Thales S.A.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Thales Q3 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 and 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 turn the conference over to Alexandra Rocheron, VP, Head of Investor Relations. Please go ahead.

Good morning. Welcome and thank you for joining us for the presentation of Thales 9 Months 2023 Order Intake and Sales. I'm Alexandra Boucheron, the Head of Investor Relations at Thales. With me today, Pascal Boucher, CFO of Thales. This presentation is audio webcast live on our website at thalesgroup.com, where the slides and the press release are also available for download. A replay of the call will be available in a few hours. With that, I would like to hand over the call to Pascal Boucher.

Thank you, Alexandra, and good morning, everyone. So as usual, to start this presentation, I wanted to highlight a few key messages. I'm now on slide two. I will start with a few words on our recent dynamisms in terms of portfolio management. We have been quite active both in the first half and during the third quarter of 2023. And I wanted to come back in particular on the acquisition of Imperva that was announced at the end of July. Imperva is a leading US-based data and application cybersecurity company with an enterprise value of $3.6 billion, which makes it one of the largest acquisitions conducted by Thales after Gemalto. With this acquisition, Thales is taking its cybersecurity business to the next level. This acquisition represents a rare opportunity for us to create a world-class leader in premium cybersecurity products, enabling growth in data security and Thales entry into the attractive application security markets. So clearly, we are excited about this new step in Thales development in this fast-growing market, and we are very satisfied that it has been well received by our shareholders. who also saw the potential for value creations thanks to significant synergies. Of course, we have been working on getting all the various regulatory approvals that we need, and it is progressing well to ensure closing early 2024. As you can see on the slides, we were also happy to confirm the closing of two deals. the acquisition of Tesserance, an Australian cyber security service business, and also the disposal of the electrical system business to Safran. A last word on portfolio management. Even though it has been longer than anticipated, good progress was made again regarding the transport business disposal. And we welcome the decision from yesterday where the European Commission has approved the acquisition. Of course, Thales remains fully committed with Hitachi Rail to finalize this transaction in the first half of calendar year 2024. As you can see, there is also two additional positive news that I wanted to highlight. First, we are very proud to be part of the CAC SBT 1.5 degrees index, demonstrating the recognitions of our ESG strategy. And last point, we already presented you that graph during Q1 Earnings Calls, as it was a proposition submitted by the French Ministry of Defence to the Parliament. The budget for the period from 2024 to 2030 has now been voted and approved, which is of course positive for Thales, as France represents 40% of our defense sales and is our lead customer and source of innovations funding. This budget incorporates significant investments in new domains of confrontations such as cyberspace, space or drones in which Thales has strong positions. So turning now to slide three, which summarizes our key figures for the first nine months and the third quarter of the year. As you can see on the slide, the total order intake at the end of September was down by 18% versus ICOMS, as we booked the Jumbo Rafale UAE contract in Q2 2022. Order intake came down by 6% organically in Q3, but again versus a very strong plus 36% organic growth in Q3 2022. Sales over nine months were up by 7.5% organically, supported by an organic growth of 7.2% in Q3 that I will comment in a minute. I'm now on slide four, looking into details at our order intake. As mentioned, Q3 can slightly be lost on Q3 2022. However, the commercial activity remains strong during the third quarter with three additional large orders booked. Two in defense and one in space. Also, please keep in mind that order intake on a quarterly basis can be pretty volatile due to large contracts. The second tranche of Rafale Indonesia is a good illustration. We were working on the finalizations of the contract, and due to the IFRS rules, it will be booked on link Q4 2023. Looking at the chart by unit value now, it's worth noting that small and medium orders continue to progress over the periods, with small orders even up 8% organically. Turning now to slide five, looking at sales goals. First, a world on the currency impact, as you can see, Q3 was again negative at minus 103 million euro, reaching a total of minus 183 million euro over nine months. And we expect the trend to continue to be negative over Q4, to land at around minus 250 million euros for the full year. In terms of scope, there is also a significant impact to model over the full year 2023, resulting from the acquisitions and transfer of activities carried out in 2022 and 2023. I already gave you all the details during the H1 earnings goals, so allow me to refer you to our IR team if you need more information on the subject. Now, over nine months, organic sales growth stands at 7.5%, mostly driven by, firstly, aerospace, confirming a double-digit type of organic growth clearly driven by the avionics part of the business. Secondly, a continuous robust scenario in defense and security, as expected. And thirdly, the ongoing strong sales momentum in DIS outside of the smart cars business. And I will come back on that point in a few slides. Turning to the geographical perspective, let me point out that growth was particularly strong in mature markets, and especially in France, the UK, and all the rest of Europe. Now, looking briefly at each segment one by one. I'm now on slide six for aerospace. Orders at 3.4 billion euros were done by seven persons organically due to ICOMs in both businesses. In space, while we booked five large contracts again over the first nine months, their total value was lower than the total value of the five telco contracts booked during the same period of last year. Civil aero business continued to be quite dynamic with a double digit organic growth, despite one large order booked in Q3 last year in IFE. Sales at 3.6 billion euros were strongly up by 10.9% organically, clearly driven by the robust growth in aeronautics. up at a double-digit organic growth in both OE and aftermarket activities over nine months and also at Q3. The space business remains impacted by supply chain challenges during Q3, especially in mechanical parts, and the situation is expected to continue in Q4, likely leading to a flattish organic growth versus full-year 2022 sales for the space business. However, thanks to the good dynamics in avionics, we are confident that the segments will achieve a high single digit type of organic growth over the full years 2023, as indicated already in the past. Turning now to slide seven, looking at the defense and security segments. Order intake amounted to 6.5 billion euros. down by 29% organically versus a very strong nine months in 2022, as I mentioned before. Two new large orders above 100 million euros were booked in Q3 for a total of seven in nine months. At 31 billion euros at the end of September, our backlog represents 3.4 years of sales. TAILS amounted to 6.8 billion euros by 6.2% organically versus 2022, with several business lines reaching a double-digit type of organic growth over the period, like electronic combat solutions, network and infrastructure systems, and cyber defense solutions. This is just to give you a few examples. Q3 confirms the strong dynamics of the segments, up 8.1% organically versus the same period of last year. However, an important point here. As you know, our defense business is subject to phasing effects, and I wanted to highlight that the strong high single-digit third quarter does not mean that you should expect the same trends over Q4. Looking back at last year's sequence between Q3 and Q4 in defense is a good example. We released 8% organic growth over Q3 that then decelerated to 1% over Q4. Thanks to this solid organic growth over nine months, we confirm our ability to deliver the mid-single digit organic growth we committed to for these segments over the full year 2023. And finally, digital identity and security. I'm now on slide eight. So at 2.4 billion euros, sales were up by 6.9% organically over nine months. When we look back on a quarterly basis, different dynamics in terms of organic growth emerge. A very strong Q1 at 20.1%, a softer Q2 at plus 4.7%, and a slightly negative Q3 at minus 1.5%. This significant slowdown in growth over nine months was in line with the guidance I gave during the H1 earning goals. It was driven by the lower demand and lower price effect and smart cards turning to organic drop in Q3 after an exceptional performance during most of 2022 and Q1 2023. It's also important to note that apart from these smart card activities, the rest of the business within the DAS continue to perform well, almost balancing the smart card decrease with the double digit organic growth over Q3. We anticipate that over Q4, smart cards should remain clearly negative in terms of organic growth versus ICOMs in Q4 2022, resulting from DIS segments into another slightly negative organic growth. Which brings me to the final slide, so slide nine, on our 2023 financial objectives. As you understood, Q3 order intake was in line with our expectation, and we have a solid pipeline of orders for Q4, which allow us to confirm our full year order intake target, namely a book to bill ratio above one. Our sales dynamics remain strong, despite some headwinds in space and the smart card business within the IS. But all together, we confirm our plus five to plus seven persons organic growth guidance range. And no change to our EBIT margin guidance between 11.5 and 11.8 persons. Many thanks again 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 and 1 on your telephone and wait for your name to be announced. Once again, it's star 1 and 1 on your telephone to ask a question and wait for your name to be announced. If you could please kindly limit yourself to two questions only so that everyone is given the opportunity to ask their questions.

Thank you.

Once again, ladies and gentlemen, please press star one and one on your telephone and wait for your name to be announced. And please kindly limit yourself to two questions only so that everyone is given the opportunity to ask their questions. Thank you. We are now going to proceed with our first question.

The questions come from the line of Olivier Brochet from Redburn.

Please go ahead with your question.

Yes, good morning. Thank you for taking my question. Good morning, Alexandra. Good morning, Pascal. So two questions then. First one on the space summit in Seville next month. What are your expectations there? If you could provide us with some elements. And the second question is also on space. The CEO of Leonardo made a comment about the Space Alliance and the changes to the shareholder agreement. Is there anything material that we should be aware of regarding that, please?

Thank you. Okay. Good morning, Olivier. So, on the civil space summit, I don't have very specific information on this matter. So I mean, I don't expect any specific news on this matter as compared to the previous summit on this matter. On Leonardo, and I guess you might be referring to, if I understand well, to some comments from the new CEO from Leonardo. I think most of the comments were about making sure that both Thales Anya Space and Thales Spazio can work even better together. So in my view, it's more about a willingness to have those two companies working together and taking more businesses. with a clear will of good collaborations between Leonardo and Thérèse on this matter. I don't... I don't expect anything more than this matter. For me, it's quite positive. It's a bit difficult for me to comment on Mr. Singolani's comments, but we noticed that he mentioned space as a priority for Leonardo in terms of investments. So, of course, I mean, as a commander of these space islands between Thales and Leonardo, we do welcome this commitment from Leonardo, I mean, to keep investing on this activity. There is nothing more I can comment on this matter, Olivier. That's very clear. Thank you very much. Thank you.

Thank you. We are now going to take our next question. And the questions come from the line of Russ Law from Morgan Stanley.

Please ask your question.

Hi. Good morning, everyone. Thanks for taking my question. Just firstly, on orders, clearly the Q3 outturn came in below what we were expecting. And you've flagged the slippage of the Indonesia Rafale at second tranche. But even if we sort of add back an assumption for this order value back into the quarter, order intake probably still would have come up short versus expectations. So just looking to understand whether there's anything else material in the quarter that slipped. And second question, just on sales, clearly you flagged nine-month organic growth rates, the 7.5%, which is ahead of the 5% to 7% failure guide. Even with a potential slowdown in DNS, is there any reason why the other businesses shouldn't maintain the current growth rate going into the fourth quarter? And I include, of course, avionics in that as well. Thanks.

Okay. Thank you very much for your two questions, Ross. First, I mean, on order intake, I mean... You probably remember that probably at each quarterly call, I keep saying that looking at order intake at Thales on a quarterly basis is not that relevant because, I mean, our order intake, and I guess this is probably the case for many companies like Thales, order intake can be quite bumpy when you look at quarterly figures. So, yes, I mentioned about the booking of the raffle in Indonesia that we will be booking in Q4. Now, for me, what is more important and what I can share with you is about my confidence with regard to the full year 2023 in terms of overall order intake and probably for me to reiterate the fact that when I look at the consensus As it stands today, with regard to the full year 2023, I'm comfortable. So no specific matter of concern on this matter. It's really about a cutoff or a move between Q3 and Q4. As you know, and this is This is basically what happened at a company like Thales when we look at the past. The fact that a number of customers, a number of contracts are finalized in Q4. So we are about finalizing several pretty significant contracts that we should be able to book in Q4 2023. So no concern at all about this level of order intake in Q3. Second point on sales, 7.5%. So that's probably two or three points that I could mention to you to give you probably a better view on how we see the landing for 2023. First, I mean what I mentioned on DIS and it's true that we expect DIS to remain negative in terms of organic growth in Q4 as compared to last year and my view is that this negative growth in Q4 will be more important in a negative way as compared to what happened in Q3. So it should be below 1.5% negative. Second point, defense and space has been pretty strong. Above our guidance, when you look at the end of September figures, a bit above 6%, we keep seeing that we see more defense and security at more probably around 5% for the mid-September for the full year. And I mentioned that Here again, when we look back at the past, in general, we see Q4 for defense and security to be softer in terms of organic growth as compared to the situations on the first nine months of the year. This is what happened in 2022 in particular. And I can imagine that this will happen again in 2023. on the aerospace segments. I guess that you have seen that with the overall 11% revenue growth end of September, were above our guidance and probably a bit of cautiousness on this matter. So when you put all of that together, I mean, this plus 5% to plus 7% is today, once again, my best view on how we should be landing.

Thanks very much for all the detail. Very helpful.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Ben Hillen from Bank of America. Please ask your question.

Yeah, thank you. Morning, Pascal. Hope you are well. I wanted to come back first on this point around space and Leonardo because I believe the CEO of Leonardo was a bit more explicit than that. There was articles on Bloomberg that he said that you had actually changed the shareholder agreements around space, around the space JV. So I wanted to put that to you. Have you actually seen those and changed those shareholder agreements? That would be the first one. Secondly, can we talk about civil and can you help us understand a little bit avionics growth on the aftermarket in the third quarter and how you're seeing things in the IFE business? And then just finally on defense, obviously you're talking about a quite strong slowdown. I know you said that you usually do have a slowdown in Q4, but is there anything in particular from a phasing perspective? Is there any particular programs that we need to be aware that are slower in the fourth quarter?

Thank you. Okay, good morning, Ben. So, I mean, with regard to your first questions, we have not changed the shareholder agreements relating to the Space Alliance. On your second questions about Avionics, I mean, Q3 has been especially strong on aftermarket, by the way, pretty much in line with what we have seen since the beginning of 2023. So really, I mean, a very strong growth, organic growth on aftermarket with a level of demand that has been above our expectations. Let's be clear about this matter. On IFE, yes, I mean, rebounds. which is more modest than the rebounds that I've just mentioned on the aftermarket. These rebounds on IFE are illustrating or reflecting the fact that, as you know, we started to book new orders mid-2022. You probably remember and it was part of my comments in my presentations. In Q3 last year, we booked quite a large order a new large order for IFE in Q4 last year as well and we see also a level of demands which is overall going the right directions for IFE now as here we're talking about more significant project in terms of size of course it takes a bit of time to flow them down in our P&L in terms of growth on our revenue line so hence the fact that there's a bit of of a delay in recognitions of higher revenues for IFE. But overall, the directions on IFE is positive. But of course, as we all know, from a reference level, which was last year, extremely low. So overall, I mean, very strong demands in aftermarket, continuing in Q3. On IFE, the first rebounds are coming from large orders that we booked in the last 12 months, but a bit of time to have since that being reflected in our revenue lines. Defense and security, it's more overall, I mean, phasing matters and there is not a specific business line or product lines that they could mention in terms of phasing between Q3 and Q4. It's overall the fact that after quite a strong Q3, which was a bit above our expectations, I think that Q4, relative to Q4 last year, will be probably less positive. It will be positive, of course, but probably a bit less positive than what we have seen in Q3. But here again, no specific matter or concern in terms of level of growth.

Okay, super clear. Thanks, Pascal.

Thank you, Ben.

Thank you. We are now going to proceed with our next question. And it comes from the line of George Zhao from Bernstein. Please ask your question.

Yes. Hi. Good morning, everyone. First, on space again, back at H1 earnings, you talked about supply chain challenges, especially the hardware improving progressively in H2. So just wondering if you've seen any notable improvements so far. And with this year expected to be flat, I mean, are we still on track to get to this $2.4 to $2.5 billion of revenue next year as that would require a double-digit growth at the low end? And second question on the smart cards, I think the volume decline, I think that's been well-flagged, but could you just give some color around the competitive headwind that you called out in the press release?

Mm-hmm. Yes, good morning, John. So Sunspace, the supply chain. No, yes, I mean... I was expecting probably a bit of relief in terms of supply chain in H2, which is not happening. I mean, we keep facing some difficulties on this matter, on some in particular, some critical parts, mechanical parts in particular. So we keep working very actively on this matter. But yes, it's a challenge that we're facing. So overall, I mean, the 2.4 that you mentioned, in my view today, will be a challenge. Let's be clear about this fact. But it shows that when I look at the overall aerospace segments, it shows that we're facing this challenge on space. On the other side, I guess it was quite obvious that the avionics business is outperforming in terms of growth. So now looking at the full scope of the aerospace segments, you see that despite those headwinds in terms of supply chain on space, today looking at the overall organic growth for the segments, uh over the nine months of 2023 we are above our guidance the uh the guidance was i single digits we are close to 11 persons and of uh and of september which shows that uh it's true that the old performance here on on avionics is more than compensating i mean those are difficulties that we see on on on space uh smart cards uh your your question was about uh yes i mean yes headwinds on on smart cars yes uh more than uh uh talking about headwind it's more about probably a bit more normalizations of the situations on the in particular on the telco signs on the telco signs uh where i mean uh In 2022 and the first half of 2023, we kept benefiting from the overall shortage of semiconductors, which of course drove significant price increases. And this also until the beginning of 2023 with a level of demand that was pretty strong. Now we see, I mean, and once again, it's not a surprise. I mean, this is what I kept mentioning over, I mean, our last calls. We see, and in particular driven by this overall softness of the smartphones segments, we see, I mean, drop in terms of volumes. Less sales of smartphones means less SIM cards for business. And this combined with a relief in terms of semiconductor availability, which, of course, weighs in terms of prices. On this matter, what we do overall at Thales, and this is basically our policy, we preserve our margin. Our margin remains very strong on smart cards, in particular on the telco side, which also means that we might decide not to follow some pricing pressure on some specific markets, in particular on some countries in Asia. Once again, George, what I think is quite important for me to say that it's really something that we have anticipated and all of that is consistent with both the overall revenue guidance that we mentioned around mid single digits for the full year and also I mean what I've mentioned in terms of the overall profitability EBIT margin for the full year with this 13.5 to 14.5% range And I keep saying, as I did at our last call, that I'm expecting the IS to land at the level of a bit margin that would be probably more at the upper part of this range.

Very clear. Thank you.

Thank you. We are now going to proceed with our next question.

and is from the line of Hervé Drouet from CIC Market Solutions. Please ask your question.

Yes, good morning, Pascal. Good morning, Alexandra. Two questions as well on my side. On DIS, would it be possible to be, if you can, a bit more specific on the dynamics on the volume and price for smart cards? Are we talking here about mid-single-digit decline and how much of that is volume, maybe pro-rata versus price? And the second question is how much eSIM card could potentially impact sales and could it explain as well potentially how it helps in maintaining good margins for smart cards? Thank you.

Yes, good morning Hervé. On your second question, I mean at this point, I mean, the development of the eSIM is not large enough, I mean, to compensate any specific move from a price or volume standpoint on the overall segments of SIM for, I mean, for Thales overall. So, I mean, it's not, I mean, the evolutions of the eSIMs that could drive in the short any specific impact on the overall revenue and profitability of these telco segments. So now, in terms of pricing volumes, probably a bit difficult, but overall, I mean, what we see on these overall segments, the telco segments, is a drop in terms of revenue against the same period of last year of a double-digit drop overall in terms of revenue. And I don't have in mind a specific split between volumes and price. But I mean, as a rule of thumb, I could say that probably should be 50-50, something like that. So I mean, it's both a drop in volumes and a drop in prices. now and this is so important against uh uh i mean a very high level of of both volumes and prices last year um so and and today i mean overall a level of of profitability uh which is uh which is very um which is very strong all right yes that's clear thank you very much

Thank you. We are now going to take our next question.

And it's from the line of Christophe Minard from Deutsche Bank. Please ask your question.

Yes, good morning. Thank you very much for taking my question. I had two actually on, actually three, two on space and one on defense. On space, I was wondering whether the lack of launches from the European launchers and add some effect on your cells. And should we expect some sort of catch up when that launch capability is back on track, I would say. And the second question related to space is whether the weakness we've seen in space has any implication on your component division. That's for the, I think it's more into mechanical parts in space as well. And the third question is on defense. I heard what you said on Q4, but is there any, I would say, pressure or incentive by your clients to accelerate the milestone passing on some defense programs given the environment? So should we expect some kind of tailwind, so to say, in Q4? I mean, from your message, it is not the case, but are you seeing any trend from government's perspective? on milestones.

Well understood, Olivier. On your first and third questions, it was clear. On the second one, you will need to come back and to explain a bit more what you expect. First, on lack of launchers, no specific impact. Our clients use, at this point in particular, SpaceX. I don't see any impact at this point and in the next few months, coming from the lack of launchers. Your second question, component deviant, but I'm not sure that I got it.

No, yeah, it was, I mean, in my understanding, the component division within aerospace manufacturers, some components for space applications, so antennas and all that thing. And in my understanding, that has been linked. I mean, the demand for components has been linked to how space was behaving. So should we expect some sort of a platysh development of cells?

um and and similar impact on margin or any indication here no but maybe uh you you might be referring to an electronic tubes uh a business which is reporting these segments yes exactly yes okay which is also directed to uh to space where by the way we see uh i mean uh some uh Also, I mean, some slowdown. This time it's not that much from a supply chain, I mean, specific difficulties. It's more the fact that this business can be a bit bumpy. So at this point, it's more soft. It's not, as you know, it's not reported in our space business. It is reported in our avionics business. as I mean there are various end user applications but I mean part of the market is space but it's more a bit more volatile type of business but no specific concern in terms of supply chain specifically on this matter. Defense. Yes, I mean, the more we could accelerate, the better it could be. And it's true that we've got some clients asking once again for us to keep ramping up overall production output. So, I mean, the more we could deliver, the more our customers would be happy. And this is also, I mean, What we have done since the beginning of the year, I mean, overall, I mean, we're a bit ahead of our own guidance and expectations overall in terms of production delivery to our customers. When you look at the situation end of September with a bit more than 6% organic growth. Now I'm still a bit cautious because Q4 is here again strong quarters in terms of absolute level of revenue for defense and security. So Q4 is the busiest or the largest quarters in terms of revenue. Q4 last year was already strong. Today it's more about ability to keep ramping up our production output. I mean to meet I mean, demand from our customers. But yes, I mean, you're absolutely right. In case we would be able to pass milestone even quicker, it could be a tailwind. Now, once again, as I mentioned, we have a lot of activity on defense and security at this point. And it's more about us being able to keep accelerating on this overall production output.

Thank you very much.

Thank you. We are now going to take our next question. And it's from the line of David Perry from JP Morgan. Please ask your question.

Yes. Hi. Good morning, Pascale. I've got two questions, if I may, please. They're slightly off topic, but I think they're important. The first one, just on aerospace, the IR team sent out the very helpful consensus to us just before the results. and the EBIT number for 2024 looks very high to me. It's north of 500. I'm quite a bit below 500, so just wondered if you, I know it's not a guidance call, but if you can just comment on the level of progress you think you might make in 2024 in aerospace. It's had a lot of questions already. The other one is I'm struggling a little bit to model your financial result. There's so many moving parts, disposals, positions, different interest rates today, of course, and in the past. Could you just help us think about that a little bit? That would be great. Thank you.

Okay. Thank you very much for your two questions, David. As always, two very precise questions. So you would like me to start commenting 2024 for aerospace? It's probably a bit too early. I guess it was quite obvious from my comments that we are today outperforming on the avionics business. And on the other side, it's true that the situation in space is probably a bit more difficult than anticipated. I mentioned those supply chain challenges that we're facing in space. So my view is that the figures that you mentioned, which is today the consensus for aerospace in 2024, overall it means that we need to fix those challenges that I mentioned on space. I think it's quite obvious. And second point, it will be also quite important to track how the overall level of demands on avionics and civil aerospace will continue to unfold in 2024. Second point is on financial expenses and RPNL. So as you can imagine, I mean, in a call like that, I mean, explaining all the details of this line could be quite a challenge for me. It could take a bit of time because There are a number of moving parts, but I could give you just a very simple explanation. And of course, I mean, you can spend more time with the IR team on this matter if you want to dig a bit more. You probably remember that in H1, I mean, we reported a financial expenses line on our P&L that was around zero. And my view is that for the full year 2020-2023, this line should be around zero. Meaning that the returns on our cash will compensate the overall cost of our financial resources. Now, overall, and just as very rough figures, We have announced, when I look at the overall level of acquisitions, we have announced a level of acquisitions which is close to overall $5 billion. So I think that overall from this zero level of financial expenses, in 2020, in 2023. We need to add, I mean, something like $5 billion of overall, I mean, level of debt. And overall, a cost, a net cost of this additional level of debt in terms of cost of funding, probably something like 3.7, 3.8%. So when you put all of that together, it's probably a level of financial expenses that should be probably something like 180, 200 million euros. It's probably a good rule of thumb. Now, of course, it will also, there will be some other moving parts, in particular, the exact closing date for the disposal of our transport business. But overall, I mean, to make a long story short, you probably need to consider that overall 180 to 200, maybe 200, including also the impact of IFRS 16 that you shouldn't forget in your overall modeling. I think it's probably a good rule of thumb. Now, again, David, if you want to deepen your analysis, you can get back to the IR team.

That's super helpful. Appreciate it. Can I just throw in a cheeky third question?

Please.

How are you doing with the pension discussions you're having? Are you making progress there?

Yes, I mean, we keep making progress on this matter. And we're negotiating with a preferred... a partner, a preferred potential partner on this matter, and all of that consistent with what I mentioned at our various discussions over the last few months. always a decision that we'll be making before the end of 2023. So it should come up in the next few weeks. Okay. Thank you. Thanks very much. Thank you very much, David.

Thank you. We are now going to take our last question. And the questions come from the line of Emerick Poulet from Kepler Chevrolet.

Please ask your question.

Oh, thanks. Good morning. Thank you for taking my question. Also, most of the questions I had have been answered. Perhaps I can throw another one on the pricing effect and the level of inflation pass-through that you've had in the other division. And should we expect

at some point next year or earlier than that a reversal of such a pricing effect in your organic rules please thank you good morning Emric so nothing very specific to report on this on this matter so overall I mean you have seen that inflation has had almost no impact on our defense and security business. Because, I mean, as I mentioned several times, it's a business where in general we take advantage of a version of price mechanism in our contracts. So it goes up and down, but reflecting, I mean, how also our costs are evolving and I don't see any specific matter at this point in the next in 2024 and 2025. DIS I commented on this matter and specifically on the SIM card business we're facing today some kind of reversal after quite a strong tailwind on this matter in 2022 and in the first half of 2023. But here, again, I mean, as expected. Avionics is taking really advantage of the overall level of demands and no specific issue in terms of inflation. And whether it goes up or down, I mean, I don't see any specific matters. Inflation decrease would be, of course, I mean, the positive news for space business. As you know, it's, I mean, the only business where we've got a fixed and firm price mechanism on our backlog. And, of course, I mean, getting some relief on inflations would be, of course, positive. But I don't see that as a key factor for 2024 in particular.

Okay. Thank you.

okay so i think that it was the last the last questions so uh thank you very much for your uh for your attentions uh my my belief is that i mean q3 or q3 figures are very much in line with our full your guidance from both an order intake and revenue standpoints so here again i mean we we reiterate our full year for your guidance for 2023. The next few weeks we will be watching in particular in the US, also attending some conferences, so hopefully we'll have the opportunity to interact with you on those occasions. Our next release of results will be the annual results for 2023 that we release on March the 5th next year. Thank you very much once again for your participation and have a good day. Thank you again. Bye-bye.

Thank you, ladies and gentlemen. If you didn't have a chance to ask a question on today's call, please do not hesitate to send your questions to the Thales Group investor information, ir at thalesgroup.com, and we will get back to you as soon as possible. Thank you all for your participation. You may now disconnect your lines. Thank you.