PARIS - French systems company Thales issued Feb. 14 a profit warning on its 2010 preliminary financial results, which are expected to show an operating loss of nearly 100 million euros ($135 million), due to provisions of more than 700 million euros for program overruns.
"EBIT (earnings before interest and tax) should be close to -100 million euros, due to additional charges and provisions exceeding 700 million euros booked on the contracts and activities mentioned below," according to a company statement.
The fresh provisions come on top of the 500 million euros of charges booked for 2009, making a total of 1.2 billion euros over the two years.
Thales set a target of 5 percent operating profit margin for 2011, rising to 6 percent in 2012. That compared to a net loss of 128 million euros in 2009, and a sharply lower operating profit of 151 million euros from 877 million euros in the previous year.
From 2005 to 2008, Thales's operating profit margin was between 5 and 7 percent, which included a capitalization of a significant amount of its research and development (R&D) spending, senior vice president Patrice Durand.
The present financial reporting excludes R&D from the profit line.
The 700 million euros of provisions included Thales' work on the Meltem Turkish maritime patrol aircraft program, the flight management system (FMS) for the A400M military airlifter, a ticketing contract for Denmark, and the Lorads III air traffic management contract for Singapore, Thales executive chairman Luc Vigneron told journalists.
The provisions were in part made possible by an agreement in principle with the Turkish government reached in September on the Meltem program, which gave Thales a "clear vision of the remaining costs," Vigneron said.
Thales is also in contract negotiations with Airbus in which the systems company hopes to get extra funding for its work on the flight management system for the A400M, Vigneron said. If Thales succeeds in the commercial negotiations, that might allow a claw back of some of the provisions on the A400M. Thales also supplies avionics and cockpit equipment on the A400M.
Vigneron declined to break down the provisions allotted to each of the programs. "This is commercially sensitive information," he said.
Thales engineers had worked intensively last year to clarify the work that needed to be done to deliver the Airbus A400M FMS to specification, he said.
"These recent developments significantly enhance the visibility on the execution conditions of these contracts and allow to remove the main operational uncertainties and better assess the estimates of their cost at completion and associated risks," the company said.
The detailed program analyses led Thales to take a "more prudent vision than we had before," Vigneron said. The programs were ones which dated before 2009 when Vigneron was made executive chairman of the company.
Thales has cut jobs in Australia, Britain and Spain as part of its reorganization, Vigneron said. The figures on the job losses were undisclosed for the time being, and come on top of an announced plan to cut 1,500 posts in France.
Sales for 2010 were forecast to rise two percent to 13.1 billion euros, due mainly to favorable foreign exchange effects, while orders worth 13.1 billion euros were booked, slightly down from 13.93 billion in 2009. Restructuring charges for 2011 were estimated at 1.5 percent of sales, while those for 2012 were forecast at 1 percent.
Net cash for 2010 stood at 191 million euros, up from a negative figure of 91 million a year ago. Free cash flow totaled 271 million euros in 2010.
Vigneron maintain the target for the Probasis restructuring program which was expected to yield 1.3 billion euros of cost cuts by 2014. Cuts in general overheads were ahead of target but the savings from tighter program management, dubbed "non-quality costs," were slower in coming, he said.
"EBIT (earnings before interest and tax) should be close to -100 million euros, due to additional charges and provisions exceeding 700 million euros booked on the contracts and activities mentioned below," according to a company statement.
The fresh provisions come on top of the 500 million euros of charges booked for 2009, making a total of 1.2 billion euros over the two years.
Thales set a target of 5 percent operating profit margin for 2011, rising to 6 percent in 2012. That compared to a net loss of 128 million euros in 2009, and a sharply lower operating profit of 151 million euros from 877 million euros in the previous year.
From 2005 to 2008, Thales's operating profit margin was between 5 and 7 percent, which included a capitalization of a significant amount of its research and development (R&D) spending, senior vice president Patrice Durand.
The present financial reporting excludes R&D from the profit line.
The 700 million euros of provisions included Thales' work on the Meltem Turkish maritime patrol aircraft program, the flight management system (FMS) for the A400M military airlifter, a ticketing contract for Denmark, and the Lorads III air traffic management contract for Singapore, Thales executive chairman Luc Vigneron told journalists.
The provisions were in part made possible by an agreement in principle with the Turkish government reached in September on the Meltem program, which gave Thales a "clear vision of the remaining costs," Vigneron said.
Thales is also in contract negotiations with Airbus in which the systems company hopes to get extra funding for its work on the flight management system for the A400M, Vigneron said. If Thales succeeds in the commercial negotiations, that might allow a claw back of some of the provisions on the A400M. Thales also supplies avionics and cockpit equipment on the A400M.
Vigneron declined to break down the provisions allotted to each of the programs. "This is commercially sensitive information," he said.
Thales engineers had worked intensively last year to clarify the work that needed to be done to deliver the Airbus A400M FMS to specification, he said.
"These recent developments significantly enhance the visibility on the execution conditions of these contracts and allow to remove the main operational uncertainties and better assess the estimates of their cost at completion and associated risks," the company said.
The detailed program analyses led Thales to take a "more prudent vision than we had before," Vigneron said. The programs were ones which dated before 2009 when Vigneron was made executive chairman of the company.
Thales has cut jobs in Australia, Britain and Spain as part of its reorganization, Vigneron said. The figures on the job losses were undisclosed for the time being, and come on top of an announced plan to cut 1,500 posts in France.
Sales for 2010 were forecast to rise two percent to 13.1 billion euros, due mainly to favorable foreign exchange effects, while orders worth 13.1 billion euros were booked, slightly down from 13.93 billion in 2009. Restructuring charges for 2011 were estimated at 1.5 percent of sales, while those for 2012 were forecast at 1 percent.
Net cash for 2010 stood at 191 million euros, up from a negative figure of 91 million a year ago. Free cash flow totaled 271 million euros in 2010.
Vigneron maintain the target for the Probasis restructuring program which was expected to yield 1.3 billion euros of cost cuts by 2014. Cuts in general overheads were ahead of target but the savings from tighter program management, dubbed "non-quality costs," were slower in coming, he said.
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