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.