Chief executive signals intent to embark on acquisition phase as group reduces debt

French defence electronics group Thales is signalling a return to the acquisition firepower it enjoyed in the late 1990s after reducing its once-massive debts and booking €12 billion ($14.5 billion) in new orders in 2005.

Thales chief executive Denis Ranque – principal architect of Thomson-CSF’s 1999 acquisition of the UK’s Racal Electronics, which created Europe’s third major defence player behind BAE Systems and EADS – said at his traditional New Year address that the group was embarking on a campaign to boost external growth.

“Efforts to refocus the business strategically as well as the good operational cashflow combined to make 2005 another year of debt reduction,” said Ranque, adding: “Thales has recovered the financial room for manoeuvre to enter an acquisition phase.”

Thales’ borrowings appeared worryingly large in 2002 after it added €332 million in net debt in the first half of the year, including €110 million from acquisitions, bringing total net debt to €1.8 billion. Thales managed to reduce net debt by €841 million in 2004 and its 2005 results are due to be reported in March. Delivering an upbeat review of 2005, a year when speculation that Franco-German aerospace rival EADS was poised to mount a long-anticipated takeover bid ran high, Ranque said Thales had mounted its “all-round resistance on several fronts”.

Pressure on Thales to become part of a larger European defence powerhouse has principally come from the French government, which would prefer to see it becoming part of a majority French-controlled EADS. The possibility of a Franco-Italian marriage with Finmeccanica has also been raised, however.

Ranque added that he had been disappointed that Thales had failed in its bid for German marine defence group Atlas Elektronik, which was acquired late last year by Germany’s ThyssenKrupp and EADS.

Thales would, however, spend 2006 targeting acquisitions in an effort to reinforce its existing presence in the UK and the USA in land and security systems, he said, adding that the company would also be an active participant in any future defence industry privatisations in India, Russia and Turkey.

Ranque said that from a sectoral point of view, the business’s priority after Thales’ naval operations – it last month agreed to inject its naval assets into the French state-owned shipyard (DCN) in return for a 25% stake – were land-based weapons, signalled by its recent acquisition of EADS’s 50% stake in their joint venture TDA Armements, followed by software-critical security systems.

AIMEE TURNER / PARIS

Source: Flight International