€6.9bn, 4% increase at constant scope

Neuilly-sur-Seine Cedex, France – Thales Group consolidated revenues for the first nine months of 2006 totalled €6,883m, an increase of 1% compared to revenues for the same period in the previous year. At constant scope, consolidated revenues increased by 4% (+ 2% at end-June 2006) due to faster growth observed in Q3 (+ 8% at constant scope in Q3).

Changes in the scope of consolidation resulted in a net reduction in revenues of €201m. This was mainly due to the deconsolidation as of 1st January 2006 of Thales Broadcast & Multimedia and High Tech Optics, which were divested at end-2005, and to the deconsolidation as of 1st July 2006 of Navigation activities divested in the summer. These divestments have been partly offset by the consolidation of Diehl Luftfahrt Elektronik, in which Thales acquired 49% alongside its German partner Diehl Avionik, and by the full consolidation of TDA Armements which was 50%-held before September 2005. Variations in revenues have also been impacted, although more moderately, by exchange rate fluctuations, in particular the evolution of the dollar vis-à-vis the euro. These fluctuations had a negative impact of €31m concerning the civil avionics business.

Consolidated revenues by division
With the exception of the Naval division, in which revenues decreased, as expected, by 21% at constant scope both at end-September and at end-June, as a result of the completion of the Sawari 2 frigate programme for Saudi Arabia, Thales’s five other divisions increased their revenues at a higher pace in Q3 than in the first half-year: Overall these five divisions posted together a growth in revenues of more than 8% compared to 6% at 30 June 2006.

Revenues from the Aerospace division increased at constant scope by 11% at 30 September 2006 and by 14% in Q3 alone. The division continues to benefit from the strength of its civil businesses, which increased by 18% in Q3, mainly due to the In-flight entertainment and support activities and also to the growth of the avionics activity for regional aircraft. In the military domain, the situation is mixed: the division recorded higher sales in Q3, mostly due to the first billings of the Watchkeeper UK tactical surveillance programme that partly offset the impact of the completion in French units of several export military aircraft programmes.

Sales from the Air Systems division (-5% at constant perimeter in the first nine months) remained practically stable in Q3, at constant scope, after a decrease by 8% in the first half-year. This more favourable trend stems chiefly from higher billings in the weapon systems activity (FSAF Franco-Italian cooperation programme, KSAM contract for South Korea and VT1 for France and Finland) and from growth in the support business. Air defence activities remained stable in the first nine months, in particular those run by the transatlantic JV ThalesRaytheonSystems. Sales in the Air Traffic Management business which had been stable in the first half-year posted a slight decrease in Q3 2006.

The highest growth rate of sales in Q3 was achieved by the Land & Joint Systems division: +23% against +14% in the first half-year resulting in + 17% over the first nine months. This trend, subsequent to the strong growth in order intake recorded last year, is sustained by sales of tactical radios from the US subsidiary to the US Army, by billings on several French programmes and by the vitality in several multidomestic markets, most notably in Australia and South Africa.

Growth in revenues from the Security division improved slightly at end-September (+10%) compared to end-June (+9%). This is due to significantly higher billings in the components business and to more dynamic growth in the secure payment business and in the ticketing activity where new programmes are underway in Denmark, Taiwan and Venezuela. Excluding the Navigation activities which were disposed of, growth in revenues in the first nine months remains at around 10%.
In the Services division, revenues at constant perimeter have grown by 14% in Q3 and by 7% over the first nine months (compared to 3% at end-June 2006). The most sustained growth rates relate to the simulation activity for civil aerospace clients and the facility management business, especially in France and Germany. Growth resumed in the telecom services business in the UK, with the first phase of a new contract for London Underground.

Geographical breakdown of revenues
The proportion of revenues billed in Europe grew slightly at 63% with higher revenues in the United Kingdom (Watchkeeper programme, missile electronics, telecom services for urban networks,…) and in France, in particular within the Land & Joint Systems division (communication and command networks) and the Services division (Simulation and facility management).

Revenues billed in North America continued to rise, particularly in military communications, in components for space applications and in civil aerospace. The decrease in revenues billed to the Near & Middle East countries stems chiefly from the completion of the Sawari 2 programme in the naval domain. The decrease observed in the Asia-Pacific region mainly reflects the phasing in the FFG frigate programme for Australia.

Annex Q3 Revenues