused by losses at warship-making affiliate DCNS.

“We’ve come to an inflection point on defense spending,” Chief Financial Officer Pascal Bouchiat told journalists on a conference call. “Defense budgets are going up in France, Germany and the U.K.,” providing a “favorable” trend for Thales, which derives more than half of revenue from military equipment.

Thales rose as much as 7.8 percent, the steepest intraday gain since July 24, and was trading up 7.4 percent at 71.65 euros as of 9:30 a.m. in Paris. That propelled the stock to a 3.6 percent increase this year, valuing the company at 15.1 billion euros.

The adjusted-earnings figure excludes amortization and the effects of acquisitions, disposals, currency hedging and pension gains or costs.

Revenue last year rose 8.4 percent to 14.1 billion euros, beating Thales’s plan for “low single-digit” growth in sales, with the defense and security unit posting the biggest increase, at 9.3 percent. Earnings before interest and taxes jumped 23 percent to 1.22 billion euros to exceed a predicted range of 1.13 billion euros to 1.15 billion euros. Ebit in 2016 is forecast at 1.3 billion euros to 1.33 billion euros, Thales said.

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