Thales S.A.

Good morning ladies and gentlemen and thank you for standing by. Welcome to today's TELUS Q1 2023 results conference call. There will be a presentation followed by a question and answer session at which time if you wish to ask a question you will need to press star 1 1 on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today. I would now like to hand the conference over to Mr Bertrand Delcaire, VIP, Head of Investor Relations. Please go ahead, sir.

Yes, hello. Good morning. Welcome and thank you for joining us for the presentation of Thales' Q1 2023 order intake and sale. I am Bertrand Delcaire, the Head of Investor Relations at Thales. With me today is Pascal Bouchard, our CFO. As usual, this presentation is audio webcast live and on our website at thalesgroup.com. where the slides and the press release are also available for download. A replay will be available soon after the end of the event. With that, I would like to turn over the call to Pascal Boucher.

Thank you, thank you, Bertrand, and good morning, everyone. Before moving on to the numbers, as usual, I wanted to highlight a few items. I'm now on slide two. First, I wanted to point out that While we are not yet back at the COVID-19 level, our aero aftermarket and biometric business continue to be boosted by the ongoing air traffic recovery, which clearly shows in our Q1 numbers. The second important matter I wanted to stress is the better visibility that we now have in regard to the new LPM, the Military Programming Law in France. The LPM gives direction in terms of defense spending in France between 2024 and 2030, which offers seven years of visibility for a country that represents 40% of our defense sales. and is our lead customer and source of innovation funding. It draws a growth acceleration moving from 5% growth per year in recent years to 6% expected from 2023 to 2027 before reaching 7% per year from 2027 to 2030. In addition, it is striking to see that it plans significant investments in new domains of confrontation, such as cyberspace, space, or drones, in which we have strong positions. Obviously, this is very positive for Thales, and it confirms the trajectory Patrice Kane highlighted in March. when he said that we expected that growth for our descent segments would move up from mid-single digit in 2023 to mid-single digit plus in 2024. Looking internally, we continue to implement our EST roadmap with two significant milestones to share with you. We received the SBTI certification in March, and it's a great validation of our strong commitment in regard to CO2 emission reduction. We are one of the very first large aerospace and defense companies to receive it. Second important topic, anti-bribery remains paramount across our different markets and geographies. Hence, the importance to continue to expand the certifications to ISO 37001 standards. The certification now covers five countries, which represent almost three quarters of our state. France, UK, Netherlands, USA, and Canada. So let's now have a look at our Q1 headline numbers. I'm now on slide three. New orders amounted to 3.4 billion euros, up 13% on a reported basis and 14% on an organic basis. So a strong start of the year in terms of commercial activity, which I will comment in further detail in the next slide. Sales came to 4 billion euros, up a solid 9.4% on an organic basis, above full year guidance. Despite the negative scope effect, these Q1 sales represent the new record high for our first quarter. Looking to details at our order intake, I'm now on slide four. As you can see, the strong organic growth by 14% is fueled by each category of orders. three large orders above 100 million euros, for a total of 401 million euros, versus two large orders in June 2022. Two of these three large contracts were related to states in observation and exploration, and one contract was for an undisclosed large military customer. Orders between 10 to 100 million euros were up by 8%. And finally, orders below 10 million euros progressing by 17%, driven by the ongoing rebound of our civil iron biometrics businesses, especially in aftermarket and passport production. Turning now to slide five, looking at sales goals. First, award and currency and scope. The currency impact was not material this quarter, minus 16 million. The scope impact was most significant, resulting from the acquisition and transfer activity carried out in 2020. The biggest factor was a transfer of our IoT connectivity module business to Sellit, which drives a negative 97 million euro impact in Q1. This impact is expected to be at around 360 million euro over the full year. On the acquisition side, we add the Bolton transactions we closed last year. REIT in aero, AAC, SEC21 and Exelium in the defense and security segments. And also one welcome in DIS. All of that for a total of approximately €60 million over Q1 and an estimated €350 million over the full year. So as you can see on the right, a negative impact of 39 million euros in Q1. And you should expect a similar type of impact going forward in Q2. And then clearly more negative in Q3 and Q4 as acquisitions were closed in Q2 and Q3 last year. Over the full year, the overall negative impact should be around 250 million euros, and this does not include the expected disposal of our aero-electrical systems. The organic growth reached 9.4% ahead of the full year guidance. It was driven by the ongoing performance of the IS and by the SMS business and was supported by a steady, strong quarter in business. And I will comment in greater detail the dynamics by business in the coming slides. Turning to the geographical perspective, a strong quarter across the board, with most geographies strongly up. The only region squarely negative was Australia, and it didn't come as a surprise as the country stayed in the middle of the production of the Hawkeye vehicle. So overall, a strong first quarter in terms of sales. Now, looking briefly at each segment one by one. I'm now on slide six for aerospace. Borders were slightly down by 3% organically, and despite two positive news. First, the two contracts above 100 million euros in space, as I mentioned earlier, and also the ongoing rebound of small orders in civil aero. The reason behind the slightly negative organic variations is that in Q1 2022, the total value of the two large contracts was greater than the total value of the two large contracts booked in Q1 this year. Sales were strongly up. 10.2% organically, driven by the strong growth in aeronautics, including 45% in civilian aero aftermarket. The space business remains flat, as forecasted, versus a strong Q1 in 2022. Now, turning to slide seven, looking at the descent and security segments. As you can see, another strong quarter in terms of order intake, up by 31% organically with one contract above the 100 million rule, versus 921, 2020. And also, small orders nicely up IC delegates. Organic sales growth was up by 5.4% organically continuing on a positive trend across most business lines, from air defense to secure communications or marine mission systems. One point that I wanted to highlight is that despite these good reasons, it's important to keep in mind that component shortages and supply chain tensions are still a reality. Hence, nice to see and to confirm that the teams have been able to manage to go mid single digits despite this ongoing headwind. It's obviously a positive sign in regard to our ability to deliver the mid single digits organic growth we committed to for the defense business for the full year of 2023. Now turning to slide eight. Looking at our last segment, digital identity and security. At 779 million euros, sales were up by 20.1% on an ordinary basis. This strong performance was mostly due to an ongoing growth in passport demand within our biometric business above expectations. However, forecasting a low type of growth for the rest of the year, this is what we need to have in mind. And also, a new strong quarter for smart card businesses still benefiting from pricing effects on top of a small volume growth. Again, let me remind you that these smart card businesses are a bit difficult to forecast over multiple quarters as they are short cycles. We expect growth to soften in the coming quarters and pricing in this market will even turn negative over the second half of 2023. So let me finish with slide nine and a reminder of our financial objectives. Q1 represents the steady start of the year, which allows us to confirm the financial objectives for 2023. So this concludes my presentation. Many thanks for your attention, and I will now be pleased to take your questions.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star 1 1 on your telephone and wait for your name to be announced.

We will now take the first question.

One moment please.

It comes from the line of Olivier Brochet from Redburn. Please go ahead.

Yes, thank you very much. Good morning, Pascal. Good morning, Bertrand. I will have three small ones, please. First of all, in DIS, could you maybe tell us, when you mentioned price negative in H2, Is it based on the orders that you've received or is it the planning assumptions that you've made? Second question on the aircraft carrier, the PANG. There are press comments about the industry having to put forward some funding to help the development and then refund it later. Will that impact you and then to what scale and when? Are you involved in any artificial intelligence development outside of defense or government projects?

Thank you. Okay. Good morning, Olivier. Thank you for your three questions. First, on the IS. No, it's not based on orders that we already received. It's more a global command. I mean to say today probably a bit more on the safe side, considering that today we might be at a peak in terms of pricing, considering the increase in selling prices that we managed to pass to our clients throughout 2022. And it's true that today, I mean, we compare Q1 2023, which takes advantage of the continuous increase in selling prices along 2022 versus the Q1 2022 which by definition was not impacted by the 2022 increase in pricing. Now as we see the tension in particular on electronic components in our DIS business to be progressively fixed and also in probably reminding you that at our last call we mentioned that we are starting to see a bit of softness in terms of demand in the telco sectors following the drop in the sales of electronic goods like smartphones. It's more my comment is more I mean to convey a message of of care, of cautiousness. Yes, of caution, yes. Relating to what might happen in the second half of 2023, where, of course, we will compare ourselves again, of course, not demanding reference rates. Aircraft carrier in France, You probably refer to some requests from the French MOV, in particular in the new LPM, where the Minister of Defense seems to be willing to ask some companies, and in particular Naval Group, to fund part of this development. It's not what we got from the French M.O.D. at Thales, but of course, I mean, you are quite vigilant in this matter. Your last comment was about, question was about artificial intelligence development. At Thales, I tend to believe that it's really across the border. I mean, in all of our businesses, whether it is the defense, whether it's the digital identity security or, you know, I mean, while working on various projects on artificial intelligence. Maybe I could comment on one obvious example, which is basically how to make WADA more intelligent. You know, I mean, WADA has to sort out, I mean, very complex situations. when the tracks are in the airspace and it is extremely useful to develop artificial intelligence for others to be self-learning This is one example, but I could mention a number of examples where we are developing artificial intelligence. Yes, artificial intelligence is part of the differentiation that Thales will provide in most of our systems in the next few years.

Thank you, Pascal. Thank you, Olivier.

Thank you.

We will now take the next question. It comes from the line of Victor Allard from Goldman Sachs. Please ask your question.

Good morning, Pascal. Good morning, Bertrand. Thank you for taking my question. I have three quick ones as well, if possible. The first one is simply on the unchanged guidance. That is a solid start to the year, and if I'm not wrong, the unchanged sales guidance implies a deterioration for the growth rate for the rest of the year. So I was wondering if you could help us think about the coming quarters and possibly share with us what would make you more confident as to raise guidance. Is that mainly DIS? And then if I continue with the two next questions, the other one would be on aerospace. I was wondering if you could split out the growth that you have seen in civil by comparing OE versus aftermarket. The quarter seems to have been very strong in these areas and it would be helpful to hear how the trajectory has been so far this year compared to your initial assumption and how you think about the coming quarters in Seville. And finally, a quick one on the transport deal, just wondering if you could share an update on the deal and whether the H2 timeline for closing still looks achievable.

Thank you. Good morning, Victor. So quite detailed questions, at least on your first one. So on the first one. So yes, unchanged guidance for the full year. Of course, I mean the Q1 figure in terms of growth gives us a good comfort on our ability to deliver on the 4 to 7% guidance in terms of organic growth. Now, of course, by definition, you are right, starting with 9.4% and confirming the 4 to 7%, of course, I mean a deterioration. Now, I'm coming back on my explanation about, in particular, DIS. You have seen that our DIS business in QM has been especially strong. And as I explained, of course, the more we move forward, the more we compare our performance against a more demanding reference base. So we need to be a bit vigilant in this matter. Another element is that, as I mentioned, the supply chain challenge is not fixed. And we keep working very hard on this matter and still affecting some of our businesses, defense and security, but also space in particular. We are also quite vigilant on the civil I.O. even though the situation is important. But still, there are still quite significant challenges in terms of supply chain. So this is basically our global message of a strong start, but also still being a bit cautious relating to the full year. Now, of course, we'll get back to you as we will release our Q2 figures. And we'll see whether or not we'll adjust our sales goals for the full year. But at this point, it's probably a bit too early. Now, I mean, overall, your questions about IRO, I mean, the civil IRO in particular, I What I can share with you is that overall our aero business, but involving both including both civil and defense, has been quite strong in Q1. Organ growth around 20%, which is overall, I mean, stronger than expected. Let's be clear about that. And in particular, quite strong in our aftermarket that grew around 45% in Q1 2023 against Q1 2022. So quite a strong growth in this sector. Transport disposal, I mean, things are progressing as expected. Hitachi is working quite closely with the antitrust and the appropriate level of remedies. All of that really confirming the transactions that will take place in the second half of 2022.

Thank you very much for the detail. Thank you Victor.

Thank you. We will now take the next question. It comes from the line of from . Please go ahead. Your line is open.

Yes, good morning and thank you for taking my question. My first question concerns inflationary effect in the first half. You mentioned the impact of pricing on DIS in particular and I suppose some of the slowdown has to come from the annualization of this price hike made last year. So could you give us some more granularity on the kind of pricing effect we see at DIS but also in the other division and also how this impacts the operational leverage given the fact that it must also reflect some cost inflation as well. So that would be extremely useful. The second question is on M&A. You want to do some more M&A in 2023. What is the progress on that pipeline and do you see multiples coming down? given the recent market jitters, or are we still seeing some very punchy multiples for some of the targets you're looking at? That would be the main question I have. Thank you.

Good morning, Henrik. Thank you for your two questions. So first on inflation. that may be worth coming back on the situation of each of our three key reporting segments. So you mentioned the IS. So today, Overall, I think it was clear in my comments the fact that we take advantage of quite a strong level of pricing in our business across all our segments, and this being the outcome of progressive increasing pricing that we put in place throughout 2022. Of course, I mean, all of that also to compensate the increase in input costs overall. But here, I'm quite positive on the overall DIS edit margin for the full year, and very much in line with the guidance that we shared with you a few months ago. So the 13.5 to 14.5% is really what we've seen, and that's really something that I can really confirm. on the defense. Yes, I mean, as I already shared in the past, I mean, we've got something like three or four contracts that have a variation of price escalation mechanism in our contracts. And this is working as expected. I mean, the return of those mechanisms is right in line with what we're expecting. and allowing us to preserve overall our margin. All of that very much consistent with the guidance also for 2023 in terms of overall EBIT margin for this business that would be around 13%. So here again, I mean, Thales being able to show that when it comes to defense, whether we've got inflation or no, we can preserve our margin. The last point is probably more on the aerospace pillars on which I mentioned in the past. This is where we were less protected on the civil aeronautics segments. we keep negotiating with our clients to pass some increasing prices reflecting a high input cost. While a bit more difficult in the space business where in the past this business was more a fixed and firm price type of business. And this is where I mentioned in the past that we would be slightly affected in terms of margin because of that. Now you mentioned also the overall cost inflation. As you know, I mean, at Thales overall, I mean, Our first cost driver is really wages overall. That was concluded in our salary negotiations for 2023, ending up right in line with what we are expecting. So if I take France for instance, overall we are talking about overall increase in wages that is a one big single digit and this overall consistent with the overall level in session that we have in this country this of course not taking into account a positive factor which is the fact that as you've got people getting retired and being replaced by the young engineers you take advantage of this positive mix effect that, of course, will reduce the overall wages. Of course, not to mention also all the productivity measures that we keep putting in place. So, I mean, all of that is very much consistent with the full year guidance in terms of EBIT margin. Now, a question on M&A. So to your questions, I would say that we don't see multiples coming down. It's not the case. And again, it's not a surprise because this is also a constant message that I convey to investors. I mean, good quality assets I would say quite expanding when it comes to valuation. Of course, I mean, we keep looking at various potential targets. Of course, I mean, our primary criteria for decisions is the first priority. making sure that targets are part of any of our three key businesses. We mentioned that we don't consider any transformational acquisitions. We are looking more for targets that we could in any of our global business units very easily with quite a simple integration process. Also, I mean, key criteria for us is the potential for growth, of course. Opening us, I mean, potentially new geographies in existing segments, but in countries where, I mean, today we would like to expand their positions. And lastly, of course, I mean, financial discipline is also, of course, I mean, a key criteria for us. And yes, I mean, we are continuing multiple very closely once again and we have seen in the past I mean some transactions that took place in our sectors where of course when it comes to good quality assets we I mean we see a multiple still are quite quite quite quite high okay thank you thank you

We will now take the next question.

It comes from the line of Ian Douglas Pennant from UBS. Please ask your question.

Thanks very much. Yes, it's Ian Douglas Pennant at UBS. Could we talk about Asia a bit? So strong growth in Asian orders in Q1, which I assume is defense related, but perhaps you can correct me. Perhaps you could comment on that and then go on to comment if there's any implications from the Australian Defense Review and what you're hearing from Japan on where the focus will be there and whether there's opportunity for you and other European players. And then the second question is on supply chain. You mentioned it's still tough. Would you say that things are getting easier and are there any particular elements of the supply chain that you are especially concerned about at the moment? Thank you.

Okay, good morning, Ian. For your first question, I have to confess that I don't have the answer about Asian orders in Q1. Did we get anything very specific in this matter? That's not obvious to me. Now, Asia is quite important for us, and I could mention in particular two countries that might not be in your radar screen, which are becoming more and more important for Thales. One is Korea in particular for our space business. I mean, we had quite good successes in Korea in our space business, and we keep pursuing opportunities in this country. Second country in Asia, which is also, let's call it a new country of development for TALES. which is Indonesia, and this on various topics. Of course, I mean, we all have in mind the WAFAL project, not just a project, but a project in Indonesia that we also managed in the past, I mean, to book a nice contract on the space business. And we're also looking for opportunities in particular in air surveillance, air defense. As you know, Indonesia is quite a fragmented country in terms of geography, and it's true that overall what our offer can really match the needs of our clients in Indonesia, I mean, to ensure the overall protections of the country. Korea, Indonesia, of course on top of India, Singapore, but Indonesia and Korea are probably the two most obvious countries that I can think of when I comment about opportunities in India. Australian defense, nothing very specific in this matter. As you know, Australia is the second or third, I mean, largest country for defense, almost at par with the UK. No recent updates in terms of strategic review in this country, but we keep seeing the Australian government, the Australian Commonwealth willing to keep developing a number of defence projects. Japan, for Thales, is unfortunately a very small country when it comes to defence. We sell some specific equipment in particular in the field of water. However, I have to say that at this point, Japan is not a large country for Thales in terms of prospects. Will it become tomorrow opportunity? At this point, probably a bit too early. Supply chain, so supply chain, thank you very much for your question because it gives me the opportunity to come back on this matter and to comment where we see improvement, but where also we see still some tensions. So where we see an institution improving is overall availability of chips, in particular in our BIS business. This is probably you have in mind that this is where tensions started. That was probably two years ago. And we see, I mean, really in some relaxations and situations over in terms of availability of chips really improving in this segment. It's not totally fixed, but I think we are now on the positive side in terms of difficulties of supply for the IS business. Availability of chips, because we use different types of chips, the situation is a bit different in our other businesses, in particular in our defense, but also in our aero business where we keep seeing tensions in chips availability. This goes also not just to chips availability, but also to a printed electronic board, which is the level below in terms of value chain. We take chips then to produce a PC board, and this is also where we see today tensions. Where we see not deterioration but the situations which remains a concern is more on the hardware part of our supply chain. I think my comment is not different from the comments of other companies on this matter, but it's true that we see our supply chain having some difficulties in terms of ramping up their overall production output when it comes to more of the hardware components of what we buy. And this across the board, in particular the case in Europe, because we supply more from Europe, but in a similar situation. in many countries where we see this network of SMEs having in some cases trouble in ramping up their overall production output. This is really a matter on which we spend time today. As you have seen in our Q&A figures, it has not prevented us to report quite a significant growth, in particular in defense business. But still, I mean, a point of vigilance for the next few quarters. This is probably one of today's most obvious limiting factors for us in terms of opening goals.

Thank you.

One moment, please. We will now take the next question. It comes from the line of George Tsao from Bernstein. Please go ahead.

Hi, good morning, everyone. I guess first, to just provide some more color on the strong performance for DIS, you know, for biometrics, you know, where is the business, where has it recovered versus, like, say, pre-COVID levels and How much of the 20% organic growth for the segment would you consider that to be pricing for Q1? And second one, following up on your comments just now on the supply challenges, has that impacted your ability to deliver avionics equipment on time for new Airbus deliveries?

Thanks. Okay. Good morning, George. First, on DIS, I mean, first, yes, I mean, I was quite clear saying that in Q1, we really took advantage of quite a strong growth in our biometrics and in particular in our secure documents And really, I mean, this is across the board. It's not just in a single country, but I guess, I mean, we can all testify that getting a new passport is today quite a challenge in many countries. And I mean, this is basically, I mean, what we see today. So we will take advantage of recovery, some kind of catch-up effect following, I mean, the drop in terms of demands for passports in particular, following the COVID-19 crisis. Second point, I mean, we keep adding quite a solid overall growth in our smart card businesses, as I mentioned, in particular in the banking area, where I mean the level of demand is at this point still pretty good. Now in terms of volume, price, Let's consider that it's probably half volume and half price. It can vary a bit across segments, but overall, I mean, this is what I can share with you in terms of split between volume and price, so 50-50 overall. So avionics, let's be clear. Today, I mean, Thales is not the limiting factor for the large aircraft producers. to deliver their own production output. Even though I mentioned still a bit of challenges in terms of chips and this sector, we don't see Thales and Thales is not today. preventing our customers to deliver on their production output. My comment about mechanical parts in particular was more on defense and security and space, much more than avionics.

Thank you.

We will now take the next question. It comes from Chloe Lemarie from Jefferies. Please go ahead.

Yes, good morning, Pascal and Bertrand. Quite a few of my questions have been answered already, but I have a few follow-up. Maybe in aerospace, if we could have the breakdown of space versus aeronautics growth in the quarter and what you expect for the four-year. And just in particular in IFC, because we've seen relatively low white-body deliveries in Q1, so I wanted to check how that business went in Q1. And the second question is on Telesat, if we could have an update on there. I was wondering if there's any risk that the new offer you submitted could require another repricing due to inflation or if it was still a matter of finalizing the financing from them. Thanks.

Yes, good morning. Good morning, Chloé. So starting with the splits between IRO and SPACE. So overall, I mentioned that these reporting segments overall grew by 10% in Q1 versus Q1 2022. And yes, it's quite mixed. On one side, I mean, the IRO business, both civil and defense, going around 18% and on the other side and in space being a black event against a quite a strong Q1 2022. Now, I mean, ISC is true that overall white body production has been quite low in Q1. We see clearly, I mean, rebound in terms of orders, demand in our IFC business. This is what I started to highlight as we released our 2022 full year results. But this is confirmed. I mean, we keep receiving various requests for proposals for many airlines. which means that airlines are reinvesting on IFE, all of that being part of the global refurbishments of their cabin. And I mean, we managed to book two large orders back in 2022 on two large airlines. And we keep seeing quite a strong level of demand for this business. Now, of course, between demand and revenue, it takes a bit of time. But yes, we start seeing revenue in our ISE business to rebound. Now we are still quite far from what it was, of course, I mean, pre-COVID, but overall trajectory at this point is really positive. Telesat, as always, I keep saying that you should direct your questions about where Telesat stands in terms of putting together their overall financing scheme They made a public statement on this matter as they released their figure and what they say is that they keep making progress with the vice parties they are engaged with and they remain at this point optimistic to secure the financing they need to move forward with the program. an assurance that ultimately they will be able to finalize its overall funding scheme. For SALES, of course, we want to be on the safe side and we don't want to take any inflationary risk when it comes to such a large potential project. We are quite vigilant on this matter, and in no way would we expose ourselves on inflation on this potential project.

Very clear. Thank you. Thank you.

We will now take the next question. It comes from the line of Christoph Menard from Deutsche Bank. Please ask your question.

Yes, good morning. Thank you for taking my question. I just wanted to come back to the supply chain issues and what you mentioned about hardware component ramp up. My question is, is this an issue with the funding of those small SMEs or is it a labor issue that prevents the ramp? So that's the first question. Second question also on supply chain and bouncing back on the IFE comment you've just made. Did you have any IFE systems and a pacing item at the moment or are they not at Boeing and Airbus? And the last question is on the guidance on margin. I understand that your aftermarket sales were better than expected. in civil IRO. Does it mean that in terms of the margin expectation for the year, we should be more looking at the higher end of the margin guidance for the group? Thank you.

Okay, good morning first. So let me start with the first question about supply chain and in particular on hardware components and this network of small to mid-sized companies. The situation can vary across this network of small to mid-sized entities. You might have companies that are struggling in terms of getting the right level of funding, but in most cases they are also facing labor issues. in our past call about the need for Thales to keep recruiting quite a lot. As we mentioned, Thales is willing to recruit 12,000 people in 2023. But the situation is pretty much the same for this network of SMEs with, however, quite a difference, which is the attractiveness, the over-attractiveness of course much more difficult to attract talent when you are a semi than when you are a company like like like telx so it's a combination of bias factors labor for me is probably the the most obvious one and second is more about finding the right level of funding when it comes to in particular funding capital expenditure but i i think that in most cases It's more about a labor issue. Getting organized as an SME, for you to ramp up might be a bit difficult. In a global regulatory environment, which also provides many constraints, in particular when it comes to defense. All of that is not obvious for SMEs. This is really my message. But now, I mean, in the midterms, I don't know why, I mean, the applications wouldn't be fixed on this matter. Can you hear me? Yes, yes, I can. Yeah. Okay. So, second, sorry, I mean, ISC, your question was the... Is it the limiting factor for this component? No, I mean, no, no. I mean, no, it's not. I mean, the IFC components of production is not a factor in terms of growth for Airbus and Boeing. Not at all. So after market doing well, does it mean that Thales will deliver on the high end of the margin? At this point, this is not what I want to convey as a message. We are talking about Q1, so for me, at this point, it's really about overall and confirmation of our guidance. You mentioned aftermarket, which is doing well. It's true. On the other side, I mentioned our space business being exposed to inflation. So at the end of the day, I mean, we've got good news. And until this time, it's true that we're also facing challenges and also supply chain issues. So at the end of the day, when you put all of that together, my message today is really to confirm the guidance that we mentioned, which shows quite a significant increase in EBIT margin as compared to 2022 and 2022, 11%. We confirmed the guidance between 11.5 and 11.8%. So quite a significant improvement. Now, it's true that overall, once again, level of demand is there. And despite all the challenges that I mentioned, particularly supply chain, we deliver quite a robust level of growth, which I imagine is pretty positive.

Thank you very much. Thank you.

We will now take the next question. It comes from the line of Hervé Truet from CIC Market Solutions. Please ask your question.

yes good morning thank you very much for taking my questions just very quick questions first one on the transport sale did you receive the uk regulator regulator approval and if not is it the only one missing and do you anticipate any remedies or compensation potentially for the deal Second one is just to check, you mentioned in the product mix, the kind of impact of roughly half volume, half price. Is it overall for all segments or more specific for certain segments? And is there some segments where you have a little bit more impact? bargaining power, especially in those where there are some scarcity, especially potentially in defense and aero in terms of items and ramp up of productions. And finally on DIS, you mentioned there could be some softness looking forward because of the pricing evolutions year on year. I was wondering, in terms of uptaking of potentially new business, I'm thinking of, for example, what you are doing, for example, in cloud and in cryptography, for example, with Google. When do you expect that commercially to have an impact on your DIS business? Thank you.

OK. Good morning, Hervé. So on transport, I mean, at this point, we didn't get the approval from both the European Commission or the UK CMA. But as I mentioned, I mean, the situation is really, I mean, moving forward in the right direction, and in particular in the nature of remedies that those two regulatory bodies will be asking Hitachi to deliver on so I don't want to be more specific but once again it's really moving in the right direction and Hitachi is working very well with those two regulatory bodies and of course I mean we are supporting Hitachi which as you know I mean takes a responsibility of the implementation of remedies as a forcing in our SPA with resuscitation. All of that being consistent with the closing that would take place in H2 2022. I need maybe to come back on my comments because I think that I was not clear enough about in particular the mix between volume and price. The 50-50 between volume and price answer was very much directed to our DIS business and only to our DIS business. I will not comment on the other businesses like defense or aerospace. Well, by the way, it's probably a bit more difficult, but more, I mean, taking into account what I mentioned about inflation protection in particular in our defense and security business. Now, I mean, at DIS, if you want me to elaborate a bit more on the various segments, overall, I mean, the 20-20% overall organic growth, it's, of course, more than that in our high-growth business. combined biometric dimension and cybersecurity overall. And this first segment is of course going more than 20%. On the other side, our smart car business is going less, but still quite strongly. and with quite a good mix between pricing and volume. Smart car growth is more about pricing than volume. And overall, let's say probably something like 15% and the cybersecurity slash biometrics is going more than 20% in Q1, with this time probably a bit more volume than prices.

That's very clear. Thank you very much. Thank you, Ahmed. Thank you, Harvey.

Thank you. We will now take the next question. It comes from the land of Ben Hillen from Bank of America. Please ask your question.

Yeah, morning, Pascal. Thank you for taking my question. I just wanted to come back. I think it was a closed question on IFE. And could you give us a bit of a gauge of how big that business was in 2022, just so we could see kind of roughly how far below 2019 it is? And then back on the avionics supply chain question, I mean, you're saying you're not the bottleneck today. Is there a significant amount of capex and investment you need to do to make sure that you're not the bottleneck at higher levels of production in 12, 18 months' time? How do you think about that? Thank you.

Thank you. Thank you. Good morning, Ben. What can I share with you? I mean, overall, this business back in 2019 was around $900 million business overall. And it dropped overall, I mean, following the COVID, probably to $300 million. Overall, I mean, both, I mean, line sheet and... and after markets. We are recovering progressively from this quite low base. It's a rebound but once again from quite a low level. All new projects have been cancelled by airlines. since the COVID-19 crisis. And it's only from 2022 that we got new requests for proposal and where we started to strike new contracts. But of course, I mean, it will take time before this business being able to recover the pre-COVID. And of course, also, I mean, as it is more a wide-body type of business, I mean, it will take time. I mean, IFE is a business where you design, but it's a business where production is quite important. And of course, it will take time before we see quite a massive increase in overall production output for this business. Supply chain bottleneck, I don't remember the question.

Will you be able to, how do you make sure you won't be able to?

Ah, yes, I am capable. So, no, I mean, you name it. I mean, the good thing overall for Pallets in our business is predominantly a business with software and what we call calculators, very specific printed board based on the specific chips. which means that it's not a business that will require significant capital expenditure overall for Thales to ramp up. It's not the case. Where we see more, I mean, CapEx need for overall for Thales is more in our defense and security business. Where here, I mean, it's more, I mean, what we develop in our defense and security business is really system including both software but also a significant part of complex hardware. And this is more in the hardware part that you need to invest. All of that being fully consistent with the guidance that we provide to you in terms of increase of CapEx. moving from 525 million CapEx in 2022 to something like 615 in 2023, 700 in 2024. So, I mean, this is, I mean, really the overall ramp up of CapEx that basically covers what I've just mentioned in terms of production outputs, production ramp up, in particular in our defense and security business, plus space, plus space, But also the fact that the more we grow the companies, the more also we need, I mean, we need people, and despite remote working, we also need to accommodate, I mean, higher needs, I mean, to provide the right level of work environments to our new engineers. But no, I mean, no specific capex, I mean, for Thales to ramp up on EVMX production output. Very clear. Thanks, Pascal.

Thank you, Ben. Thank you. We will now take the last question. Yes. It comes from the line of David Perry from JP Morgan.

Morning. Thanks for squeezing me in. Just one question, I guess, from someone sitting in London. Can you just tell me, on the French defence budget, What is the date for the vote for the French Parliament to approve the new defence budget? And given the current political climate in France, are you confident it will go through? Is there any risk that it doesn't get passed?

Thank you very much. Thank you very much. David, I don't have a specific exact timing, but the plan for the government is to get that have been voted before the end of June. There are today ongoing discussions on this matter. More, by the way, about is it enough or should we spend even more on our 2030 new LPM. And all of that showing that a global consensus across all political parties in France about the need to invest more and to consider that the IPM as it is today, with what I mentioned about 6-7% from the 2023 level, will it be enough to serve all of the needs that the Minister of Defence has mentioned. I think the most important point is this overall global political consensus on this matter. So I'm quite comfortable in all of that.

That's very reassuring. Thank you. See you in Paris.

See you in Paris. Okay, so I think, as you mentioned, there are no more questions. Maybe as a word of conclusion, I would like to stress that, yes, I mean, we do think that our Q1 2023 are pretty solid. Of course, I mean, we remain focused on the execution of our growth strategy and, of course, the delivery of our financial objectives. Our next event for shareholders is our AGM next week in Paris. And, of course, I mean, as you know, I mean, the Paris Airshow is back this year. So I mean, we hope to see many of you there in the third week of June. And for those who will not make it there, we will be watching and participating in conferences in May and in June in Europe, Canada, and USA. And of course, I mean, if you still have additional questions, questions, don't hesitate to reach out to Bertrand or Olivier in the next few days. Thank you very much. Have a good day. Bye-bye.

Thank you. Ladies and gentlemen, if you didn't have a chance to ask your question on today's call, please do not hesitate to send your question to talusgroupinvestorrelations at ir.talusgroup.com We will get back to you as soon as possible. Thank you all for your participation. You may now disconnect.