France's Thales sees rebound in 2021 after hitting cautious 2019 target

France's Thales on Wednesday predicted a return to tangible top-line growth from next year as 2019 revenues and profits crept up in line with expectations, propped up by rising defence and security demand.

Europe's largest defence electronics manufacturer said demand for fighter and warship systems and cybersecurity compensated for weakness in its space activities, lifting revenues 0.8% on a like-for-like basis to 18.401 billion euros (15.40 billion pounds).

Operating profit rose 4% on a like-for-like basis to 2.008 billion euros, for a margin of 10.9%, as gains in defence and security masked softer performances in aerospace and transport.

The same pattern emerged in new orders which rose by an underlying 4% to 19.142 billion euros, marking a ratio of orders to sales - or book-to-bill ratio - just above 1.

Analysts were on average expecting operating income of 1.954 billion euros on revenues of 18.394 billion, according to Refinitiv data.

TANGIBLE GROWTH FOR 2021

After an October sales warning, Thales had predicted underlying revenues would grow by around 1% in 2019 due partly to slow sales of commercial satellites and delays with an Australian military project.

The French company on Wednesday projected 2020 sales of 19-19.5 billion euros, followed by a sharper pickup in 2021.

"2021 will be a year of measurable, tangible growth," Chief Executive Patrice Caine told reporters.

Thales, whose businesses involve securing critical infrastructure from air traffic control to borders, joined a chorus of industry concerns over less visible barriers to movement from recent health worries and trade friction.

Although its 2020 forecasts are based on a "limited impact" of coronavirus, it noted global uncertainty over the epidemic's impact on supply chains as well as over U.S. aerospace tariffs, and the timing of the grounded Boeing 737 MAX's return to use.

Also included in its 2020 goals, Thales predicted another year of orders above sales and an implied increase in the operating margin to a range of 10.8% to 11.0%.

That compares with a proforma margin of 10.6% for the whole of 2019, reflecting what Thales would have looked like if recently acquired chipmaker Gemalto had been included for the whole of last year, Chief Finance Officer Pascal Bouchiat said.

Between 2019 and 2023, Thales targeted average underlying sales growth of 3-5% and an operating margin of 11.5-12% by 2023 due in part due to synergies linked to the purchase last April of Gemalto to forge a "digital identity and security" segment.

By Tim Hepher