Thales S.A.

Good morning, everyone. Welcome and thank you for joining us for the presentation of SALES 2023 full year results. I am Alexandra Boucheron, Head of Investor Relations at SALES. With me today are Patrice Gaine, Chairman and CEO, and Pascal Bouchard, CFO of SALES. As usual, the presentation will be in English and followed by a Q&A session. It is webcasted live on our website at stalesgroup.com, where the slides, press release, and consolidated financial statements are also available for download. A replay of the call will be available in a few hours. With that, I would like to turn over the call to Patrick King.

So good morning, everyone. As usual, let's start with the highlights of 2023. And I am on slide number two. So starting with the commercial dynamics, which was really strong across the entire portfolio and drove a new record for both order intake and backlog. Our sales growth stands above the top of the guidance range set for this year at plus 7.9% on organic. compared to a guidance between plus 5% and plus 7%. Strong achievements in terms of profitability as well, with an EBIT margin at 11.6%, up 60 basis points compared to last year. And last but not least, on the financials, and of course, Pascal will come back on it, cash generation has been very robust once again. Two highlights on the strategy side. First, we accelerated the deployment of our capital. We have been active in the rollout of our MES strategy with three main acquisitions announced in 2023, Tesserent, Cobham Aerospace Communications, and Imperva, as well as the disposal of our aeronucleic electrical systems business. We have also successfully de-risked our balance sheet from our UK pension obligations, and we have conducted so far 92% of our share buyback program. And finally, we continued to progress in ESG ratings and performance. You will see that in a minute. So let's move now to slide number three and looking at our financial performance in OQ charts. At 23.1 billion euros, order intake stood once again above 23 billion euros, and the book-to-bill ratio was significantly above 1, reaching 1.26. And please note, 2022 was a high comparison year, as we booked one jumbo contract, the raffle order from the UAE for 80 aircraft. As mentioned, organic sales growth reached a very high level, above the top of our guidance range, plus 7.9%. EBIT outpaced sales organic growth, growing by more than 10%, while EBIT margin improved to 11.6%. At 1,768,000,000 euros, adjusted net income grew by 14%. And free operating cash flow remained very strong at 2 billion euros. That's even after the capital deployment I mentioned. Last chart on the slide, the dividend. This new year of strong financial performance is leading our board to propose to the next AGM in May a 16% increase higher than the net income to 3.40 euros per share. So turning to slide number four and looking now at our non-financial performance in 2023. I will come back later on our sustainability priorities going forward. But first, I wanted to show you our strong progress in 2023 in terms of extra financial performance at or above the 2023 targets along the four pillars of our action plan. First pillar, our strategy for a low-carbon future. Our operational CO2 emissions reduction are outpacing our ambitious target, decreasing by minus 52% thanks to a further reduction of electricity consumption and an extensive move to renewable energy supply. Turning to the deployment of eco-design, the percentage of new developments incorporating eco-design reached our target of 100%. Second pillar on the right, diversity and inclusion. The group is here again outpacing both targets. the percentage of management committees with more than three women reaching 87%, and the percentage of women in senior management at 20.4%. Turning to ethics and compliance. On top of the extension of our ISO 3001 certification to Canada and the U.S., We again mobilized the teams on anti-corruption training of all exposed employees. With more than 8,000 employees trained in 2023, we achieved this target as well. And finally, on health and safety at work, the frequency rate of accidents at work with subsequent lost work time decreased sharply by 37% versus 2018 compared to a target of 30% reduction. So after this rapid introduction, we will comment now our financial results in greater detail. So I'm now on slide number five. So starting with order intake dynamics. we achieved again a very strong order intake level in 2023, once again above 23 billion euros, namely 23.1, almost aligned with the record high of 2022, and a book-to-bill of 1.26, and even 1.31, excluding the IS, whose book-to-bill is structurally equal to 1. Strong performance and support to future growth as it represents the third year in a row that our book-to-bill is above 1.2. As shown on the slide, Q4 was a very strong quarter with 13 large orders over €100 million booked, including one jumbo contract signed in the UK called Maritime Sensor Enhancement Team, MSET, to improve the Royal Navy ship's availability and resilience over the next 15 years for a value just above 2 billion euros. This contract reflects our very strong positioning in naval and will include data-driven decision-making to enable MSAT to see beyond the current support horizons and with the increased investment in emerging technologies, including AI, virtual reality and big data creates a more proactive and predictive maintenance regime now looking at the different unit value of orders on the chart you can see that small orders below 10 million euros increased in value despite the significant impact of IoT modules transferred to Telet at the end of fiscal year 2022 for 362 million euros. Adjusted from that impact, the organic growth of these small orders stands at plus 6%, driven mostly by aerospace at plus 14%. Large orders came slightly below 2022, but you remember that we booked via jumbo contract UAE Rafale for a value just above 3 billion euros in 2022. So overall, a very solid performance again in 2023 in regards to order intake. Moving to slide six and looking at sales. Well, the currency impact weighed negatively on sales over 2023 for a negative minus 1.5% and minus 1.4 over Q4. The total scoop effect represented a negative 1.3% on sales But there are many pluses and minuses behind this number. That is the reason why we have decided to include an additional slide in the appendix with a table of all impacts by quarters, so you can refer to slide 44. Turning to organic growth over the full year, sales increased by plus 7.9% above the top of the guidance range with different dynamics across the three segments. And as I already mentioned, driven by the very strong performance of the aerospace segment over the year. I will come back in greater detail on the three segments in the next slide with Pascal. Turning to the geographical perspective, Let me point out that growth was solid in mature markets and especially in France, the UK, and all the rest of Europe and North America. Moving on now to slide seven, looking at the EBIT performance drivers in 2023. As mentioned already, EBIT was up by 10.9% organically year-on-year, with a margin progressing from 11% in 2022 to 11.6% in 2023, which is, as already said, a new record EBIT margin for the group. First, a word on the mechanical impacts. The strengthening of the euro had a small 21 million euros negative impact on our EBITs. Pensions were up by 36 million euros, thanks to a lower level of liabilities over the period after a strong increase of the discount rate in 2022. But more importantly, you can see the solid progression of our growth margin up by 338 million euros at 28% of sales compared to 27.5 last year. And you have more details on the P&L in appendix slide 37. Within indirect costs, R&D expenses continue to increase, but at a slower pace than sales. representing 6% of total sales at the end of 2023 versus 6.1% at the end of 2022. That does not reflect a gender strategy, but again our decision in 2023 to allocate more resources to project execution. R&D remains a key driver of differentiation for Thales and I will come back on the subject in greater detail later on. Our indirect costs have been in control. As you can see on the chart, G&A expenses and marketing and sales went up by less than the top line growth during the period. Finally, as expected, equity affiliates contributed less to our EBIT than in 2022, since last year we benefited from a 45 million euros positive one-off coming from another group now looking briefly at each segment one by one and i'm now on slide eight for aerospace so Orders at 5.6 billion euros were down by 5% organically due to high comps in both businesses. The aeronautic business continued to be quite dynamic in Q4 with two large orders booked, one related to the training and simulation activities for the Rafale UAE and one to install our new IFE product onboard the future Emirates Boeing 777X. The 2023 double-digit organic growth was fueled by the civil aftermarket orders up 32% versus 2022. In space, While we booked six large contracts during the year in our observation, exploration, and navigation business, the activity total orders booked in 2023 were below last year's strong performance, with no large order booked in 2023 in the telco business. As you know, this part of the business is going through a difficult path and not just at Thales. There was an overall decline in demand impacting the geostationary telecommunications satellite market in 2023. And again, I will come back on the subject later on. Sales now. Well, sales at 5.2 billion euros increased strongly, up 11.7% organically. clearly driven by the above expectations strong growth in aeronautics showing a strong double-digit organic growth in both oe mostly driven by airbus higher production rates and after market activities benefiting benefiting from the ongoing traffic rebounds over 20 months this compensated the underperformance of the space business. As previously mentioned, the telco part is still facing supply chain challenges, notably the propulsion system, leading to execution delays on some programs. Overall, space business revenues remained flat compared to 2022, and we expect that it should be the case again in 2024. Now, if we look at profitability, EBIT margin further expanded from 5% in 2022 to 7.1% in 2023, driven by the strong performance of the Avionics business. Indeed, this business was back to a double-digit EBIT margin in line with where it was before the sanitary crisis, thanks to a strong operational leverage the top line growth on the other hand space came at breakeven over the full year impacted by a flat top line versus 2022 higher costs due to inflation and delays in pro in program execution as mentioned before and maybe a last word before we move to we move on to the next segment As you know, we have been working at finalizing the COBAM deal and I can confirm that we are progressing very well. At this stage, we believe we should be able to integrate COBAM to the group sometimes at the start of Q2 2024. It is important, it is an important information for you to adjust your models and also to be taken into consideration when looking at the foliar guidance. So turning to slide number four, looking at the defense and security segments. So order intake amounted to 14.1 billion euros up 2% organically versus the 14 billion euros record high of 2022. Q4 was again a very strong quarter with 10 additional large orders booked, bringing the total of 17 large orders above 100 million booked during 2023. Our backlog reached 35 billion euros at the end of 2023 versus 31 billion euros at the end of 2022, a new record high representing 3.6 years of sales. Sales amounted also to 9.8 billion euros, up by 7.5% organically versus 2022. Many business units reached, again, a double-digit type of organic growth, like critical information systems, cyber defense solutions, above water systems, or surface radars, just to give a few examples. This strong level resulted from the combination of our strong backlog, as mentioned above, and the efforts to put by the group into ramping up its capacity to deliver on programs. And I will also come back on these ongoing CAPEX efforts in the strategy part of the presentation. Last point, the EBIT margin. As you can see, still strong at 12.8%. and in line with the 2022 performance. So finally, the IS, digital identity and security. And I'm now on slide number 10. At 3.3 billion euros, sales were up by 4.1% organically And let me remind you here that the decrease in terms of value is due to the transfer of the IoT modules business to Telet from 31st December 2022. And this is for a total sales of 362 million euros. Two different dynamics between H1 and H2 in terms of organic growth for this segment. A strong H1 across the different businesses at plus 11.7%. And as anticipated, H2 slightly negative overall at minus 2.2%. The negative organic growth in H2 can be attributed to two distinct dynamics. On one hand, digital solutions, namely cyber and biometrics, continue to perform very well with high single-digit organic growth, despite the biometrics facing tough comparisons from H2 2022 and thus experiencing a normalization in activity levels since Q2 2023. On the other hand, smart cards experienced negative growth compared to very high comps in H2 2022, alongside decreased demand in terms of volumes and a decline in pricing. The influx of low-cost competitors in the market led to a downward pressure on prices, prompting us to prioritize profitability over volumes. While we could have potentially increased sales volume, the associated margin would have not been acceptable to us. And finally, EBIT, EBIT was up by 1.5% organically at 508 million euros, with an EBIT margin progressing significantly from 13.7% to 15.2%. And this, of course, including the relative impact of the deconsolidation of the IoT modules. Other factors explaining the strong increase of the EBIT margin are, number one, the net gross margin improvements compared to 2022, thanks to favorable product mix, including the transfer of the IoT modules I've just mentioned. And number two, the operating leverage on a higher biometrics sales over 12 months. So let me just remind you two significant scope evolutions to take into consideration for 2024. Number one. First, of course, the integration of IMPERVA over the 12 months of 2024, as we finalized the deal beginning of December 2023. And number two, the transfer of the civil cyber activities from our defense and security segments from the first January 2024. And we will come back on that part when commenting slide 31 to give you more granularity. Turning now to slide 11, looking at items below EBIT. First, the cost of net financial debt was lower in 2023 at 36 million euros versus 84 million euros in 2022, hence benefiting from the improvement of the group's cash position compared to 2022 and the rise in interest rates over the period. On the other hand, The finance costs on pensions and other employee benefits went up from 35 million euros in 2022 to 76 million euros in 2023. This increase is mostly coming from France with a 31 million euros cost increase due to the sharp increase in rates in 2023 times four. from 0.91% to 3.71% and partially offset by the drop in commitments versus 2022. Then taxes, as you can see, the effective tax rate is slightly decreasing at 20.1 versus 20.6% in 2022. We expect it to remain between 20 and 21% in 2024. Then minorities, moving from a negative contribution in 2022 at minus 18 million euros to a positive contribution of 12 million euros in 2023 due to the Thales Alenia Space negative results in 2023. leading to an adjusted net income from continued operations group share moving up from 1.47 billion euros in 2022 to 1.66 billion in 2023. I just would like to stress out that this basis of comparison that you have to consider for next year when the disposal of the transport division will have been finalized. On that note, everything is progressing as expected, and we are confident that the deal will be closed by the end of H1 2024. Below, you can see the adjusted net income from discontinued operations, which is the contribution of transports up from 90 million euros in 2022 to 105 million euros in 2023. Please note as well that the group will no longer benefit from this additional contribution for the same reason just mentioned. All in all, this led to an adjusted net income group share reaching 1.77 billion euros and an adjusted EPS of 8 euros and 48 cents up 15% versus last year. Now a few words on the conversion of EBIT into free operating cash flow. I am now on slide 12. a word on the usual recurring items. Regarding equity affiliates, which corresponds to the gap between our share in their net income and the actual dividends we received from them, this is where you find the positive one-off at Navalgoo. This year, CapEx stands clearly above DNA, resulting in a global negative balance of 171 million euros on our cash conversion. This definitely reflects the group's strategy to invest into future growth and capture market opportunities. And I will come back as well later on on our future CapEx plans. Change in WCR represented 173 million euros tailwind in 2023. And sorry, other cash items, not included indeed EBIT, such as cash restructuring, Forex, or IFRS 16 lease depreciation, amounted to a net 75 million euros positive. Finally, transport contributed for 57 billion euros in 2023. So all in all, another year of very strong free cash generation remaining above 2 billion euros in 2023. So now moving to slide 13, commenting adjusted net income cash conversion that outperform the 90% plus target set for this year. This robust performance can be attributed to several factors. Firstly, the order intake throughout the year exceeded expectations, particularly in defense and security. Secondly, we have continued to benefit from favorable payment terms and phasing on our defense contracts. And lastly, the ongoing implementation of our cash action plan has yielded positive results, including improved on-time collection of invoices, and successful management of inventory levels despite inflation and increased overall activity. It is worth noting that our first cash initiative was launched three years ago now, and we have decided to reintroduce an updated version in 2024 to further enhance these efforts in the future. For 2024, Well, we anticipate another year of robust cash conversion close to 100% fueled by a projected additional down payments on 2024 order intake and existing contracts. Finally, moving on to slide 14, with a quick look at the evolution of our net debt position. As I commented at the beginning of the presentation, we have materially accelerated in terms of capital deployment in 2023. especially with the acquisition of Imperva for 3.7 billion US dollars, and with the UK pension obligation externalization that led to a minus 1.1 billion euros cash impact that corresponds to the sum of the corresponding pension deficit and the premium we paid to the insurance company that took over the obligation. The dividend cash out increased to 634 million euros in 2023 versus 563 million euros in 2022, in line with the net income progression. The cash out related to the share buyback amounted to 461 million euros. In 2023, we purchased 3.5 million shares over 12 months, which means that at the end of the year of last year, 2023, we had already purchased 3.2% of the capital out of the 3.5% targeted. As a result of those pretty significant moving parts, The group's net debt stands at 4 billion euros at the end of December 2023. So a word on dividends, and I'm now on slide 15. So this year, the board decided to maintain the payout ratio at 40%. which drives a dividend of €3.40 per share, up 16% versus 2022. As you see from the chart, this corresponds to a significant 25% per share increase in the dividend since 2020, reflecting the strong EPS performance. So that marks the end of the financial review. And now I will address our strategic priorities and guidance. So now I'm on slide 17. And I'm turning to our strategy and outlook. Here are the four strategic priorities we intend to focus on in the near term. And let me address them briefly one by one. So moving to slide 18. To address the strong underlying trends in our markets, One of our primary focuses in the recent years has been to increase our capacities. This includes not only production capacities, but more importantly, ensuring we have the right talent in place to seize market opportunities. We have successfully executed our ambitious recruitment plan announced a few years ago with significant progress made in 2022 and 2023 as illustrated in the graph. These hires have enabled us to strengthen our engineering centers in Romania and India and increase production output as planned. Additionally, it is worth noting that our global turnover decreased by more than 1.5 points, returning to pre-COVID levels, which is a positive indicator of market recovery. To ensure the smooth integration of new hirees and provide them with the necessary tools and tools for success, we have also enhanced our onboarding processes and established internal academies tailored to specific competencies. Looking ahead to 2024, we anticipate recruiting approximately 8,500 people for high expertise roles while continuing to invest in enhancing Thales brand awareness. Furthermore, internal mobility initiatives will be linked to the repositioning of our space telecommunication sector, a topic I will explain later in this presentation. So moving to slide 19. Well, ramping up also means investing in our facilities. As showed in the graph, We have further invested in 2023 to ramp up our production capabilities and we will continue to do so in 2024. We are, for instance, well on track to more than double our radar production capacity in France by 2025. Those capex have been used also to optimize our industrial footprint, leading, for example, to sites such as our DIS site in Poland or some partnership projects for production localization in the Middle East, while seeking better adaptation of our sites to new modes of work, connectivity, attractiveness, and so on and so forth. and to the group's environmental objectives, carbon footprint, energy efficiency, to mention a few. We have also launched a key project to deploy a global engineering information system, highly secured, cloud and cloud-based. This will develop velocity and fostering real-time cross-continental engineering team collaborations. In addition, we have been working tirelessly to mitigate supply chain tensions as well. While the situation has improved regarding electronic components, we are still rolling out broad action plans with our suppliers to mitigate recurring tensions on hardware, namely PCB and mechanical parts, to ultimately preserve our customers. Second priority, and I'm now on slide 20, sustaining excellence in R&D, which remains a major driver of competitiveness in our markets. So today, and I'm very proud to say so, Clarivate, the innovation analytics company, named Thales among the top 100 global innovators for the 11th time in a row. This recognition illustrates the strength of our R&D leadership and our desire to remain very innovative as reflected in our impressive 20,500 patents portfolio. Of course, to achieve this ambition, we continue to leverage on all sources of funding. A good example is R&D grants from the EDF, the European Defence Fund. We have benefited from more than 70 million euro grants in 2023, placing us as the main beneficiary of this fund. A significant share of our R&D expenses is also funded by customers like MODs, illustrating their appreciation of our valuable work. In terms of investment areas, we are still very much focused on quantum sensing, edge computing, or open source hardware. A key area on which I would like to spend more time is also artificial intelligence. So let's move now to slide 21. So moving to slide 21, where I would like now to unveil the extent of Thales capabilities in AI for critical usages. AI is already a reality for Thales, of course. We have been working on this for several years, if not many years in a row. A few examples, among others, AI can accelerate customers' operations. Typically, regarding PodTalios, the onboard AI analyzes in real-time electronics images captured in flight 100 times faster than any current manual search. TopSky sequencer in civil aeronautics. This allows increasing airport landing and takeoff capabilities by 20%. But AI can also improve decision-making. And regarding our maritime patrol, for instance, AI enables automatic target categorization of our search master radars. Or another example on the mine or related to mine countermeasure, AI leads to a revolutionary system that fully, autonomously detects identify and classify mines. So at Thales, we are already at scale with an impressive critical mass of 300 AI specialists from upstream R&D to implementation in sensors and systems. This internal expertise will help boost the group productivity also. such as regarding automatic coding generation and massive testing. At last, let me point out that Thales is a pioneer to protect AI, its own AI and AI from others as well. This is a strategic issue for both our customers and Thales as well. We have been distinguished in many independent challenges in AI security, like friendly hacking. Our capabilities allow us to ensure end-to-end security solutions, the robustness and cybersecurity of AI by mastering the variety of hacking sites and developing strategies to counter them. For example, to avoid false classification of poised images, well, we introduce a watermarking solution. Thales' true AI approach is really key to develop our solutions, which meet three principles. They are transparent, they are understandable, and they are ethical for a trustworthy AI. Moving now to slide 22. This slide is to address the third strategic priority, sustainability. You already know this slide. Thales has more than ever a role to play in developing technologies contributing to a safer, greener, and more inclusive world. safer through high-tech equipment, providing sovereign states with the means to protect their territory and population. Among the notable examples of 2023, we can cite the success of the GM200 and GM400 military radars, which enabled many customers, many countries to monitor their airspace. Furthermore, the groups growing Prominence in cybersecurity stands out. With Imperva's acquisition, we are now one of the top five global leaders in this field. Secondly, a greener world, more environmentally friendly, thanks to a range of solutions designed to reduce our customers' ecological footprint or better observe environmental phenomena. For instance, in the civil aviation sector, Airbus' adoption of the PureFlight flight management system will help reduce airline operations' carbon footprint through flight path optimization. In the space sector, we won a major contract in 2023 for the establishment of the IRIDE constellation, a pioneering program in Earth observation. And last and number three, a world that is more inclusive. A good illustration is the implementation of the true biometrics offering that contributes to the advent of transparent, understandable, and ethical biometric technologies, aiming in particular to eliminate the risk of a discriminatory bias. Moving now to slide 23. Our sustainability efforts have garnered external recognition as evidenced by the recent ratings we've received. Typically, in March, we obtained the SBTI certification, which served as confirmation of our significant pledges towards reducing CO2 emissions by 2030. In addition, the group was rated A by CDP, an impressive distinction placing Thales in the leading 1.5% companies. Similarly, the ECOBADIS certification ranks Thales among the top 1% of companies, platinum medal. And finally, the group was selected by the Euronext Paris to join the CAC SBTI 1.5 index and was number one of CAC 40 in the LSCE ranking concerning corporate scientific responsibility. Moving to slide 24 now, and this one is related to capital allocation. Over the past two years, who have successfully deployed all our capital allocation levels. We have been very active in M&A and portfolio management, representing close to 4 billion euro impact, as we announced not less than five acquisitions in cybersecurity, and positioning now Thales as safety cockpit communication leader, thanks to the announced acquisition of Cobam Aerocomps. In terms of returns to shareholders, at the end of February, we have conducted 92% of our share buyback program. And then adding to that, the dividends paid over the past two years, it represents a 2 billion euro contribution to shareholders. And finally, as we committed last year, we have successfully derisked our balance sheet from our UK pension obligations with a deal announced in December last year representing a 1 billion euro cash out. It was the ideal spot to do so given the current level of interest rates and long-term inflation and their impact on the valuation of this liability. And let me remind you that since December 2023, we no longer need to make cash payments of around 100 million euros per year to fund this obligation. I'm now on slide 25. So what can we expect this year in 2024? Well, we will continue to keep an eye out for selective acquisitions, applying the same strategy as always, seeking plug-and-play assets that complement our existing businesses, while maintaining a strict discipline encompassing both financial and strategic assessments, as well as valuation considerations. In terms of upcoming pluses and minuses to anticipate 2024, well, number one, we anticipate finalizing the acquisition of Cobham Aerocom along with the receipt of funds from the divestiture of our transport division with an estimated impact of 1.5 billion euros. Number two, our aim is to sustain our dividend payout ratio at around 40% alongside the completion of our ongoing share buyback program. And number three, our overarching objective remains unchanged to uphold a solid investment grade profile. Let me now give you some perspective on each of our operating segments, starting with avionics. And I'm now on slide 27. So we have identified several growth drivers for 2024 that will lead avionic business to continue to grow at a more normalized pace in 2023. where sales grew by an exceptional 12% organically. First, aftermarket sales will continue to benefit from dynamic air traffic, albeit at a slower pace than in 2023, where likely airlines built inventories. The ramp-up of commercial aircraft production should continue as publicly stated by most of our customers, despite still a tight supply chain. And in IFE, we have reported several commercial wins in 2023 that are progressively fueling sales recovery. Interesting to notice that historically focused on white body, IFE products are progressively expanding to single A. And last, demand remains robust for military avionics. Finally, we have been dynamic in terms of strengthening our portfolio with the acquisition of Cobham Aerocom as already mentioned and described. And we have also disposed our aeronautical electrical systems. Let me now spend some time on our space business And I'm now on slide 28. So as a reminder, our space business is part of what is called the Space Alliance, which involves two joint ventures with Leonardo, namely Thales Alinea Space, specialized in space infrastructures, and Thales Patio, specialized in services. Thales Linear Space is fully consolidated in Thales Financial Statements, and Leonardo's share is accounted for a non-controlling interest. On the other hand, Telespasio is consolidated as an equity affiliate. Regarding TAS, as you can see on the pie chart on the middle, One of our key assets is that we have a well diversified portfolio of customers. Two-thirds of task sales are generated in institutional and military markets where we enjoy strong leadership positions. Those markets offer many domestic and export opportunities. For instance, in November 2022, the European Space Agency, a ministerial council, committed to its biggest ever budget increase, leading to plus 17% in ESA budget for the next three years, namely 2022-2025, total subscriptions by member states. equivalent to a yearly 5% growth, which will drive significant opportunities for us. That was for the first two-thirds. The remaining one-third of task activities are dedicated to commercial customers and mainly telecommunication operators such as SES, UTELSAT or INTELSAT. In this field as well, we offer best-in-class product range from geo-satellites to LEO and MEO constellations, for instance. Despite current headwinds, we identify market opportunities over a long term, such as the new generation of highly flexible geo-satellites, so ultra-defined satellites, the Iris Square constellation in Europe, and several other Liomio projects. And in defense, we see undisputable terrain growing needs, Syracuse 5 project for the French MoD, for instance. Now, if we focus on the commercial telecommution side, and I'm on slide 29. So yes, we have been facing in this activity the combination of congenital exogenous headwinds, no inflation pass-through mechanism in place while inflation has reached unprecedented levels, and supply chain difficulties, notably for propulsion in our case. Those have led to delays and higher costs in development of our new direction of satellites. In addition, the underlying market dynamics have been changing with lower geosatellite orders moving from 20 historically to rather 10 per year and in 2023, while the emergence of megaconstellation impacts the business model of satellite operators. In this context, we are putting in place a contingency plan aiming to adapt our activity to the geomarket new size while maintaining our ability to manage constellations projects and leverage defense, SATCOM and OEN momentum that I previously described. These necessary structural adjustments to our cost base are leading to the redeployment of around 1,300 positions, out of which 1,000 France, to other TALES activities, given the expected growth from the other activities of the group. This plan will be executed over 2024 and 2025 and a social process will be launched in the coming weeks. The ultimate objectives being, number one, adjust the workforce to the current workload. Number two, reduce fixed costs to enhance competitiveness. And number three, as a consequence, restore space midterm profitability towards 7% EBITS margins. Turning to our second reporting segment, Defense and Security, and I'm now on slide 30. Firstly, demand remains robust and our backlog has reached a new record high at 3.6 years. Geopolitical tensions are pushing up budgets in our key regions, giving us opportunities to grow. In addition, our product lineup meets the needs of customers preparing for high-intensity conflicts, and EU initiatives are backing joint procurement with new funds and aiming to make as much as half of its defense system purchase within the EU by 2035. Sales are steady and should continue to grow. despite some supply chain issues. And we are ramping up capacity to meet demand, as I explained earlier. From a margin standpoint, we expect to continue to deliver industry-leading margins close to 13%. Well, I'm now on slide 21, looking at our third and last segment, the IS. Firstly, cybersecurity remains a top priority. We are in the process of Integrity Imperva and Tesseract, about which we are very excited about as they enable us to expand our leadership position in the market, including application security and premium cybersecurity services. Additionally, we are transferring civil activities from defense and security, creating even more synergies. Our R&D efforts in biometrics are aimed at building product leadership, ensuring we stay ahead of the curve in this rapidly evolving field, and we grow our profitability in this field. With smart cards, our focus remains on maximizing margin contribution, as we did in 2023. We are expanding our cloud-based business models with promising transitions to eSIM and e-banking services. And a very important message. We estimate that in 2024, our SIM, removable SIM, should only represent 7% of DIS revenues. Lastly, we are anticipating a normalization of demand and stock levels, providing resilience for our operations. Let me comment as well key 2023 realizations that are fueling 2024 pipeline. In securing a mobile connectivity, we have seen a strong acceleration of eSIM adoption. primarily in the US, but not only. In 2023, we have more than doubled the number of eSIM activations performed in our extensive install base of on-demand connectivity platforms. We have also crossed a very important milestone with now more than 100 million of cars securely connected with our automotive eSIMs. In payments, we are supporting the move to eco-friendly payment cards with a full range of recycled plastics or bio-sourced cards. We have more than doubled the number of eco-friendly cards delivered in 2023, crossing the 250 million units milestone. We are also enjoying significant growth with fintechs those fintechs issuing more and more physical payment cards, a strong indicator that physical payment cards are here to stay in the foreseeable future. Lastly, with the acquisition of Imperva, our cloud-based annual recurring revenues has enjoyed a step change with a threefold increase. The Imperva contribution coming on top of an already sizeable and fast-growing set of transaction and subscription-based revenues, like the SIM activations I've just mentioned, like our digital banking solutions, or our customer identity and access management platform. So all this brings me to our financial objectives for 2024. And considering the strategic priorities and business outlook that I just described. I'm now on slide 32. So with respect to order intake, we expect another year of strong commercial performance, driving a book-to-bill ratio above 1. We expect sales to grow organically between 4% and 6%. And based on the February 2024 foreign exchange rates and Cobham Aerospace Communications integration as of April 2024, this corresponds to sales between 19.7 and 20.1 billion euros. Incorporating all the drivers we discussed earlier, we expect a further improvement in EBIT margin, reaching between 11.7% and 12%. So this concludes my presentation. Many thanks for your attention. But Pascal has just arrived. He was a bit late and stuck in the traffic to be transparent. So that's why I was the only speaker this morning, but now Pascal is with us. and we are happy together to answer 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 and wait for your name to be announced. Thank you. We are now going to proceed with our first question. And the questions come from the line of Christophe Menard from Deutsche Bank. Please ask a question. Your line is opened.

Yes, good morning. Thank you very much for taking my question. The first question I had, I know it's early days, but for Imperva, can you comment on the attrition rate, if any, that you may have seen? Or conversely, is it easier to retain people or employees at the moment in the tech world? That's the first question. The second question was on the aftermarket growth in avionics. What kind of growth should we expect? I mean, I understand that it should be lower than in 2023, but still, I mean, what we've heard from other sectors like the engine guys, there's still strong growth in aftermarket. So is it something similar or can you help us quantify a little bit? And regarding the space restructuring, can you give us a little bit more detail on the restructuring cost and also what proportion of employees the 1,300 that represents as a whole of the space activities. Any further color on this would be interesting and helpful. Thank you.

Good morning, Christophe. Pascal Boucher speaking. And once again, sorry for being late this morning. I was, as Patrice mentioned, blocking traffic jams. Maybe I will start with your third question about space, Christophe. And yes, it's true that, of course, we will add a bit higher level of restructuring charges for 2024. By the way, this is embedded in our guidance on EBIT margin. And if I look first, I mean, at Thales as a whole, if you look back at the recurring level of waste trucking charge on our P&L, if you look at the last three years, including 2023, we were more around 90 million euros. In 2024, we believe that this level will be significantly above, probably something like 120 million euros. And this reflects two things. One is, I mean, the cost associated with the recovery of space. And also second, but that's the point that we have already highlighted in the past, of course, in Perva, we need to spend a bit of cash, I mean, in order to integrate this business. So overall, I mean, this plan for space will be delivered in 2024-2025 Overall, I mean, as a rule of thumb, let's consider that in terms of overall withdrawing charges on our PLM, it should be something like 50 million euros, 5-0. So which, as you mentioned, is a bit significant. Even though, as we mentioned, I mean, most of the employees that are affected by these situations will be redeployed within TELUS. But still, in particular, managing mobility is great, training people, all of that has, of course, a bit of a cost. You asked for how large is it relative to the size of our space business. So overall, our space business has a total headcount of around 8,500 people. So you see, I mean, here we are talking about 1,300 people out of, no, excuse me, 1,300 jobs out of 8,500 in this business. AGS, as we mentioned, I mean, the performance in 2020-2023 was outstanding, above our expectations. And overall, I mean, around 30% growth. versus 2022 with probably some kind of catch-up effect and in particular when it comes to spare parts. Probably I mean airlines have stopped ordering spare parts throughout the COVID and probably were willing to catch up in 2023. Now, going forward, I don't want to be that specific. Of course, I mean, there is no reason why overall our level of growth on our aftermarket would be different from the one from our competitors. I mean, the players, I mean, suppliers of this type of equipment, it should be similar. But of course, I mean, it's a bit more difficult at this point to be more precise on this front. What I can do overall, Christos, maybe is to guide you, not just on AGIES, but probably your questions allows me, I mean, to come back on a more global footprint about what did we factor in our guidance in terms of organic growth rate for Thales as a whole and what does this mean for our avionics business. Overall, it's consistent with probably a mid single digit plus type of organic growth for our overall Evunix business. Your last question was about Attrition weight.

Hello Christophe, good morning. So nothing noticeable if I may say, so quite reassuring. We have not observed any surge in the attrition rate. It's quite standard for this type of activity, very reasonable in fact. So we are confident that all the talents that we need to retain will stay with us and are happy to work with Thales now.

Thank you. Very reassuring. Thank you very much.

Thank you. We are now going to proceed with our next question. May I kindly ask everyone to limit yourself to two questions per participant for everyone to have the opportunity to answer questions. Thank you. We are now going to proceed with our next question. And the questions come from the line of George Zhao from Bernstein. Please ask your question. Your line is opened.

Hi. Good morning, everyone. First on cash use. Your current share buyback program expires this month. Given that you're going to have a net cash inflow from the Aerocom's acquisition and the transporter disposal, how are you thinking about potential for further share repurchase beyond this month? And second one, drilling further into your 46% organic growth forecast this year, you said DIS expected to be in line with last year's 4%. Aerospace decelerating a little bit from 12% last year. I guess that seems to leave defense in space in the five-ish percentage range. I guess, is that your working assumption for the segment, or are you assuming something higher towards the path of the mid-single digit plus growth that you've been talking about?

Thanks. Thank you very much, George, for those two questions. Maybe I will start on your question about defense. So far you remember our guidance that we communicated just a year ago on the 2023-2024 period of time and at that time we said that we're expecting defense organic growth to be mid-single digits in 2023 and mid-single digit plus 2024. Now when you look at our 2023 figures I guess you concur with me saying that we have outperformed the level of organic growth for defense and security business because overall it stands at 7.5%. So above expectation. Now looking forward in 2024, I mean, I guess that you realize, I mean, the size of our backlog for this business. So, I mean, the traction is there. Now, we also need also to share with you that we keep adding a material impact from the supply chain. This is today clearly, I mean, the limiting factors on supply chain. I can tell you that 2023 has been quite a bumpy journey in terms of managing the supply chain in particular on our defense business. And probably a bit difficult at this point to say whether or not we will see significant progress or not on this matter. This is in particular the case on two types of components, one being PCB, I mean, printing circuit boards. And the second being more extensively on hardware, where we keep seeing a number of suppliers, and this is not just in a single country, but really across the board in many countries, still struggling to ramp up their overall production capabilities. And that's for me and probably today the meeting factors. When you put all of that together, At this point, what is implicit in our guidance is the level of organic growth for defense and security business, probably, I mean, mid-single digit, mid-single digit to mid-single digit plus, that's probably, I mean, the best rule of thumb today. even though we have enough in terms of backlog to go even further, but with the limiting factors that I mentioned. Your first question about the usage of cash, I guess that we have been quite explicit on what we have done in 2023, and in particular, I mean, this decision, I mean, to de-risk our balance sheet with regard, I mean, the issue of UK pension funds, where, I mean, as we said, I mean, we have allocated 1 billion euros of capital on this matter. And this has to be taken into account in the overall equations. So what we are going to do is, of course, to complete this share buyback. This will be done by the end of March, as expected, as committed. I mean, that's a program that we started two years ago and we said it will be completed in two years time. And this is basically what we have done. I guess that we have demonstrated that Thales can use this type of tool when it comes to managing, optimizing its overall capital structure. I don't see us moving on this front in the next few months. Now, that's an open topic, which means that we will keep working with our boards to see what it means in the mediums. So, I mean, first, we demonstrated that it works. Second, probably not in the very short terms, but, I mean, the line is still open with our board on this matter.

Very clear. Thank you.

Thank you. We are now going to proceed with our next question. And the questions come from the line of David Perry from JP Morgan. Please ask your question.

Yes. Good morning, Pascal and Patrice. So two questions. The first is just on the smart card business. Can you just remind me? What's the kind of visibility on that? Is it a business you plan quarter to quarter, or do you have visibility six months, 12 months, just on things like volume and price? And the second one, maybe I'll cheat and make it part A and part B, but on space, what's the timeframe you've got in mind to return to a 7% margin? And part B, Leonardo last Thursday was suggesting that there'd been some talks perhaps with Airbus about industry consolidation to deal with some of the challenges you've got. Could you talk to that, please? Thank you very much.

OK. Thank you very much for your question, David. So first, on smart accounts, I mean, this is, as we keep seeing, a short-term type of business in terms of cycle. Which means that the overall visibility in terms of order intake is more in the three to six months. So it's, of course, a short-term type of visibility. Now, having said that, I mean, we track the market, we've got indicators that give us in our view, quite a good view on how things should develop throughout 2024. I tend to believe that in terms of price, the visibility is more, let's say, a one-year horizon when it comes to banking. Even in some cases, a bit further than that. The price anticipations on removable SIM accounts is more limited. It's more in the question of a couple of months. Now, and that's also what's important. Now, when we look at the sales of our removable SIM business in 2024, the revenue of will be below 300 million euros, which represents less than 7% of the overall revenue of the IS business. We have seen, and by the way, less than 300 million euros is something like 40% of the sales of a mobile communication solution business line. And the reason for that is that we keep developing a lot of digital business embedded theme with behind that, I mean, services. So in particular, in the rise of activations, and Patrice made it clear in his presentations. And also, second thing, which is going pretty nicely, is the embedded theme communications in other markets, and particularly in the car industry. Today, most of new cars are equipped with embedded SIM, and we take advantage of this new business, in particular when it comes to activation. So on space, I mean, we mentioned, I mean, a return to this 7% of EBIT margin in the midterm. So the midterms in our understanding is probably something around 2027, David, if you want me to be a bit more precise. And the last point was Patrice, I mean, on discussion.

Hello, David. Good morning. Well, you know, we are with Airbus and ourselves and Leonardo, you know, in the consortium for Erie Square. So it's quite, I would say, natural that we discuss on this particular topic. Erie Square is a big initiative led by the EU, as you know. Still, by the way, difficult to predict whether it will come to a positive outcome or not, because it's quite a complex initiative. endeavor for everybody so that's the main purpose of our discussion with uh with guillaume and roberto and the rest are we say more or less a speculation that you know everything about the the sector is quite uh concentrated and complex so uh My main focus as a Thales is really to succeed our restructuring plan on Telco. That's a top priority for the Space Alliance. To grow our OEN business, which is a nice business, again. Two-thirds of that is related to observation, exploration, and navigation. And third, to continue to develop and, if possible, invest in the services part of Tel Spazio. So, you see, we have already plenty of food on our plate, so we shall focus on that and try to make Iris Square happen, which is of another kind, but very important for all of us.

Thanks. That's very clear. Thank you.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Mayor Rick Puller from Kepler Shiver. Please ask a question. Your line is opened.

Yes, thank you very much indeed. Good morning, everybody. So the first question for me is on capital allocation. And if we combine the acquisition of Gemalto and Imperva, we have an investment of in excess of 9 billion euro. And the DIS currently contributes to slightly in excess of 500 million of EBIT. So when do you expect the return of this too large deal to meet your order rates And perhaps on that, do you see the comments made by Palo Alto recently around the potential slowdown of cybersecurity market as a risk to this target? That would be the first question. And the second one on share buyback versus M&A, obviously you've been paying top dollars for a large acquisition while the stock price has not performed well relative to its peer and now arguably traded at a decent discount to most of its closest comparable. So how do you actually make the decision on capitalization between share buyback and M&A and what would be the criteria you would use to justify perhaps a second share buyback?

Thank you. Good morning. Eric, maybe I will start with your first questions for analysis about what we invested in Gemalto and Imperva and the 500 million euros that you mentioned. I think that you are a bit unfair because you mentioned the combinations of Gemalto acquisition plus Imperva but you just take into account the contributions of Gemalto and not take into account the contributions of of Imperva in terms of bottom line that is of course going to happen from 2024. First point, now I mean when looking and let's split your question in two parts. One is the acquisition of Gemalto, where today with the level of EBIT which is reported in this business, plus also some synergies that we managed to get in other businesses. We're already today on Gemalto acquisitions at a level of returns which exceed our cost of capital. First point. Second point, as we announced the InterVAT transactions, we made it clear that I mean, we would be able to meet the hurdle rates in terms of cost of capital. I think that we mentioned for five years post the transactions. And this is basically what I confirm to you today. So this is how I could answer your questions. Your question on Palo Alto, what was it exactly?

I think two or three weeks ago there was a significant drop in the share price as they commented on the potential slowdown of the cybersecurity market and I wondered if that kind of impacted your own cybersecurity business.

Overall, I mean, we expect globally our cybersecurity business in 2024 to be, I think, a low double-digit business overall when it comes to, in particular, global security products, including Imperva. This is basically what we forecast, so no specific additional comment on this matter. By the way, I mean, we keep seeing more and more of our customers really open and willing, I mean, to have a vendor like Thales to be able to come up with an integrated offer. I mean, this concept of one-stop shop, which is more and more important for clients and considering, I mean, the complexity of the offer. So for us, Thales being able to come up with this global fully integrated data security platform, together with this new offer on AppSec, and all of that combined with our offer on identity access management. So really, I mean, placing Thales really at the heart of the key vendors when it comes to cybersecurity supply is what we see is more and more appreciated by our clients. Your second question was about the share buyback M&A. Overall, I think that we demonstrated our ability to move on various tracks when it comes to capital allocations. And at the end of the day, it's in my view quite a balanced move on one side. I mean, meaningful acquisitions that are preparing the future of this company in terms of the quality of businesses, in particular in those businesses where we see a clear potential for higher growth. This combined with quite a significant level of cash upstream to our shareholders. I mean, just in 2022, 2023, 2 billion euros. And as I mentioned, I mean, this will be open. Of course, we also need to take into account, I mean, when it comes to share buyback, I mean, the impact of the rise in interest rates, all of that, I mean, has also to be taken into account. And also specific uh specific uh decisions when it comes also to manage a long-term risk of thales in uh and in particular uh when it comes to managing i mean uh i mean pension obligations where i mean we really fix i mean this issue in uh in uk Now, I mean, to be more explicit when it comes to M&A criteria, of course, I mean, valuations, multiple is, of course, at the heart of our analysis. Of course, I mean, valuations, return invested capital, of course, is also part of the overall equations.

Okay.

Thank you.

We are now going to proceed with our next question.

Please stand by.

The next questions come from the line of from BNP Paribas. Please ask your question.

Yes, good morning. Thank you very much for taking my question. So the first one is on defense margin in 2023. So you had 7.5% organic growth. Margin is a slight pullback. Can you help us understand how much you think of the supply chain difficulties have been dragging down the margin and whether you think we can improve that a bit further as you saw over time this supply chain drag? And the second question is a more general question about efficiency within the group. You say you're investing in staffing and preparing for the stronger growth for the group. Can you comment on where do you think productivity, especially employee productivity, is within the group today and where you want to bring it over time? Thank you.

Mm-hmm. Tristan, maybe I will start with your first question about defense. It is true that in 2023, as I mentioned earlier, we have been a bit impacted by supply chain difficulties. Despite that, we delivered. a strong level of growth, but at the expense of a lot of efforts at our teams. I mean, our teams have done a fantastic job in navigating through those difficulties. Now, when it comes to, and I guess your question was more yes, but what does it mean, the bottom line? It's always a bit difficult because you need, in some cases, a bit of stop and go. I mean, to wait for a part from the supply chain to arrive. So, I mean, this type of difficulties, it's probably a few tenths of a million euros of bottom line impact, probably something like 20, 30, 40 million euros in terms of bottom line impact overall which you see at the end of the day is not that significant but it's more I mean the fact that really our teams has to get mobilized more than 100 persons, I mean, to navigate through this type of difficulties.

Productivity. On productivity, Bonjour, Tristan. Productivity, of course, We work on as many levels as possible. Typically, I try to mention some of them in the engineering side, like the use of GNI to generate code automatically or semi-autonomously, or to use GNI as well for massive testing and so on and so forth. Now, which really counts, and there is, of course, the operational level as well, thanks to growth. Now, which really counts is the margins. We can generate the level of profit. And as you know, we navigate, I would say, first at already a high level in terms of margin defense, 13%. It's a betting class, you know, including, of course, US peers. And also, we are, I would say, at least in defense, you know, most of the time, margins are audited. So we need also to... To keep that in mind, sky cannot be the limit in this regard. So for us, when we work on productivity, probably it's a lever that counts, but We do count even more on innovation and technology to drive growth. It's more a question of growth now than the question of trying to extract even more profit from our customers. You know, governmental customers are also sensitive ones about profits. That's why DNA of Thales being tech and innovation is quite suited for this type of customers and markets. And that's why we insist so much on preparing the future, investing in new technologies to drive differentiators and growth today and tomorrow.

Thank you. That's very helpful. I think my question was not very clear, so I apologize for that. But what I meant is that when you look at the strong recruitment of over 10,000 employees per year in 2022 and 2023 until 8,500, these big recruitment do not drive, in your view, a temporary drop in productivity.

Yes, you're right, Tristan.

Though it's hard to measure it precisely, but clearly, Young engineers are less efficient than super senior experts that retire, of course. That's a challenge. That's why we mentioned during the presentation our efforts on onboarding, on training, the setting up of internal academies as well. We are more and more, I would say, we have professionalized ourselves in this regard, but still you're right to say that probably there is a slight loss of efficiency with newcomers.

It's, I would say, I mean, additional cost, I mean, to keep growing your business, in particular in businesses that requires a lot of expertise, defense is probably a good example. Now, I mean, it's really our duty to manage that as effectively as possible. Hence, I mean, those various actions that we highlighted. Academies, internal academies, for instance, is quite important. Also, it's good to see, I mean, our turnover getting back to pre-COVID because it means less equipment, everything else being equal. And also, I mean, as the market is a bit less tight than it was in the last two years, in particular in 2022, but also in the first half of 2023, it's also important also to rebalance in terms of requirements between beginners and engineers that have more seniority and which can be onboarded more quickly. That's also part of what we're looking for.

Great, thank you very much, Mrs. Collant.

Thank you. We are now going to proceed with our next question. And it comes from the line of Chloé Lemarieux from Jefferies. Please ask your question. Your line is opened.

Yes, good morning. I'll have a first one on space, please. I want to know what would be the key moving parts from the current breakeven to 7% margin target. Is it the restructuring impact, volume, or pricing? The second one is on defense and security. If you could give a bit more color on the 2023 performance, excluding the cybersecurity assets which were transferred to DIS, because it looks like it was already above the 13% margin that you guide for 2024. So is it just a matter of prudence for 2024 investment in R&D or any other product mix headwind, please?

Good morning, Chloé. So let's start with defense. So what we released in terms of EBIT margin is 12.8%. Now if I adjust for the transfer from defense to DIS business, It's probably slightly above 13%. And it's probably, here again, a good rule of thumb for the next few years. So 13% is probably the right figure. Managing a business of this size with 10 basis points, I'm sorry, but some cases can be a bit challenging. So 13% is the right figure, which, once again, is really at par with very good peers, particularly in the US, and I think in both cases above European peers on defense and security. Your first question was about space, but I'm not sure that I got it because the line was not good. Chloé, if you can repeat it, please.

Yes, so on space I wanted to know what were the key moving parts from the current break-even to 7% restructuring volume and pricing.

Understood. So what we are looking for is really, I mean, to restore the profitability of our space business without seeking for additional growth. Or in other words, I mean, Considering the level of revenue that we posted in 2023, 2.2 billion euros, the question for us is how do we store the profitability based on this level of revenue? I'm not saying that we will not seek for growth. But what we want to do is to restore profitability on the basis of the existing level of workload. And hence, I mean, this overall cost adaptation plan that we have presented. And of course, this will be a significant driver for this margin recovery. The second one is the completion of large investments on our new generation of geostationary satellites in which we are investing quite significantly. In which, by the way, and we mentioned the points, we met in particular a supply issue with regard to the supply of the engine of the satellites. which also caused some additional costs and some delays. Now, of course, I mean, probably in a year time, these developments will be, for most of it, behind us and will be also to adjust the level of investments in line with these quite significant efforts that we are doing today That was the case in 2022, 2023, and this will be the case in 2024. So it's quite significant investments, including, by the way, in self-funded R&D to support the finalizations of this quite large development. So those are the two key elements. Now, of course, I mean, We believe that observations, explorations, and navigations business will continue to grow with a good level of margin. But my message today is really, I mean, to ensure this overall recovery at a level of workload, which is in line with what we see today, in particular on our telco business.

Very clear.

Thank you. Just to remind participants that we only have five minutes left for the question and answer session. We are now going to proceed with the next question. And the questions come from the line of Ian Douglas Pennant from UBS. Please answer your question. Your line is opened.

Thanks for squeezing me in the last five minutes. I have two, please, one on DIS, one on space. On DIS, could you talk about the outlook for pricing beyond, I guess, your insight that you mentioned in the next six months to one year? It seems like prices, especially in bank cards, should be still elevated at this point. Should we expect a headwind thereafter as those continue to normalize? Or am I wrong? And secondly, on the space business, the Iris Square contract, could you talk about the you know, what your expectation is on the timing and the potential size of that to Thales. And additionally on that, given that you're reducing cost in the space business, how does that impact, if at all, your ability to execute on that contract if it was awarded?

Thank you. Okay. Good morning, Jan. So I will start with your question on DIS and Outlook and on pricing I think what is very important to consider for you guys is not just the pricing but pricing as compared to I mean input costs and at the end at the end of the day what matter is not that much pricing it's really marginal so the gap between selling prices and input costs and it's true that we have seen in the in the recent past quite a significant drop in input cost when it comes to in particular components Now, when you put all of that together, our view is that we will keep enjoying, and this is what we see today in 2024, quite a strong level of merging for all our smart card businesses, whether it's banking, but also the removable SIM business. All of that will mean that probably in the first half of 2024, and in particular in Q1, in terms of level of revenue, I will compare against quite a strong Q1 2023 overall in terms of revenue. So there will be probably a bit of a drop in terms of revenue, but still quite a good level of margin. But we will see as early as Q2, I mean the situations returning positively with the second half of 2024, a positive move in terms of level of revenue for our smart card businesses. All of that, by the way, being consistent with the level of guidance that we provided to you on the expected growth of profitability for the IS. Hello, Jan.

Yes, I have a few elements or pieces of information. It was supposed, you know, to start or to have a... a clear go-ahead beginning of this year. Now it's a complex project, as you know. There is a combination of public funding and private funding, and the consortium is a large one. So this is difficult to say, it's difficult to say, so I'd rather be prudent. Still, we are extremely motivated with the different consortium members. But it's difficult to be more precise than that, or just repeating the official timing, which is the beginning of this year. Now, two additional remarks, perhaps, Yana. The 7% EBIT that we have discussed is independent from Iris Square, should it take off or not. So it's kind of bulletproof or independent from Iris Square. This large project. I think it's it's prudent to I would say to do so and circuitly is where is not the only I would say Constellation projects on which we work and we work on other ones which are confidential So I cannot disclose them but which are privately led and that may come into play in in the future so Just giving you a bit of color that there are the geostationary markets we've discussed during the presentation, but still constellations, Leo-Mir constellations, are clearly opportunities that may come in addition to the market size we see in terms of geostationary satellites. Hope it helps. Thank you very much.

I understand that we need to stop the call.

Let me just close rapidly with a few words of conclusion. As you have understood, 2023 was another year of strong performance for TELES. Now we are fully focused on the execution of our profitable growth strategy supported by rigorous capital allocation. We had many questions on capital allocation in this respect. Now with Pascal, we look forward to speaking with you in the upcoming investor roadshows and conference. So thank you very much for your attention. Have a nice day and see you soon. Goodbye. Thank you very much.

Thank you, ladies and gentlemen. If you didn't have a chance to ask your questions on today's conference call, please do not hesitate to send your questions to the Thales Group Investor Relations at ir.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.