Thales S.A.

Good morning ladies and gentlemen and thank you for standing by. Welcome to today's Thales Q3 2025 results call. The presentation will be held by Pascal Bouchier, Thales CFO. It will be followed by a question and answer session at which time if you wish to ask a question, please press star one and one on your telephone and wait for your name to be announced. I must advise you that today's conference is being recorded. I would now like to turn the conference over to Ms. Alexandra Boucheron, VP, Head of Investor Relations. Please go ahead, madam.

Good morning. Welcome and thank you for joining us for the presentation of Thales 9 Months 2025 Order Intake and Sales. I am Alexandra Boucheron, Head of Investor Relations at Thales, and with me today is Pascal Boucheron, Thales' Chief Financial Officer. As usual, this presentation is audio broadcasted live on our website, salesgroup.com, where the slides and the 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 Bouchard.

Thank you, Alexandra. Good morning, everyone. So let me start with Q3 2025 highlights. I'm now on slide two. Thales continues to record over the third quarter a strong commercial momentum in most of its businesses. The level of demand for solutions continues to be high, notably in defense, where our backlog benefits from stronger European collaboration in particular in the framework of the Readiness 2030 Strategic Defence Initiative. Thales indeed booked in the third quarter several large contracts with European countries, notably in air defence. I will come back to those later in the presentation. Air defence, as you know, is a critical need today in a number of countries. In that context, Thales is proud to have recorded a first export success for the SOM TNG that was selected by Denmark in September. This comes as a major turning point for the SOM TNG and paves the way for further successes. Space also saw some good news this quarter. Thales indeed signed a first contract with Space Wine. the Consortium of Satellite Operators. This contract relates to a first sizable engineering development phase for the Iris Square constellations. Although discussions are still ongoing with the open commissions and Spacewise, this is an encouraging sign that the project is progressively taking shape. Finally, Thales keeps being at the forefront of innovation in its businesses. This is particularly true on the quantum revolution in which Thales researchers are playing a central role. To that end, we launched in September the very first quantum resistance smart card in Europe to receive high-level security certification from French cyber security agency, ANSYP. and industrial standards. This underscores Thales' commitments to staying ahead of emerging cyber risks in the quantum era. Moving on to nine months and Q3 2025 key figures on slide three. Order intake amounted to 16.8 billion euros at end September 25. up 9% organically year-on-year. This performance was driven by continuous strong commercial momentum in the third quarter, which saw a 37% organic growth and the booking of several large contracts that I will comment on the next slide. Sales came to 15.3 billion euros over nine months, up 9.1% in organic terms. Q3 alone recorded a sharp 11.2 organic goals. This put us right on track to deliver our 2025 annual targets. Moving on to slide four, commenting order intake. As mentioned earlier, commercial momentum keeps being strong for Thales, driven by the continued success of our product and solutions with our clients. As you can see on the graph on the right-hand side, all types of orders contributed to this robust performance. A few comments on large orders first, which continue to fuel the backlog. 14 large orders have been booked so far this year, of which four new orders came in Q3. Nine large orders were booked in defense over nine months, including two with a unit value in excess of 1 billion euros. Namely, the order of 26 was filed by the Indian Navy and the contract with the UK MoD for the delivery of 5,000 LMM missiles. Also, five large orders were booked in aerospace, of which four in space and one in avionics. It's worth mentioning that orders between 10 million euros and 100 million euros recorded a remarkable 18% growth, while orders below 10 million euros were continuously solid as well. Moving on to sales on slide five. A few words first on scope and currency impacts. Over nine months, the scope impact amounted to 90 million euros mainly coming from Cobham Aerocom's acquisitions, closed in April 2024. Currency impact was negative at minus 164 million euros over the period, including minus 91 million euros in 2003 alone. All in all, this negative impact led to a one-point headwind on sales reported goals. Sales organic growth reached a solid 9.1% over nine months. This performance is a result of strong sales momentum in aerospace, mostly driven by avionics, and continued double-digit growth in defense. In cyber and digital, sales were slightly down organically over the period, reflecting different trends I will comment later. Both mature and emerging markets contributed to this robust sales growth with a noticeable 14.5% organic growth in emerging markets. Now, moving on to performance by segments, starting with aerospace on slide six. Orders in the aerospace segments amounted to 3.9 billion euros up 7% in organic terms. This performance reflects solid underlying demand in Avionics, fueled by the continued success of Thales Solutions. In space, order intake was up with four large orders booked since the beginning of the year, of which Swin Telco, including the contract related to Erie Square, and also one in exploration. Sales reached 4.1 billion euros over the first nine months of 2025, representing an increase of 6.9% organically year on year. This sustained growth momentum was notably driven by Avionics, which recorded continuous robust organic growth over the period in both civil and military domains. All sub-activities were supportive of this performance. In space, sales were up year on year, in line with our annual expectation for this business. Now, commenting defense performance on slide seven. Order intake in the segments amounted to 9.9 billion euros over nine months, a 12% increase in organic terms. Q3 was especially strong. However, we know that quarterly order intake can be bumpy. In the current supportive context, nine large orders have been booked since the beginning of the year. Three were booked in Q3, including two air defense contracts with the UK and Germany for a combined amount of 1.9 billion euros. These significant commercial successes illustrate that Thales, leveraging its comprehensive portfolio of innovative products and solutions, is ideally positioned to benefit from the ongoing stronger European collaborations in defense. The perspectives remain solid in the coming quarters and years, as countries are progressively increasing their defense spending and benefiting from further support from Europe as part of the Wellness 2030 initiative. Sales were up sharply year-on-year, up 14% organically to 8.2 billion euros. All our defense activities contributed to this robust performance with continuous strong goals. This puts us right on track to deliver our single-digit organic growth for the full year 2025 in defense. As a reminder, we expect a lower Q4 on the back of the high comparison basis from last year, which saw Q4 24 records at 24% organic growth. Now, looking at the cyber and digital, I'm now on slide eight. Sales in the cyber and digital segments amounted to 2.8 billion euros over nine months, slightly down organically at minus 1.3%. In cyber, sales were down year on year over nine months. In cyber products, the business was not yet back to normal in the third quarter. The first half of this year saw the final step of impervious integrations, with the merge of Thales and Imperva sales forces. This, as you know, created some disturbances on the business. Those disturbances continue to weigh on the performance in the third quarter. We are continuously focusing all our efforts to get back to growth in an overall supportive cyber market. Cyber premium services sales were down year on year. The business kept being soft in Australia, where it has a significant footprint. The ongoing execution of our premiumization strategy aimed notably at focusing our sales strategy on selective profitable growth segments. And this is, however, showing encouraging signs. Moving to digital identity, those sales were up slightly over nine months. In payment services, digital banking solution showed outstanding growth over nine months, which was, however, muted by still low volumes and physical counts. We indeed see some areas of the business still impacted by customers' destocking. Secure connectivity solution sales recorded sustained growth over the period mostly driven by the strong momentum of digital solutions, including eSIM and on-demand connectivity platforms. So concluding with our financial objectives for 2025, I'm now on slide nine. The continued strong momentum for both order intake and sales in Q3 2025 and the strong perspective ahead of us make us fully confident to achieve the target set for the year. Accordingly, we fully confirm our 2025 objectives. Book-to-bill ratio will be above one. Sales are expected to grow organically between six and seven persons, corresponding to a range of 21.8 to 22 billion euros, and the adjusted EBIT margin is expected between 12.2 and 12.4 persons. Many thanks for your attention, and I will now be pleased 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 first questions come from the line of Olivier Brochet from Rothschild & Co. Please ask your question.

Yes, good morning, Pascal. I would have three quick ones, if I may, please. The first one is on defense and a small part of the business for you, I suppose, which are drones. Could you give us a sense of how large a business it is for you today? The second question is related to that one. You announced a joint venture with Destinus a few weeks ago. Can you share a bit more on what you will be doing in this area? And the third one is on the F-126 in Germany. If they change the prime contractor for that contract, what are the consequences for Thales, please?

Okay. Good morning, Olivier. So starting with your first questions about drones, I mean, it's at this point quite a small business overall for TELUS, but clearly an opportunity for us to get growth. Maybe it's worth that I remind how we are positioned and what we want to do on this market. By the way, I guess that when you discuss about drones, I understand that it might be unmanned air vehicles, what we call UAV, knowing that we also see the emergence of drones, for example, undersea, underwater system, where we also work on drones, by the way, with Naval Group. But at this point, I mean, the market is probably more driven by unmanned air vehicles. When we discuss about drones or UAV, we can discuss about platforms that are used for different purposes, but we can also discuss about what we call loitering ammunition, which, as you know, this type of ammunition can fly over a potential target and then detect and be directed to the target. So it's, I mean, the concept of drones covers a spectrum of different type of solutions. Now, how are we positioned on this matter? As you know, I mean, our play is not to develop platforms. What we do is more to provide the equipment, the solutions, but also the system integration. So what does it mean? It means that in terms of specific solutions, we provide, of course, I mean, a set of different sensors. But the first, I mean, the type of business we develop in this drone business. Second is what we call C2, command and control. So providing, I mean, the intelligence to the systems. And third is, I mean, military capabilities, and in particular, through, I mean, the development and the sales of what we call warhead, in particular, to equip drones or loitering ammunitions. So this is, I mean, where we are positioned. So as you understand, it's more either I mean, position TELUS as a supplier of different equipments. By the way, I also forget, I mean, another type of equipment, which is secure communications, line of sight, for instance. So what we do is to provide this type of equipment together with, in some cases, also providing, I mean, system integration capabilities. So this is basically what we do. Now, overall, at this point, it's a business. which is probably a triple-digit million euros of revenue, but at this point, I mean, relative to the size of our defense, it's not that large a segment, but clearly a growing one. Your second question was about the JVs that went on this morning. But your question was a bit broad, Olivier, when you say what we will be doing with this JV. So can you elaborate a bit more? Because otherwise my answer will be quite generic.

I don't know if I'm still on the line. Yeah, yeah. I am. Perfect. Thank you. No, no. The question was on the JV with Destinus in a drone. Ah.

Sorry. Sorry. No, no. No, I thought that you were asking a question about the space that you announced this morning.

So, no, Destinus is probably a good example where, I mean, and probably you have seen, I mean, the number of potential drones that this could reflect. And basically, it's probably a good demonstration of what we want to do. and very clearly, I mean, we don't make platforms, but we can partner with platform makers. And in particular, when it comes to high volumes type of platform production, this is not the type of business we want to be in at Thales. Once again, with intent at Thales to focus on providing, I mean, sophisticated, I mentioned sensors, C2, line of sight, warheads. So this is basically how we want to position ourselves, and Destinus is probably a good example of what we want to do. Your last question was about F126, and it's true that the German MOD is considering changing the responsibility from Damend to another prime contractor. This is what we have understood. Now, I mean, of course, we are in close relationship with the German MoD. And I mean, all news that we got from them are pretty reassuring about our positioning in this program, where you understand that We provide in particular two large type of equipment. First, in particular, what are capability for this class of frigates, plus the combat management system, which is also, of course, a critical equipment for this class of frigates. Okay. Thank you.

Thank you, we are now going to proceed with our next question. And our next questions come from the line of Alessandro Pozzi from Mediolanca. Please ask your question.

Good morning, and congratulations for the new JV in space. And I do have some questions about that. I'm not sure how much you can say at this point, but I will try anyway. The first would be in terms of a strategy, how the new company, the new JV is positioning versus what the three different companies are doing at the moment in terms of positioning in different sub-segments of space. You talked about synergies. I'm not sure how you can tell us how you arrived to the triple-digit numbers. And also, we've been reading about on the press that there potentially could be a compensation to Airbus for having a lower share of 35%. Any follow-up on that would be appreciated.

Okay. So, first, good morning, Alessandro. So, on your first question, it's really about putting together the strengths of the three companies and working more and more on more integrated offers. But it will also bring together all the R&D capabilities, which are pretty significant in each of the three companies. I mean, to build up here again, I mean, as much as we can. I mean, avoiding duplications of efforts when it comes to developments. But because of that, I mean, freeing resources to invest in order to pursue new opportunities. You discuss, and I could elaborate just a bit on the synergies. We mentioned mid-triple digit level of bottom line synergies five years after the closing. And as you can imagine, in this type of situation, it's going to be a combination of top-line revenues and, of course, more synergies reflecting better competitiveness and better operational performance when it comes to, in particular, better As I mentioned, avoiding duplications of investments, but it means also combining as much as possible engineering capabilities. Of course, working on program management, where we believe that we can make substantial savings. Of course, SG&A is also a matter we can expect synergies. Not to mention, of course, procurement will be also an area where we can envisage synergies. So quite a wide spectrum of synergies, all of that in a context where we believe that The level of growth in this market should start picking up or should grow. And it's also true that the recent news in terms of announcements in Petkin Europe in terms of the need to invest more in space capabilities is making the overall framework probably positive in order to develop this type of synergies. It's always, of course, much easier to get synergies in a growing market than in a shrinking market. Your last question was about compensation. Yes, to reflect, I mean, to make sure that overall, I mean, there will be a balance between the economic contributions of each partner and its level of shareholding. And yes, I mean, there will be a mechanism with regard, I mean, balancing payments. No, at this point, it's really too early, I mean, to make any more comments. And this type of, I mean, this type of balancing payments will be made public probably at closing and not before. Okay. Thank you very much.

If I can just maybe last one on cyber. I think the overall division, cyber and digital, I think we've seen an improvement versus H1, but cyber is still a little bit weak. Should we expect maybe an improvement in Q4 or you see an improvement in cyber sales, something for 2026?

Of course, I mean, we're expecting, I mean, 2026 to be stronger than 2025. Now, Q4, we should see a sequential improvement as compared to Q3. Now, it's true that, as I mentioned in my press, it's true that we still see those disturbances still weighing in terms of overall efficiency and in terms of efficiency in terms of level of revenue, so we expect Q4 to be better than Q3, but it's true that where we're expecting more growth is probably as from 2026. Thank you very much.

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

Yeah, morning, guys. Thank you for the question. I had a few. So firstly, just wanted to ask a little bit more on the space JV. Are there going to be any one-time charges, cap gains, et cetera, that we need to think about? And should we assume going forwards it will be consolidated from January 27th? as a rough timeline. Secondly, I wanted to ask on aerospace, it seems as though the supply chain's in a much better position than it was. Can you talk through a little bit, how are you seeing the aftermarket performance there? What are you seeing in terms of your OE and your IFE business and the trends you're seeing there? A quick question on cyber, just to follow on from that last question. I mean, the 3Q performance to me feels disappointing relative to the comments you guys had made on the Q2 call. And it doesn't seem from your comments that it will return to growth in Q4. It sounds as though cyber will improve sequentially, but it's still not going to grow. And I feel as though at half year, the commentary was we're largely through a lot of these integration challenges, so we should start to see an improvement. So what has lacked in Q3 that's meant it's continued to be quite weak. Just to understand a little bit what's going on there. And then final one, France, in your geographic tables, it does look quite weak in terms of both orders, but also revenues. I was just wondering if there's anything to read into that with the government changes that we've had. Thank you.

Okay. So, good morning, Ben. So, another question. So, I'll try to be quick. So, on the space GV, you ask about one-time charge. I mean before closing overall at Thales we don't expect any significant one-time change as I mean the carve-out of our own business is mostly done because as you know I mean we already today operate through a JV. I mean, Thales Ania Space is already some kind of standalone company, so we don't expect, on our side, significant carve-out cost. First point. Now, once the JV is launched, you mentioned about 2027, January the 1st. I mean, we believe that the closing should be done in 2027. At this point, we cannot be more precise, but I wouldn't bet on January 1st in terms of date of closing. I think it will be probably later than that. And the reason, as you understood, of course, by the way, there's of course a bit of uncertainty in this matter. And in particular, as you have understood, we have ahead of us, I mean, some significant discussions with regulatory bodies in various jurisdictions, in particular in Europe, but not only in Europe. And we know that, by experience, that all of that can take time. Now, once the GV is up and running, we mentioned the level of synergies we plan to get. Of course, I mean, there will be cost to implement those synergies. Probably at this point, it's probably a bit too early to be more precise on this matter, but of course, I mean, to get synergies, we need to consider cost to implement those synergies. That's, of course, something which is quite obvious. Aerospace. above our expectations in terms of level of growth in this business. By the way, not that much driven by aftermarket. Where, I mean, there was growth, but where, I mean, we had most of the growth in our avionics business is more on IFE. But also, I mean, the line fits was also pretty strong in Q3. And overall, Avionics, in terms of top line growth in Q3, I mean, above our expectations, which wasn't the case for cyber, and it's true that in Q3, I mean, overall, and you're absolutely right, I mean, then, I mean, the level of revenue in cyber in Q3 a bit below our expectations. At this point, we say that Q4 should be better than Q3, yes. It has stabilized in Q3, but we're expecting more in terms of revenue. So we believe that we'll see Q4 being better than Q3, but of course, I'm a bit cautious considering the fact that Q3 was a bit below our expectations. So France, overall, no specific concern. It's true that Q3 last year, we had pretty large orders in France, but in particular on the 70 for France. So as I mentioned, it can be a bit bumpy, but no specific concern on this matter.

Very clear. Thanks, Pascal.

We are now going to proceed with our next question. And the questions come from the line of Ian Douglas Pennant from UBS. Please ask your question. Hello, Ian. Your line is now open. You may ask your question.

Hi, sorry, can you still hear me? I'm going to blame the EBS IT for not letting me find the mute button. Thank you very much for taking my questions. Could we talk about the defense business just to start with? So what are your expectations for growth for the full year? for that business, and if it's still a single digit, could you talk about what the offsets are in Q4 in excess of, of course, the high comp that you've got? Secondly, on the SpaceJV, a couple of questions. Could you just educate us quickly? The TALIS SESO business, could you just help us understand roughly how big that business is? And apologies if that's been said before. And if the JV comes into force in 2027. What are the major risks to timing around that? Should we be thinking about antitrust? Should we be thinking about negotiations with the partners? Should we be thinking about something else? Thank you.

Okay. Good morning, Yann. So on your first question about growth in defense of the full year. So, I mean, I stick to, I mean, the, I think a digit organic growth. for revenue for the full year 2025. It shows that end of September, it's above this level because it's 14%. Now, as I said, I mean, Q4 last year was very strong with a 24% growth as compared to Q4 2023. So hence the fact that we said because the reference base is so high in Q4, we are of course a bit cautious. And this is why, I mean, We stick to the level of growth that I mentioned earlier, so I think a digit. Probably from my tone, you can get that the overall Q3 was, in defense, a bit above expectations. And by the way, I mean a level of growth which is not coming from a single segment or a few segments. It's really across the board. In defense that we see, I mean, pretty strong level of growth. Your question about our space business, your question was about the size of this business today at Thales, was it?

Exactly so, yes.

Okay. So overall, I mean, as you know, I mean, we operate our space business through two GV. One is Thales Anya Space, where we own 67 persons. which is consolidated, I mean, fully consolidated at Thales. And the 2024 level of revenue for this business was 2.2 billion euros. And second, we've got in this what we call the space alliance with Leonardo. We also have a minority stake in Telespasio, 33 persons. But I mean, Telespasio is consolidated just through the equity method, which means that we don't consolidate the Telespasio revenue in our own P&L. We just reflect our share in the net income of Telespasio. Your last question was about I mean, what would be the risk, I mean, to close the, I mean, this new JV? As you have understood, I mean, we've got, I mean, if I summarize, I mean, we've got ahead of us, I mean, three challenges. One of these challenges, three steps, or three key type of actions. One is, of course, I mean, to engage I mean the social processes with works councils, employees representatives, and that in the various countries we operate in which by the way the three partners, the three companies operate. And I mean the announcements of today allow us to initiate this overall social process. Second is Of course, I mean, getting ready and working on the various steps to make a standalone company, which means that there will be some, in particular, carve-out works at each of the three companies. As I mentioned, at Thales, I mean, we already operate through two juries. which means that, in our view, I mean, for our own contributions, the preparations will not be that great a challenge. And the last point, which is probably, of course, the one where, I mean, the timing can take a bit of time, it is, of course, I mean, going through all the regulatory approval and going through all the regulatory bodies in particular the antitrust regulators and we know that all of that can take a bit of time now it's also true that we have already started to engage I mean some of them and all the regulators will be engaged in the very short terms so I mean Those are, in my view, the three elements. In particular, the last one, this is probably where, of course, we need to be vigilant, even though we believe that our case is pretty strong. Of course, I could comment more on this matter, but when it comes to this type of I mean process interactions with antitrust regulatory bodies, we know that it can take time. So this is why I mean we mentioned that the closing of the new GV will be in 2027 without at this time to be able to say when will this be enforced.

We are now going to proceed with our next question. If I can kindly ask everyone to limit yourself to two questions per participant to give everyone the opportunity to ask their questions. Thank you. Our next questions come from the line of Hervé Drouet from CIC Market Solutions. Please ask your question.

Yes, good morning. Thank you for taking my question. Hello Pascal. Yeah, so two questions. First one, I just wanted to check the order from Denmark on FMPT, MT, sorry. Was it, do you know when it will be booked in your order book and was the part booked? in Q3 or not and if it's not the case at what time do you think it could be booked and the second question is back to the space GV I understand you are saying you are currently operating through existing GV so therefore the job on your side and the cost you will have to put aside to include the business will be relatively limited but I was wondering Did you get any data you can share with us in terms of the overall integration cost we should expect for this new entity to be put together? You were talking about synergies as a three-digit million euro range. In five years' time, I was wondering if you can give us a bit of insight a range potentially on the integration cost side, if you are aware of any. Thank you. Okay.

Good morning, Hervé. So let's start with your first question about Santech, NG, relative to Denmark. So it hasn't been booked in Q3. I mean, what you have announced in Q3 is the fact that we have been selected by Denmark, but of course, I mean, then afterwards you need to proceed with the final negotiations and signing a contract. Of course, this is, I mean, a sizable contract at this point. I'm not able to tell you whether this contract will be booked in Q4 2025 or in 2026. At this point, it's an open topic. But I mean, no specific stress on this matter, but it's probably quite a good example when I explained to the investors that it's always difficult to tell you that I mean, in this quarter, I mean, why is it that the order intake in this quarter was above or below the expectation? It is also because we need to deal with this type of uncertainty, and it can move from December to Q1 2026. At this point, I have no clue, but once again, it's not a concern to me. Now, on the GV, I mean, I will try to be clear, but take into account, of course, the level of detail that at this point we can communicate to you. So first, in terms of the level of synergies, we mentioned in the press release level of synergies on the bottom line, so on the operating income, a level of synergies that would be mid-triple-digit million euro. I mean, overall, if I want to explain more in terms of what should be the range, it's between 400 and 600 million euros. of synergies on the operating income, and this five years after the closing of the transaction. Now, as I explained, I mean, to get this type of synergies, you need to, of course, you need to spend money, you need to spend cash. what is drafted in the press release, and I won't be able at this point to be more precise, is that associated costs to generate those synergies are expected to be in line with industry benchmark. As you are experts of industrial matters, no doubt that you will be able to have your own view about this statement, but at this point, and you need to consider that We are at the beginning of a new adventure with Airbus and Leonardo, pretty excited about putting together our assets. But of course, at this point, and considering this is the first step, I mean, we cannot be more precise on this matter.

I understand. Thank you. Thank you for all your answers.

We are now going to proceed with our next question. The questions come from the line of David Perry from JP Morgan. Please ask a question.

Yeah. Hi. Good morning, Pascal. It's a busy results day, and I missed a little bit of what you said, so I really apologize if I'm repeating anything. But two questions. One, could you just give a bit more precise detail on The sales growth that we saw in Q3 between space and pure avionics and maybe even the avionics civil versus military. And then just one last question. I know you've had loads of questions about space and the JV. But that synergy number is very high as a percentage of sales for the combined entity. Are you expecting all of that to flow to EBITDA, or is that a gross number that quite a lot of that's going to get recycled into R&D, for example, to be more competitive? So how much actually will flow to the EBIT number of the new entity?

Okay, David. So, I mean, on your first questions, overall, I mean, looking at aerospace, end of September, I mean, we said 6.9 percent. And I explained that Avionics growth was significantly above this level and space below, space in line with our expectations, meaning that space end of September is around 2 percent. And you've got Avionics, which is more probably something like icing a digit of organic growth overall for the first nine months in 2025. So we see, yes, I mean, this bit of disconnect between those two businesses. On space, it's, yes, I mean, what we expect is really, I mean, a bottom line impact of the synergies. Of course, you need to understand that in the first few years after the closing, there will be charges, I mean, to implement synergies. And it's true that five years after the closing, of course, there won't be any more cost to implement synergies. synergies will still not be at full speed, but will be already pretty significant, as you mentioned. And yes, I mean, this level of synergies is expected to impact positively the operating income of the joint ventures.

Okay. That's very interesting. I mean, it's a huge percent of sales. Well, good luck with it.

No, no, no good luck. Of course, I mean, you also need to consider that from the current level of revenue of the GV, we mentioned a 6.5 billion euro of revenue. This is a pro forma 2024 figure. It shows that we expect I mean, the GV, as it close in 2027 or 2028 as the first year of, I mean, full year operations in this new GV, we expect quite a significant growth. By the way, it's also good to have in mind that relative to Thales, this GV, allow us to be more exposed to more growing businesses in particular services. Because as you know, I mean, Thales and Niaspace doesn't provide service because service is part of Telespasio when it comes to Thales. And it's also true that in the mid to long terms, we expect services in the space to go more quickly than the infrastructure. So overall, please don't look at the level of synergies that we mentioned relative to the 6.5 billion euro. It has to be compared to a level of revenue which five years after the closing, which will be probably more something like 2032, which will be of course significantly above the 6.5 billion euro. revenue performance that we disclose.

Yeah, no, that's super helpful. Can I be cheeky and just sneak one more in? And again, I really apologize if it was already asked. Informing this JV, are there any equalization payments from any of the parties?

Yes, I mean, of course, I mean, as I mentioned, there will be, of course, I mean, some kind of balancing payments We cannot be more vocal at this point, as I explained earlier. But of course, I mean, those balancing payments, I mean, it will ensure that the economic contributions of each of the three partners reflect its level of shareholding. This is quite obvious. But at this point, we cannot disclose, I mean, and by the way, I mean, those balancing payments might also take into account some valuation adjustment. So we need to wait until the closing to get final figures in terms of those balancing payments. Thank you very much.

We are now going to proceed with our next question. The questions come from the line of Chloe Lemarie from Jefferies. Please ask the question.

Yes, good morning, Pascal. I would actually want to follow up on the topic of the F-126 involvement because the potential new prime contractor is in the process of being acquired by Rheinmetall and they have actually called Thales out among the companies they would want to partner with to expand their exposure to naval systems. So could you share maybe from your perspective what could be the appeal of such a partnership and what would be the key criteria for you to agree as opposed to just supplying systems as you currently do on naval platform? And the second one is on the Rafale in India. There's been quite a lot of news flow recently. So anything you can share to help us understand where in the process we are especially around discussions on offsets and content, which seems to be a second point. Thank you.

Okay. Good morning, Chloe. I'm sorry, but I'm going to disappoint you, probably, on both topics. So, I mean, on high-end metal, of course, while discussing, and that's already a comment that I've made earlier, Of course, the current situation, which is very good, with all those opportunities in terms of business developments, opens the door for more partnership with other companies. I remember mentioning in particular the JVs that were decided with Kongsberg in Norway, but also JVs that were put in place in Ukraine. to support our development in this country. Of course, I mean, we are discussing with other partners, and high metal is quite a good example. Now, at this point, it's really too early to be more precise on anything, because it's really too early. Maybe last point, I could comment specifically on F-126. I mean, we welcome any decision from the end customers, the German MOD, I mean, to secure the overall executions of such an important project. And, of course, we do whatever we can to cooperate with the new... from contractors if this is a decision of the German money. All of that with the spirit of collaborations, which is for us absolutely essential. Last point on India. No, I mean, there's nothing more I can say on this matter. I mean, probably a few questions that you could direct to Dassault Aviation. as the prime contractors in this type of business. And although it's difficult to make any comments, now it's good to see that Rafale has a number of opportunities, which shows the quality of the aircraft. And in particular, when it comes to existing customers willing to order more, which by the way happened in various countries so far. It shows, I mean, how, I mean, they see the quality of the aircraft and also the support from the various partners in the overall operation. So all of that is pretty positive, but you need to be a bit patient on this matter, as it is the case in all, I would say, the raffle opportunities.

On the raffle, can I just ask you to confirm whether you're involved in the discussions on the offsets and technological transfer, or is it all through Dassault?

No, I mean, of course, we are involved with Dassault in the discussion. I suppose that Dassault is leading the negotiation, but of course we are involved as a partner, as a key partner with Dassault. And I mean, you discuss about offset. I mean, we are quite used to managing offset in various countries, and not just only for Rafale. I mean, it's really part of our business to be able to manage offset in various countries. So don't consider that this is something which is new to us. This is something which we are quite accustomed to manage on various type of defense business in many countries. India is an example among other example of countries where you need to manage offsets to develop your business. When I say offset, it's also, I mean, and more and more importantly, the need for localization, which is, of course, something that we see developing for the future.

Thank you. Very clear. We are now going to proceed with our next question. The next questions come from the line of Ross Lowe from Morgan Stanley. Please ask your question.

Hi, good morning. Thanks for taking my questions. I've got two. The first is just on cyber and coming back to Ben's question earlier. I'm just looking to understand if the integration of the sales team was completed in the first half, what exactly drove that 7% organic negative growth in the third quarter and What changes in the fourth quarter to drive the expected sequential improvement? That's the first question. And then the second on rare earths. If you could provide some more color on which elements Thales is reliant on, where you source these, and what buffer stock you currently hold.

Thanks. Hello. Good morning, Ross. So on your first topic, about the integration of such a large commercial force. You cannot say that once it is merged, it is fully operational with a full effectiveness. And it's a progressive improvement that we expect from our commercial force through 2025. When it comes to your level of intimacy with your new customer, your level of technical understanding of the new portfolio of products that you need to sell. All of that, I mean, cannot happen overnight. It takes time. And second, of course, all of that is also driven a level of turnover in our sales force, which was above what we anticipated. So, which means that more turnover at our sales reps means the need to recruit more people, which means that we need to work more on training those new sales reps that joined at Thales recently. So all of that has created, yes, I mean, some disturbances. And disturbances have not stopped. I mean, end of June 2025. So it's a progressive improvement. But it's true that it is taking time. And it's true that today, in terms of overall effectiveness, I mean, looking at you three figures, it's true to say that overall, Q3 figures in terms of level of sales was below expectations. Now, we see, I mean, with some metrics, that situation is improving, but it's probably a bit slower than expected. By the way, on the other side, I mean, if you look at the digital, I mean, our level of revenue was also above our expectations, in particular in the mobile connectivity business. So, I mean, it means that it can be a bit different from one segment to the other. Now, I mean, overall, the second question about where earths, I mean, first, I mean, we don't buy where earths minerals directly. Of course, we use small, very small quantities of minerals. of rare earths. At this point, I mean, we don't identify any specific risk in connection with the export restrictions which have been imposed by China. Now, of course, that's a point that we look closely. That was in particular, I mean, the question about about germanium, which is a strategic metal for Thales, and in particular in our infrared technologies. And it's true that on germanium, we have seen increasing global supply tension for this specific metal, which means that, I mean, as we have done in many other situations, We are working on different ways to manage these situations, exploring new sources of germanium outside the traditional producing countries. We are working on some recycling initiatives with some partners. We are also working this time more on R&D, to find alternative materials, or to optimize the use of germanium, in particular through optimized processes, in order to use less germanium for the same outcome. You see that overall our exposure is quite limited, but as always, as we face tension in the supply chain. We put in place, I mean, the traditional actions, exploring new sourcing, working on getting additional stock from other partners, recycling. So those are the type of things that we have done in the past on other materials and overall pretty successful. So I would say this is one matter in the supply chain among many other supply chain challenges that we have been facing over the last few years. And that will continue, of course, as we will keep growing our top line. And I made a few comments on supply chain in our last calls, saying that overall situation, overall under control, which is the case. But please don't consider that supply chain tensions are no longer there. I mean, they are still there, which means that it is a continuous effort at Thales, I mean, to manage, I mean, supplies on various elements. I mentioned in the past, you probably remember, hardware. I mentioned in particular, I mean, PCB shortage. And we are still struggling, I mean, to get the right level of supply. of materials for this type of patterns in particular on specific hardware and PCBs is a good example. But I mean, so far we've been able to manage all of that pretty successfully and no doubt that it will continue this way going forward.

Very helpful. Thanks, Pascal.

We are now going to proceed with our next question. And the next questions come from the line of Christophe Minard from Deutsche Bank. Please ask your question.

Yes, good morning. Thank you for taking my question. So I have two. The first one is defense Q3, very strong performance, as you said, organically. In the press release, you're saying that it's due to production capacity expansion being deployed. That means operational leverage in my view. Does it mean that it could have a positive impact on your defense margin in 2025? And the second question is on the space alliance. Sorry for this. You had a lot. And still on the compensation, the formula. that you will be using. The question is, is the compensation, I mean, you can't disclose it quite obviously, but is the compensation already agreed upon or will it be agreed upon in 2027? And will it be based on a formula mixing sales EBIT performance? Will it be based on historicals or forward-looking elements? Thank you.

Thank you very much, Christophe, with your pretty specific questions. So, on defense, yes, but as I said in the past, I mean, new production capability being put on stream, yes, but it's a continuous move. And quarter after quarters, we keep improving our overall production output following the investments that we have announced. And we gave you a few examples in the past about Thales increasing its production of effectors, of airborne radars, ground-based radars. So we gave you a number of elements. I could mention also now more underwater system, one capability. So nothing very specific in this matter. But all of that, I mean, that was anticipated, and all of that very much consistent with our guidance on defense margin, with this concept of 13% EBIT margin, which is, I mean, the level of margin We keep having in mind to guide you for the short and the medium. Space alliance, you want to know everything about that. But we stick to what I said, which means that, of course, I mean, the mechanism has been agreed. But, I mean, the outcome will be finalized at closing. That's the reason why we cannot be more precise on this matter as we speak today.

Thank you very much. I tried.

Sorry for that.

We are now going to proceed with our next question. And the questions come from the line of Emerick Poulin from Kepler-Shiver. Please ask your question.

Yes, thank you. Good morning. Thank you for taking my question. The last one on cyber again. Would you be able to separate the performance of organic growth in Q3 between product and services? And since someone asked about the margin outlook, would you be also able to confirm that the margin for DIS or cyber and digital now would stay around 14.5 or is there some impact of this weaker than expected organic growth on the margin outlook.

Okay. Good morning, Aymeric. So, I mean, your question in particular is valid within cyber because there are two elements, I mean, between product and services. And it shows that where we are looking for growth and what I said about effectiveness of the commercial force, all of that relate to the product business line within cyber. This is where we've got the pretty strong margin. This is why, I mean, we are looking for growth on this segment, which is, I mean, by far the largest segment within cyber. The other one being services. where at this point the profitability is not in line with our expectations and where we said we made it clear this business is needed in particular as we want to develop growth in products. This is a way to go to market for our product, but it's really a business where at this point we are willing to focus on the profitable segments. as opposed to market segments where, I mean, we believe that differentiation is not recognized by customers. And this is why, I mean, we've decided, I mean, to exit some sub-segment. And it's true that overall, if I take this service business, overall, I mean the drop in revenue, but part of it is really what we want to do is double digits year on year, end of September. But once again, that's something we want to do in order to refocus this business more on the profitable market segments. And I need to say that I don't remember your second question.

Which was the implication for the seven intelligence margin?

Okay, so overall, I mean, just to give you a rule of thumb, but probably a level of a bit margin for the full year 2025, I want 14%. It's probably what I have in mind. All of that being very much consistent with 12.2, 12.4% overall at group level. Thank you.

We are now going to proceed with our next question. And the question comes from the line of Sebastian Groy from BNP Paribas Exxon. Please ask your question.

Yes, good morning, Pascale. Thanks for taking my question and for squeezing me in. It's on SEMPT. You recently said to expect more order wins for the SEMPT and beyond Denmark. So now you sounded on the call a bit reserved with regard to the timing of signing that very contract. So my questions are, to what extent is the contract signing impacted by the question how many systems Denmark might ultimately be willing to purchase? And secondly, how might the signing in, say, late 26 impact the signing of other contracts that you might have in the pipeline? So the question is if the Danish order is key to unlock potential elsewhere.

Thank you. Mm-hmm. OK, good morning, Sebastian. So it's true that, I mean, as we discussed about Denmark, we're still discussing about the number of batteries. And this is why, I mean, between being selected and signing a contract, there might be a bit of a time gap. and the commercial discussion, which, in my understanding, also takes into account the final number of batteries that Denmark will order. Second point. Here we are discussing about a pretty sophisticated, sensitive, I mean, air defense capabilities, it's a mid-long range type of capabilities. I mean, those equipments, those systems are extremely sensitive for any countries. All of that, a bit like, I mean, combat aircraft, if I want to make some kind of analogy. All of that means that any contract of this kind, you've got to put a lengthy, lengthy upstream phase in terms of discussion with potential clients in order to end up with a final decision. It's not the type of contract that you sign in two or three months. It takes time because, once again, it is an extremely sensitive type of capability. But this is very sensitive, so I will not share this information with you. But of course, we are discussing with other potential customers. When all of that will materialize, it will be probably progressive, but it will be in the next few years. So don't expect that in January 2026, Thales is announcing one, two, or three additional contracts on some TMGs that will be triggered by the signature of the Danish contract. This is quite important. And this is, of course, I mean, a first step which is so important for us as we discuss with other clients. Now, the sequence of decisions in other countries at this point, of course, will take a bit of time. But as I mentioned a number of times, We are not looking for a Q1 2026 order intake, but we are looking to keep going our order intake in the next few years. And it's true that air defense capabilities is one key drivers, key opportunities for Thales to keep growing our defense capability in the long-term. So air defense capability in particular, Sun TNG is really, I mean, the next 10 years in terms of capabilities, because of course this system will continue to evolve, of course, but will be hopefully a success that will look like the Waffle success. Okay, thank you so much.

We are now going to proceed with the last question. And the questions come from the line of Sam Burgess from Goldman Sachs. Please ask your question.

Good morning, Pascal. Thanks for taking the question. Just following on the theme of air defense there, some of your big wins recently have been focused on air defense, UK, MOD, LLM, Denmark, Santee. Just given the strength of demand that's likely to continue in that area over the midterm, do you see it as an area where you could do M&A or future JVs, or are you pretty happy with your portfolio at the moment? And the second question, if I may, just the destocking that's ongoing in the banking payments business, any visibility on when that effect is likely to end would be really helpful. Thank you.

Good morning, Sam. So two different types of questions. So first on defense and air defense, yes, quite important. JV, I mean, as you know, we already operate under JV with MBDA when it comes to mid-long-range air defense capability. And SAMTI is a common venture between MBDA and Thales through a consortium which is called Eurosam. Now I'm in MMA. Because, I mean, M&A cannot just be considered on air defense because air defense is going, so considering M&A on air defense. Questions? I would take it a bit more broadly about M&A in defense. Yes, I mean, no mystery that we would be interested in any meaningful M&A on defense. But this, of course, in line with our key M&A criteria when it comes to considering acquisitions. So, of course, I mean, the value of the technology, does it allow us to keep expanding our spectrum of technologies? What is the potential for growth? Does it allow us to get growing position in new markets, when I say new markets, in new geographies in particular. So those are, I mean, the key criteria. Of course, valuations as well. So yes, now we also know that M&A, when it comes to transborder and defense, is always a challenge. So no rush, but of course, I mean, we keep working and mapping the market to see whether there would be I mean, meaningful opportunities for us on defense. But as you understand, it's not an easy ride considering the specificities of the defense industry. Your second question about a smart card is talking particularly on payments. It's true that it is taking more time than expected, and in particular in North America. So I will still be a bit cautious on this matter. Now that's something that we have anticipated. It's taking a bit longer, but... I don't see anything concerning on this matter. It's not for me something I'm quite concerned, even though, yes, we would like the market to pick up a bit more quickly, but overall for us, it's a balance also between level of revenue, level of margin, and at this point, the balance between the two on Smart Counts is pretty positive.

Great. Very clear. Thank you.

OK. So I understand that was the last question. So thank you very much for all your questions. So as always, I mean, Alexander and our team are at your disposal. If you have any follow-up questions, it's true that there have been a number of questions. And it's true that, I mean, it's not that common to issue both quarterly figures together with the announcements of a very important step relative to putting together quite important business for Thales together with Leonardo and Airbus. That's very positive news in our views. So don't hesitate to reach out. And with all of that, I wish you all a very good day. Thank you very much.

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