Thales expects to record an exceptional charge of approximately €450m ($514m) during the first half of 2026, after the German Ministry of Defence called off the contract for the F126 frigate programme.
The defence prime announced the move as it also disclosed an upgrade to its financial targets for the year, stating the contract’s cancellation is set to have only a negligible effect on future sales and margins.
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The termination of the frigate programme, for which Damen Schelde Naval Shipbuilding (DSNS) was prime contractor and Thales served as a sub-contractor, was communicated by German authorities on 24 June 2026.
The reversal brings an end to Thales’s planned provision of integrated radar, combat management, and fire control systems for all six vessels.
Despite this setback, Thales now aims for higher 2026 order intake and cash conversion, with its book-to-bill ratio target raised to above 1.10 and cash conversion now expected between 100 and 110%.
Projected organic sales growth remains at between 6% and 7%, representing forecast sales of €23.3bn to €23.6bn, and adjusted earnings before interest and taxes (EBIT) margin guidance has been maintained at 12.6% to 12.8%.
Thales stated the €450m charge covers costs previously paid to advance the project and includes a conservative estimate for compensation it expects to receive
Of the total, the net income, group share, is forecast to be affected by about €350m in the company’s first half 2026 figures.
However, free operating cash flow will not be materially impacted, and the expected reduction in sales will be limited to 0.5% in 2026 and less than 1% in subsequent years.
Thales noted that margins for the F126 programme were significantly below its group average, causing the cancellation to have what it described as a marginally positive effect on the group’s profitability.
The company described the financial consequences as “entirely exceptional in view of all the Defence contracts managed by the Group,” citing DSNS’s execution difficulties and deteriorating financing position in 2025 as key contributors to the termination.
The company confirmed its intention to seek compensation, stating, “Thales will claim all its rights in order to obtain compensation for the work carried out as part of this project and for the prejudice suffered as a result of termination of the programme.”
Thales, originally selected by DSNS in November 2020 to supply and integrate core combat and sensor technologies for the F126 class, is currently assessing the broader implications of the decision in consultation with project partners and authorities.
The group maintains that its defence business continues to benefit from strong demand and visibility, with a portfolio positioned to meet evolving operational needs.
