France's Thales keeps 2021 goals after contract blow

French defence group Thales reassured investors on Thursday that its 2021 financial goals remained intact despite the abrupt reversal of a major French arms deal with Australia. Thales has a 35% stake in French military shipyard Naval Group which was due to supply submarines to Australia in a $40 billion deal jettisoned in favour of a new cooperation pact between the United States, Britain and Australia.

French defence group Thales reassured investors on Thursday that its 2021 financial goals remained intact despite the abrupt reversal of a major French arms deal with Australia.

Thales has a 35% stake in French military shipyard Naval Group which was due to supply submarines to Australia in a $40 billion deal jettisoned in favor of a new cooperation pact between the United States, Britain, and Australia. "Thales does not expect any material impact of this announcement on the group's 2021 EBIT (earnings before interest and tax) through Naval Group's contribution," it said.

Thales, which makes acoustic sonar for warships, was also due to supply sub-systems to Lockheed Martin as part of the Australian contract, independently of its stake in DCNS. But Thales said on Thursday the corresponding order book so far was just 30 million euros, which was also not material.

Defense contracts typically generate revenue spread out over a number of years. Thales confirmed 2021 targets including a book-to-bill ratio above 1, sales in the range of 15.8-16.3 billion euros, and an operating margin of 9.8-10.3%. It also reaffirmed its medium-term outlook including a 12% operating margin.

Shares in Europe's largest defense electronics supplier rose 1.3% after it maintained forecasts, slightly ahead of the rest of the market. The United States, Britain and Australia said they would establish a security partnership for the Indo-Pacific that would now involve Australia acquiring U.S. nuclear-powered submarines, resulting in the scrapping of the French deal.

France had lobbied intensively to win one of the world's most lucrative defence contracts against competition from Japan and Germany in 2016, with Thales at the time hailing a "great day" for France's defense industry. After winning the deal, DCNS said it would create around 4,000 French jobs, benefiting shipyards and industrial sites in Lorient, Brest, Nantes, and Cherbourg.