Thales S.A.

2024 Order Intake and Sell. I am Alexandra Boucheron, Head of Investor Relations at Thales. With me today is Pascal Boucher, CFO of Thales. As usual, this presentation is audio webcasted live on our website at thalesgroup.com, where the slides and the press releases are also available for download. A replay will be available soon after the end of the event. With that, I would like to turn over the call to Pascal Bouchier.

Okay. Thank you, Alexandra, and good morning, everyone. Before moving on to the numbers, as usual, I wanted to highlight a few items. I'm now on slide two. First of all, let me come back on the quite strong start of the defense and security segment commercial activity in Q1 2024. with four large contracts over 100 million euros and especially two contracts above 500 million euros. These new commercial successes illustrate Thales' unique positioning to capture major opportunities across a wide spectrum of activities in the growing defense markets. And I will come back in greater details on those contracts during the presentation. Second point I wanted to highlight is a closing of the Cobham acquisition, which will be consolidated in our accounts from Q2 2024, as expected. This addition to our existing Agenix business will establish a game changer in the very attractive and fast-growing communication and connectivity markets to the benefit of a more sustainable aerospace future. And we are happy to welcome this highly skilled team of aerospace communication experts within the group. Last point, and I'm sure you saw plenty of communications on the topic already. Thales has announced last month the creation of Cortex, an internal organization dedicated to artificial intelligence gathering over 600 AI experts and bringing together the company's AI capabilities in research, sensors, and systems. So let's now have a look at our Q1 headline numbers. I'm now on slide three. New orders amounted to 5 billion euros at 46% on organic basis. Hence, a very strong start of the year in terms of commercial activity, which I will further comment in the next slides. Sales came to 4.4 billion euros up a solid 7.9% on an organic basis above full year guidance. This level of sales represents a new record high for our first quarter. Looking now into details at our order intake. I'm now on slide four. As you can see, the strong 46% organic growth is fueled by both large and medium-sized orders. Four large orders above 100 million euros have been recorded in the first quarter, all of them in our defense and security business, reaching a total of 1.6 billion euros to be compared to three large orders in Q1 2023. that represented 400 million euros. Two of these three large contracts in Q1 last year were related to space in observation explorations, and one contract was for an enclosed and disclosed large military customers. Orders between 10 to 100 million euros were up 46%, with aero up 56%, and defense and security up 50%. Smaller orders decreased slightly organically as anticipated due to the very high comps in small counts in Q1 2023. But overall, a very strong first quarter in terms of order intake and a new record high for Q1. Turning now to slide five, looking at sales scores. First, a word on currency and scope. The currency impact was not material this quarter, minus 17 million euros, as showed in the graph. The scope impact was more significant, resulting from the acquisition and disposal carried out in 2023. The largest impact was linked to the acquisition of Impervor, closed in December 2023, and fully impacted Q1. We have also finalized the acquisition of Tesserent in October last year. In terms of divestiture, we closed the disposal of the aeronautical electrical system to Safran at the end of Q3 2023. So all of that resulting in a scope effect which contributed 99 million euros in Q1 2024. And as mentioned in slide 2, keep in mind that COBAM will be consolidated from April 2024. The organic growth reached 7.9% ahead of our full year guidance. It was driven by a sharp performance of our defense and security activity. And I will comment in greater detail the dynamics by business in the coming slides. Turning to the geographical perspective, a strong quarter across the board with most geographies strongly up. So overall, a strong first quarter in terms of sales. Now, looking at each segment one by one, I'm now on slide six for aerospace. Orders were done 13% organically with two different dynamics. Aeronautics, good ongoing commercial activities with orders of double digit versus Q1 2023, which was by the way already a strong quarter with a double digit growth. Space, significantly below Q1 2023, where, as I mentioned earlier, two contracts above 100 million euros had been recorded. Sales were up 5.1% organically. Aeronautics continued to perform well overall, with the civil aero original equipment activities up double digits. Space businesses were slightly up compared to federal outcomes in Q1 2023 and fully in line with our full year trajectory. Turning now to slide seven. Looking at the defense and security segments, as I mentioned before, an exception quarter in terms of order intake up 127% organically with four contracts above €100 million and a sharp 50% increase in contracts between €10 and €100 million. Our backlog in defense and security is reaching a new record high at 36 billion euros, representing 3.7 years of sales. Organic sales were up 13.4%, continuing on a positive trend across most business lines, from electronic combat solutions to surface radars or airspace mobility solutions. It's important to note that while we have seen an impressive 13% growth in the first quarter, please keep in mind that this is only the first quarter of the year. And it was supported by more favorable comps. Looking at 2023, H1 was softer than H2. Therefore, it's reasonable to anticipate a bit of reversal of this trend in 2024 with a stronger first half and potentially softer second half. Additionally, as you well know, our defense and security business operates long-term projects with nonlinear revenue recognition. So this strong 13% growth is also resulting from a positive cut-off effect between Q1 and Q2. Last point, despite some easing, supply chain tensions persist, necessitating to remain vigilant regarding their potential impact on production. All of that to say that this first quarter doesn't establish a definitive trend for the entire year. We confirm the mid-single digit to mid-single digit plus organic growth we committed to for the defense business over the full year 2024. Turning now to slide eight. looking at our last segments, digital identity and security. At 960 million euros, sales were down 2.5% on an organic basis. This slight decrease didn't come as a surprise and was resulting from, first, the digital businesses performing in line with our full year forecast, But also, the smart card businesses are clearly down compared to very high comps in Q1 2023, with lower volumes, especially in the banking area in North America, and negative price effects on SIM cards, particularly in Asia. Again, this was anticipated. DIS posted a very strong H1 2023 and a softer H2 2023. Hence, we expect a reverse trend in 2024 with a strong H2 versus H1. For the full year, we expect DIS organic growth to be close to mid-single digits. So let me finish here with slide nine and a reminder of our financial objective for 2024. QAnon represents a solid start of the year, which allows us to confirm the financial objective for 2024. So this concludes my brief presentation. Many thanks for your attention. And I will now be pleased to take your questions.

Thank you, ladies and gentlemen. We'll now begin the question and answer session. As a reminder to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. Once again, it's star 1 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 Victor Allard from Goldman Sachs. Please ask your question.