2006 RESULTS. A very positive year for Thales, with a 16% increase in net income, Group share, to 388 million euros

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1 2006 RESULTS A very positive year for Thales, with a 16% increase in net income, Group share, to 388 million euros Consolidation of organic growth in revenues: - Organic growth in line with targets at 4.3% - Further growth in the base of recurring and diversified orders Marked improvement in financial performance: - Income from operations up 4.5% to 755 million euros and further improvement in operating margin to more than 7.3% compared with 7% in Net income up 16% to 388 million euros from 334 million euros in 2005 Positive net cash position of 90 million euros at end-2006, compared with net debt of 400 million euros at end-2005: - Good operating cash flows contributed to the return to a net cash position at end Proposed dividend up 5% to 0.87 euros per share compared with 0.83 euros for 2005 Key figures Order intake 12,781 10,818 Order book at 31 December 20,223 20,676 Revenues 10,263 10,264 Income from operations as % of revenues 7.0% 7.3% Net income, Group share Operating cash flows, net Net debt / (Net cash position) at 31 December 398 (91) Diluted earnings per share (in euros) Dividend per share (in euros) Revenues In 2006, Thales Group revenues totalled 10,264 million euros, compared with 10,263 million euros in On a like-for-like basis, revenues grew by 4.3%, a slightly higher increase than the organic growth of 3.8% recorded in Exchange rate fluctuations reduced revenues by 73 million euros. Changes in the scope of consolidation further to the divestment of non-core businesses resulted in a net reduction in revenues of 345 million euros. The main businesses divested were Thales Broadcast & Multimedia and the High Tech Optics operations, which were deconsolidated at end-2005, and the GPS navigation receiver business, which was deconsolidated from 30 June With the exception of the Naval division, where revenues were impacted by the completion of the Sawari 2 contract, all Thales divisions recorded an increase in revenues, with double-digit growth (+13% and +10% respectively) from the Security and Land & Joint Systems divisions

2 The Aerospace division recorded +6% organic growth, reflecting a strong performance by the division's civil businesses, which increased revenues by more than 20% over the year, particularly for in-flight entertainment systems. In military markets, 2006 revenues fell slightly overall, with increased sales of avionics systems and higher billings on the Watchkeeper programme in the United Kingdom only partly offsetting the reduction in revenues on a number of major export programmes currently being completed. On a like-for-like basis, revenues of the Air Systems division remained stable compared with the previous year, with only a moderate impact on revenues from new orders for surface radars by end The Land & Joint Systems division recorded a 10% increase in revenues in 2006, with the sharpest increases in the United States (new complement of tactical communications equipment for the US military) and France (deployment of major new communications networks). As expected, Naval division revenues fell. The overall reduction in revenues was limited (10%), however, as the division commenced billings on several major programmes awarded in The Security division recorded organic growth of +13%, driven by a strong performance in security systems with the communication infrastructure contract for Etisalat in Saudi Arabia, strong sales in secure transactions, and growing demand for components as the satellite market returned to an upcycle. The Services division recorded 5% revenue growth, with a strong increase in telecom services for the rail transport sector in the United Kingdom from the second quarter, sustained growth in IT services and more moderate growth in training and simulation. Total order intake, at 10,818 million euros, was 15% lower (13% lower on a like-for-like basis) than the exceptionally high order intake recorded in 2005 (12,781 million euros), which included 3,260 million euros for three contracts each worth more than 500 million euros. However, Thales recorded sustained growth (+11%) in orders worth 100 million euros or less, and posted an overall book to bill ratio of 1.05 for Order intake by the Aerospace and Naval divisions fell in comparison with 2005, when several major contracts were awarded. By contrast, the other four divisions increased order intake by close to 20% with an equivalent scope of consolidation. At 31 December 2006, the order book stood at 20,676 million euros, the highest level ever recorded, and was 2% higher than at end-2005 (20,223 million euros)

3 Results Marked increase in income from operations, which rose by 4.5% to 755 million euros, further improving operating margin to more than 7.3% of consolidated revenues compared with 7.0% in Income from operations improved despite the negative impact of exchange rate fluctuations, estimated at 46 million euros, primarily connected to the US dollar. With constant exchange rates, income from operations increased by 11%, reflecting both the first results of restructuring measures implemented under the Optimum plan and the positive effects of the portfolio refocusing policy that has been ongoing for several years. The Aerospace division was the most affected by exchange rate fluctuations. This division recorded a slight decrease in income from operations (-4%), yet posted operating margin of around 8%. The Air Systems division increased income from operations by 13% and recorded an operating margin of 8.7% compared with 7.7% in The Land & Joint Systems division posted a very sharp increase in income from operations (+45%) with operating margin improving from 5.9% of revenues in 2005 to 7.7% in As expected, income from the Naval division fell by 33% with the completion of the Sawari 2 contract. The division nonetheless achieved an operating margin of 7.5% compared with 10.1% in 2005 due to improved performance by its services and submarine electronics businesses. The Security division's income from operations rose by 22% despite the operating loss of 17 million euros booked in the first half of 2006 for the navigation businesses divested in the summer. This division achieved an operating margin of 5.6% compared with 4.7% in Excluding the impact of the divested navigation business, operating margin stood at 7.8%. The Services division consolidated its operating margin at 6.7% (compared with 6.8% in 2005). Income from operations remained stable, but rose by 5% when the impact of exchange rate fluctuations is stripped out. Income of operating activities rose by 5% to 576 million euros, compared with 549 million euros in This figure includes 193 million euros in restructuring costs for the Optimum plan announced in March Provisions of around 400 million euros were booked in 2005 and 2006 for this exceptional plan, which aims to generate approximately 300 million euros in full-year savings by Income of operating activities also includes 23 million euros in proceeds from disposals, compared with 158 million euros in proceeds in Financial result improved by 20 million euros to (73) million euros thanks to lower average debt over the year. Other components of the pension charge fell to (19) million euros compared with (34) million euros in Thales showed a net profit, "Group share" of 388 million euros for the 2006 financial year, an increase of 16% over the previous year s figure of 334 million euros, after income tax expense of 100 million euros (87 million euros in 2005)

4 Cash flows With a further increase in operating cash flows, to 946 million euros from 901 million euros in 2005, and a moderate increase in working capital requirements of 24 million euros, operating free cash flow after funding the year's net capital expenditure stood at 381 million euros compared with 258 million euros en As a result of this strongly positive figure, supplemented by net proceeds from disposals of 289 million euros, and after payment of dividends in respect of 2005, Thales ended 2006 with a net cash resource of 530 million euros. Thales thus cancelled out its net financial indebtedness and ended 2006 with a positive net cash position of 91 million euros on the balance sheet. This situation is the culmination of the Group's sustained effort to re-establish its financial room for manœuvre, and places Thales in a strong position to pursue external growth operations in Recent events Finalisation on 5 January of the first phase of the agreement with Alcatel-Lucent relative to the transfer to Thales of certain of the telecom group's businesses The Extraordinary General Meeting of Thales shareholders on 5 January approved the first phase in the transfer of Alcatel-Lucent businesses to Thales under the terms of the cooperation agreement and master agreement signed on 1 December The companies agreed to contribute to Thales all of Alcatel-Lucent's businesses in the field of signalling systems for rail transport and urban networks, and integrated systems for critical infrastructures. In return for the businesses contributed, 25 million new Thales shares were issued at 40 euros each in favour of Alcatel-Lucent and a cash payment of 40 million euros has been made. Through this operation, Alcatel-Lucent increased its interest in Thales from 9.46% to 20.95% while the French State's interest fell from 31.26% to 27.29%. A new shareholders' agreement has been signed between Alcatel-Lucent and the French State. This agreement is valid for a period of five years and is renewable. It replaces the previous shareholders' agreements signed in June 1998 by Alcatel, Groupe Industriel Marcel Dassault (GIMD) and the French State. The master agreement also provides for the subsequent sale to Thales of Alcatel-Lucent's holdings in two space companies 67% of the satellite manufacturer Alcatel Alenia Space and 33% of the satellite operator Telespazio Holding, both jointly owned with Finmeccanica for 670 million euros in cash. This second phase is contingent upon completion of the investigation launched by the European Commission on 28 November 2006 with respect to EU competition regulations, and upon approval of the operation by the Commission, which is expected in the second quarter of According to data published by Alcatel-Lucent in its 2006 consolidated financial statements, total revenues of the businesses contributed to Thales on 5 January and those that are expected to be approved for transfer in the second quarter of 2007 (proportional to the holdings to be sold to Thales) - 4 -

5 stood at 2,099 million euros in 2006, with income from operations of 105 million euros. The figure for income from operations takes into account the payment of corporate fees to Alcatel-Lucent in line with the telecom group's policy. Convergence between the naval businesses of Thales and DCN On 30 January 2007, the French State, DCN and Thales announced a final agreement on closer ties between DCN and Thales's naval businesses in France. Under the agreement, DCN will acquire all of Thales's naval businesses in France (with the exception of equipment for naval programmes) and will become the sole shareholder in the joint subsidiaries set up by the two companies (the largest being Armaris and MOPA2). At the same time, Thales will acquire 25% of DCN's share capital, with the French State retaining 75%. Thales will also pay a net cash adjustment in the order of 100 million euros. The agreement also includes provisions for additional payments contingent upon certain contract awards and levels of operational performance. Thales will have an option to increase its interest to 35% after two years. Thales's interest in DCN will be carried under the equity method in the Group's financial statements. This operation is expected to be completed by the end of the first quarter of 2007, pending clearance by the European Commission, and contingent upon approval by the French Commission des Participations et des Transferts (holdings and transfers committee). The Thales businesses transferred to DCN generated revenues of 397 million euros in 2006 and income from operations of 37 million euros. Reorganisation of businesses and formation of a new Security Solutions & Services division The Security Solutions & Services division was formed in January 2007 by combining the transport and security businesses contributed to Thales by Alcatel-Lucent at the beginning of the year with two Thales divisions the Security division (excluding its components and devices business) and the Services division both of which closely complement the contributed businesses. With close to 20,000 employees in 35 countries, this division represents total revenues of approximately 3.2 billion euros (based on the 2006 revenues of the entities concerned), making Thales one of the world leaders in safety and security solutions for critical infrastructure, particularly in the ground transportation sector

6 Proposed dividend In view of the strong results for 2006, confirmation of the outlook for business growth and further improvement in financial performance, the expansion of the scope of business to be finalised in 2007, and the Group's favourable financial position, the Board of Directors will propose that the Annual General Meeting of 16 May 2007 approve a dividend of 0.87 euros per share, an increase of 5% compared to the previous year. If approved, the dividend will be payable on 31 May Outlook for 2007 The major agreements concluded with Alcatel-Lucent on 1 December 2006, and with the French State and DCN on 30 January 2007, should be implemented in 2007, once the remaining contingencies have been lifted. As a result, Thales expects to generate consolidated revenues of more than 12 billion euros in This figure includes the impact of changes in the scope of consolidation, although these changes are only expected to become effective progressively over the course of the first half of the year, and a further increase in organic growth. Operating margin should continue to rise, exceeding 7.5% of revenues. 1 In 2008, the first full year reflecting these changes in the scope of consolidation, the Group expects to generate consolidated revenues of approximately 13 billion euros and is targeting an operating margin of approximately 8% of revenues (1). These forecasts and targets do not take into account the contribution of Thales's 25% future interest in DCN, which will be carried under the equity method in the consolidated financial statements. Including this contribution (25% of DCN revenues), Thales would generate close to 13 billion euros in revenues in 2007 and to 14 billion euros in 2008 (1). Furthermore, in both 2007 and 2008, restructuring costs should be significantly lower than those recorded for the last two financial years, representing between 0.5% and 0.75% of revenues. This outlook is based on the assumption that the overall economic context will not be significantly different from the economic context today. Press contact: Markus Leutert Tel : +33 (0) Markus.leutert@thalesgroup.com 1 Before the impact of purchase accounting on assets transferred by Alcatel-Lucent - 6 -

7 APPENDIX Summarised profit and loss account variation Consolidated revenues 10,263 10, Income from operations Restructuring costs (213) (193) + 20 Gain (loss) on disposals & other results Income of operating activities Financial results (93) (73) + 20 Other components of pension charge (34) (19) + 15 Income tax (87) (101) - 14 Equity in income of unconsolidated affiliates Net result minority interests (9) (3) - 6 Net income, «Group share» Summarised statement of cash flows variation Operating cash flows before working capital change Change in working capital requirements & reserves (134) (24) Payment of pension benefits (defined benefit plans) (111) (140) - 29 Income tax (paid) received (46) (28) + 18 Net cash flows from operating activities Net operating investments (352) (373) - 21 Free operating cash flows Net proceeds from disposals Dividends paid (134) (140) - 6 Net Cash flows for the year Consolidated revenues by division Total change Organic change Aerospace 2,335 2, % + 6% Air Systems 1,596 1,589-0% + 0% Land & Joint Systems 2,178 2, % + 10% Naval 1,484 1,330-10% - 10% Security 1,186 1, % + 13% Services 1,183 1, % + 5% Other & divested businesses nm nm Consolidated revenues 10,263 10,264 0% + 4% - 7 -

8 Information by division Aerospace Order backlog at year-end 5,173 5,053 New orders 3,164 2,369 Book to bill Consolidated revenues 2,335 2,474 Income from operations in % of revenues 9.0 % 8.1% Continuation of the Rafale programme in France, including the "roadmap" order for the active phased array radar Mirage F1 upgrade in Morocco Avionics for the British Army's Future Lynx helicopter IFE orders for several airlines, particularly in Asia Air Systems Order backlog at year-end 3,978 3,824 New orders 1,202 1,450 Book to bill Consolidated revenues 1,596 1,589 Income from operations in % of revenues 7.7 % 8.7% Shahine and Crotale weapon systems renovation for Saudi Arabia New order to upgrade air traffic control radars in Brazil Several orders for air traffic management systems, in Asia, Europe and Latin America - 8 -

9 Information by division Land & Joint Systems Order backlog at year-end 3,544 3,973 New orders 2,364 2,870 Book to bill 1,1 1,2 Consolidated revenues 2,78 2,401 Income from operations in % of revenues 5.9 % 7.7% Secure communication network for NATO forces (Satcom & CIS orders) Equipment for the future tactical network Falcon of the British army Equipment for MBITR tactical radios in the United States Naval Order backlog at year-end 4,796 4,715 New orders 3,237 1,254 Book to bill Consolidated revenues 1,484 1,330 Income from operations in % of revenues 10.1% 7.5% Contract with Spanish shipbuilder Navantia to equip several corvettes and offshore patrol vessels Naval systems for patrol ship of the Danish Royal Navy Definition study for the United Kingdom's CVF aircraft carrier programme - 9 -

10 Information by division Security Order backlog at year-end 874 1,178 New orders 1,421 1,525 Book to bill Consolidated revenues 1,186 1,205 Income from operations in % of revenues 4.7 % 5.6% Contract from Etisalat to deploy a secure GSM network in Saudi Arabia Integrated secure e-ticketing system for Greater Toronto Security systems for a Middle-East country international airport Services Order backlog at year-end 1,845 1,919 New orders 1,101 1,304 Book to bill Consolidated revenues 1,183 1,214 Income from operations in % of revenues 6.8 % 6.7% Telecom services for Network Rail in the United Kingdom Tornado training and simulation in Saudi Arabia IT outsourcing contract with UK rail freight operator EWS Several orders for commercial flight simulators