By Mauro Orru


Thales said it expects strong sales growth this year after rising military spending drove orders above analysts' expectations to a record high.

The French aerospace-and-defense company on Tuesday posted 18.43 billion euros ($20.01 billion) in sales for 2023, up 4.9% in reported terms and 7.9% organically. Thales had forecast organic sales growth of 5% to 7% for last year.

Sales at Thales's defense and security business grew 7.5% organically to EUR9.80 billion, accounting for the lion's share of revenue, while the group's aerospace business contributed EUR5.21 billion, up almost 12% on year. The digital identity and security business recorded EUR3.35 billion in sales, up 4.1% organically.

This year, Thales is projecting sales between EUR19.7 billion and EUR20.1 billion, up 4% to 6% organically.

The group said its defense and security business should continue to benefit from increases in military budgets amid escalating geopolitical tensions, while organic sales growth in the digital identity and security business is expected to continue in line with last year. However, its aerospace unit is expected to record organic sales growth at a slower rate than in 2023.

Thales said the commercial telecommunications business is grappling with weak demand. The company plans to redeploy some 1,300 jobs from its space joint venture with Italy's Leonardo within the group in 2024 and 2025, but without any forced departures.

Over the same period, the company expects to make 7,000 hires in France to address expected demand in its other businesses.

Thales's operations span space exploration, air traffic management, cybersecurity, air defense systems, drones and missiles production.

The group collaborates with the likes of Airbus and Dassault Aviation to provide equipment to defense ministries around the world. Thales also works in a joint venture with RTX's Raytheon on the North Atlantic Treaty Organization's Air Command and Control System against air and missile threats.

Like its competitors, Thales's shares have surged since Russia's invasion of Ukraine. At Monday's close, shares had risen to EUR138.35 from roughly EUR83.00 in the days prior to Feb. 24, 2022, giving it a current market value of about EUR29.08 billion, according to FactSet.

Thales's order intake last year came to EUR23.13 billion, down 2% in reported terms but up 0.2% organically. Its defense and security business contributed EUR14.14 billion to the total. Meanwhile, the group's order book at end of December rose 11% to EUR45.25 billion.

"Our excellent sales momentum continued in 2023, with the order intake once again exceeding EUR23 billion and the order book reaching an all-time high," said Chief Executive ?Patrice Caine.

Net profit slipped 9% to EUR1.02 billion, while adjusted net profit--on which Thales bases its dividend policy--climbed 14% to EUR1.77 billion. Thales said it would propose a dividend of EUR3.40 a share for 2023, above the EUR2.94 per share it paid for the previous year.

Earnings before interest and taxes--another closely watched measure of profitability--rose to EUR2.13 billion from EUR1.94 billion in 2022, generating a 11.6% margin. Thales had targeted an EBIT margin between 11.5% and 11.8%. This year, the group is expecting an EBIT margin of between 11.7% and 12%.

Free operating cash flow fell to EUR2.03 billion from EUR2.53 billion.

Analysts had forecast sales of EUR18.18 billion, an order intake of EUR20.65 billion, an adjusted net profit of EUR1.68 billion, EBIT of EUR2.11 billion and free operating cash flow of EUR1.62 billion, according to a market consensus provided by the company.

"We are therefore looking ahead to 2024 with optimism," Caine said.


Write to Mauro Orru at mauro.orru@wsj.com


(END) Dow Jones Newswires

03-05-24 0142ET