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France's Thales sees robust demand after core profit growth in 2022

Visit at the Thales radar factory in Limours

By Tim Hepher

PARIS (Reuters) -Thales on Wednesday posted a 15.6% rise in 2022 core operating profit to 1.935 billion euros as sales rose by an underlying 5.5% to 17.569 billion euros, led by higher demand for military and jetliner parts despite fractured supply chains.

Europe's largest defence electronics company - which is also a major civil supplier - predicted 2023 sales of 18-18.5 billion euros, representing underlying growth of between 4% and 7%.

Its operating margin rose to a company record of 11.0% from 10.2% the year before, and Thales said it was targeting a further increase to 11.5-11.8% in 2023.

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But shares in the French company fell more than 3% after it also issued free-cashflow guidance for 2023 below forecasts.

With its core defence and aerospace markets growing and companies facing labour pressures worldwide, Chief Executive Patrice Caine set out plans to recruit more than 12,000 people in 2023, on top of 11,500 last year, as it ramps up capacity.

But he sounded a cautious note about stretched global supply chains, telling reporters that the situation was patchy, with concerns growing over the availability of some mechanical parts.

Thales said it would have added 100 million euros in extra defence revenues had it not been for supply chain pressures.

Thales reported 23.551 billion euros of new orders in 2022, up 16% like-for-like. It proposed a 15% hike in the dividend.

Thales, whose wares range from combat radar to in-flight entertainment, forecast broadly higher demand in 2023 and 2024.

Fuelled by rising arms budgets, Thales said it expected sales growth at its largest division, Defence & Security, to speed up, with the operating margin staying at around 13%.

COOL ON EVIDIAN

With air traffic and jetliner production recovering and space agencies upping their spending, Thales said it expected Aerospace sales to post high single-digit growth, up from 2.4% last year, with margins rising to 8.5-9% in 2024 from 5.0%.

At the smallest but most profitable unit, fast-growing Digital Identity & Security, Thales said it expected its 14.9% sales growth to "consolidate" this year and next, with the operating margin dipping slightly to 13.5-14.5% from 14.9%.

At a news conference, Caine reiterated Thales was not interested in the Evidian cybersecurity business after French IT group Atos said it had received an indicative offer from Airbus for its minority stake of 29.9%.

He also deflected questions about the future of plans to modernise the Tiger attack helicopter, saying Thales had not received any official notice that the plan had been shelved.

La Tribune reported in January that France was considering pulling out of Tiger Mark III, just a year after the plan to add 20 years of life to the multi role helicopter was signed by France and Spain. Germany has already boycotted the upgrade.

Manufacturer Airbus told a January defence briefing that the Tiger programme was "not at risk," according to Flight.

(Reporting by Tim Hepher; Editing by Benoit Van Overstraeten, Alexandra Hudson)