Thales S.A.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Thales Q1 2025 Order Intake and Sales Conference call. The presentation will be held by Pascal Bouchier, Thales CFO. It will be followed by a question and answer session. If you wish to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded. I would now like to hand the conference over to Ms. Alexandra Boucheron, VP, Head of Investor Relations. Please go ahead, Madame.

Good morning. Welcome and thank you all for joining us for the presentation of Thales Q1 2025 Order Intake and Sell. I am Alexandra Boucheron, Head of Investor Relations at Thales. With me today is Pascal Boucheron, our Chief Financial Officer. As usual, this presentation is audio webcasted live on our website at thalesgroup.com, where the slides and press release are also available for download. A replay will be available soon after the end of the event. With that, I would like to turn over the call to Pascal Boucher.

Thank you Alexandre and good morning everyone. Let's kick off with Q1 2025 highlights before digging into the numbers. I'm now on slide two. So Thales has started 2025 with another quarter of robust underlying commercial momentum. The level of demand for products and solutions continues to be high in most of our businesses, which make us fully confident to achieve our guidance of a book-to-bill ratio above one in 2025. Sales growth was strong in the first quarter, amounting to 9.9% organically versus last year. This performance is particularly driven by all Avionics activities on the one hand, and by defense on the other hand. Talking about defense, The momentum in Europe is particularly positive. As you have seen over the last few weeks, we support these statements from European leaders and heads of states. Thales is uniquely positioned to benefit from this, leveraging its wide portfolio of premium products and solutions fitting the needs of its customers. Although the majority of the P&L impact from those additional orders contributions will not be recorded before 2028. We are now counting on a generation long visibility in our defense activities. Lastly, our cyber business, on which I will come back later in the presentations, is expected to be ramping up throughout the year. The integration of Imperva is progressing well. and as planned. As you know, the start of the year is marked by a critical step of the merger. Indeed, Salesforce of Thales and Imperva are merging, and this will allow unlocking the full potential of cybersecurity products. Moving on to Q1 2025 key figures on slide three. Order intake amounted to 3.8 billion euros over the quarter, down 27% organically compared to last year. Year-on-year growth compares to a very high comparison basis due to major contracts signed in Q1 2024. And if you compare Q1 2025 order intake to the same quarters in 2023 and 2022, we are above. You will see that On the next slide. Sales came to 5 billion euros over the quarter, which is a strong increase of 9.9% in organic terms, driven notably by defense and aerospace. Now, looking in details at Q1 2025 order intake on slide four. As said, commercial momentum was solid in the first quarter. with notably a strong performance in aerospace. Year-on-year growth compares to a very high Q1 2024 base. Let me indeed remind you that Q1 2024 saw the booking of jumbo contracts, of which two were worth a unit value of more than 500 million euros each. The third tranche of the WAFAD contract in Indonesia, as well as a major air surveillance contract for military customer in Middle East. The historical order intake performance for the first quarter since 2022 shows that Q1 2025 has achieved a solid growth and is in line with the group's growth trajectory. Five large orders were recorded in QN 2025, which is one more than last year. Three of these large orders were recorded in space, of which two communication satellites for Space Norway and JSAT group in Japan, as well as a contract for the Open Space Agency to develop Argonaut, the first European lunar lander. One was booked in Avionics training and simulation business line to upgrade and support tactical simulators for the Dutch Army. And one was recorded in defense with a DGA in France to produce electronics equipment for French Army vehicles as part of the Scorpion program. Orders below 10 million euros, representing 60% of the overall order intake, continued to grow in Q1 2025. Moving on to Q1 2025 sales, I'm now on slide 5. Starting with a few words on scope and currency impact. In Q1 2025, we recorded a positive 84 million euros scope impact mainly coming from Cobham Aerocomps and also GetSat acquisition. Let me remind you that from Q2 onwards, Cobham will be included in organic figures as the acquisition has been finalized the end of April 2024. Currents impact was slightly positive at 17 million euros over the quarter. Sales organic growth was strong in Q1 2025 at 9.9% versus last year, marking a solid start to the year for Thales. This growth was mainly driven by aerospace on the one hand with a strong sales momentum in avionics, and by defense, on the other hand, that continued to record sharp growth. Cyber and digital was slightly down on the back of a soft quarter for digital identity, while cyber is expected to ramp up in the next quarters. Importantly, sales organic growth was once again well-balanced with a strong contribution from both mature and emerging markets. As you can see, for instance, in Europe, North America, and emerging markets. Now, moving on to performance by segment, starting with aerospace on slide six. Orders in aerospace came at 1.5 billion euros, which represents a 45% growth in organic terms. Avionics sees continuous strong demands and recorded one order with a unit value above 100 million euros in training and simulations in Q1 2025. In space, Order intake has been ahead of schedule compared to the planned annual rate with a notification of three large orders. Sales amounted to 1.3 billion euros in the segments at end of March, an increase of 8.4% organically versus last year. Avionics recorded solid double-digit growth over the quarter thanks to a solid performance in all activities, IFE and also flight avionics, OE, as well as aftermarkets, and also all domains, civil as military. Space sales over the quarter were still impacted by the low demand in telco business that we have experienced over the last two years. Turning on to slide 7 and commenting defense key figures. From a global standpoint, and as I keep saying, I need to remind that order intake can be bumpy from one quarter to another. And really, I mean, the trend is to be looked at over a longer term. So in Q1 2025, order intake amounted to 1.3 billion euros, a decline of minus 59% compared to last year. Although underlying momentum remains strong and overall environment supportive, two elements explain this relative low start. Firstly, a high comparison basis, notably with two major contracts with value above 500 million euros recorded in Q1 2024, as I mentioned earlier. Secondly, a phasing of large size contract book in 2025, which would be more spread over Q2 to Q4 than last year. We can accordingly confirm that the sense book to bill ratio will be above one in 2025. Sales amounted to 2.7 billion euros at the end of March, reflecting a sharp organic growth of 15%. All our defense activities are contributing to this robust performance, and particularly land and air systems this quarter, benefiting notably from RADAR's production ramp-up that we have already mentioned in Q4 last year. Backlog remains strong and will continue to fuel sales growth going forward that we expect to stand between 6 and 7% organically in 2025. Keep in mind that comparison basis will get tougher as we progress into the year and that sales growth in 2025 is rather front-loaded. Now, looking at the cyber and digital on slide eight. As announced at our Capital Market Day last year, we are now providing more granularity within the segments, detailing both cyber and digital performance. At €903 million, sales of the CDI segment are slightly down in Q1 2025, recording a minus 2% organic loss. Sales were flat in cyber with different trends between product and services. Cyber products, which represent 80% of cyber business, recorded growth in the quarter, leveraging Imperva's complementary offering. The integration of Imperva is still ongoing and progressing as planned. And the start of 2025 is marked by an important step, where indeed merging Imperva and Thales sales team representing more than 1,000 people worldwide. So this is not a small matter. This process, once completed, will unlock full potential of the business. However, as expected, it creates some disturbances in the short term. Cyber services sales, on the other hand, were down in Q1 2025. This is mainly due to a soft market start of the year, in particular in Australia, where upcoming elections create a bit of wait-and-see attitude. In this business, we are also currently standardizing our operations to improve margin and focusing our sales strategy on selective, profitable growth segments. Growth in cyber as a whole will accelerate throughout the year. Moving to digital identity, with sales well done in Q1 reflecting contrasted trends. Payment services business is back to growth. This ends five quarters in a row of sales organic decline, which as such is an encouraging sign. Identity and biometrics, on the other hand, is down in Q1 2025. You probably remember that during COVID, this activity faced a downturn. Post-pandemic, we benefited from a catch-up effect until 2024, notably in the travel document activity. Therefore, this effect is not tolerable as this business is now normalizing to a more usual run rate. So a few words now on the current global context around US tariffs. I'm now on slide 9. So the objective here is to provide a few elements to consider when assessing the current situations and what it could mean for Thales. However, as you know, the level of volatility and uncertainty is pretty high. And of course, we keep monitoring closely the evolution. So this is based on what we know for now and our interpretations of the latest statements from the US administration. So starting with global consideration for Thales. First, defense that represents approximately one-fourth of Thales' sales in the U.S. is a multi-local business, which is protected by nature as flows from non-U.S. entities to U.S. are rather limited. Also, defense keeps being exempt from tariffs. Second, our avionics business has limited exposure to large US OEMs, Boeing and Gulfstream in particular. Third, most of our cybersecurity business is based in the US, so not affected by import duties. Fourth element in some of our export contracts, i.e. when a non-US Thales entity sells to a US customer, we benefit from favorable incoterms. In other words, contractually, Thales doesn't support tariff surcharge. To illustrate our exposure to ES-TIFE, you can refer to the graph we have put on the right part of the slide. As you can see, out of the 2.6 billion euro sales we made in the US in 2024, around 75% were domestic, meaning sold by a US Thales entity to a US customer. remaining 25 persons were imported from various countries or reflecting use of materials that are imported. Having those elements in mind, there are three areas of our U.S. business that could be impacted and that are under our scrutiny. First, I mean the aftermarket business within the avionics segments, which partly relies on imports, such as for repairs and spare parts. The imports originate from various countries, France being the main one. Still, within avionics, and the second element is our IFE business, which could also be impacted as it is importing screens from China into the US. The third point within cyber and digital is payment cards sold in the US, which are mostly produced in other countries, mainly Mexico and Singapore. This being said, we are of course actively working to implement and roll out mitigation actions to reduce the potential impact from tariffs. A few examples are set out on the slide. Namely, using specific customs programs that limit the impact of tariff rise, for instance duty drawback or temporary importations under bonds for goods imported and exported within one year. Another element is with redirecting production flows to minimize the impact of highest tariffs. Another example is optimizing the supply chain, for instance, with alternate or dual sourcing. Of course, also considering amending transfer prices and also lastly passing through surcharge to customers. The key message I would like to deliver here is that at this stage, and based on the available elements, the direct net impact is overall contained. As to potential indirect impacts, of course, at this point, they are not known at this stage. So moving to the last slide of the presentations, slide 10. As you have seen, Q1 2025 was a pretty solid start to the year across the board. Momentum remains supportive in most of our businesses and the perspectives are strong for 2025 and beyond. This allows us to fully confirm our objective a book-to-bill ratio to be above 1 in 2025. Sales are expected to go organically between 5 and 6 persons, corresponding to a range of 21.7 to 21.9 billion euros based on April 2025 year-to-date foreign exchange rates. I remind that this guidance fully incorporates potential tariff impact with the elements that we are aware of as of today. And third, adjusted EBIT margin expected between 12.2 and 12.4%. So many thanks for your attentions and I will now be pleased to answer your questions.