Thales S.A.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Thales 2025 full-year results conference call. The presentation will be held by Patrice Kane, Thales Chairman and CEO, and Pascal Bouchier, Thales CFO. You will be followed by a question and answer session, at which time, if you wish to ask a question, please 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 turn the conference over to Mr. Louis Higonet, VP, Head of Investor Relations. Please go ahead, sir.

Good morning, everyone. Welcome and thank you for joining us for the presentation of Thales 2025 Full Year Results. I'm Louis Higonet. I recently joined Thales as head of IR. I'm excited to be with you today. With me today are Patrice Kane, Chairman and CEO, and Pascal Bouchard, CFO. The presentation will be followed by a Q&A session. 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. Please also note that this presentation contains forward-looking statements based upon what management of the company believes are reasonable assumptions. These statements are not guarantees of future performance. With that, I'd like to turn over the call to Patrice Kim.

Good morning, everyone. So I'm now on slide number two. So let's start by sharing some highlights for 2025, which was another very strong year for Thales. First, on commercial performance, we delivered another year of strong order intake, equalling the record level reached in 2024, thanks to our strategic positioning in high growth markets. Our sales growth accelerated, surpassing our guidance. We achieved a robust improvement in profitability compared to 2024. And most notably, our free printing cash flow reached a record high level, reinforcing our financial strength and ability to fund future growth. Hence, we achieved or exceeded all our 2025 financial targets. On the strategic front, we also made major progress in positioning Thales for the future, thus delivering on our strategic roadmap. Typically, we further increase our production capacity to capture rising defense spending and support our customers' rapid ramp-up. entering we meet demand without compromising quality or on-time delivery which are our clients key priorities we also continued to strengthen our r d leadership with new breakfast in 2025 that keep us at the cutting edge of technology from ai with a cortex to quantum and even nuclear fusion with our Gen F project. And we took a major step in space by signing a MOU with Airbus and Leonardo to create a leading European space player, a move that will reshape the industry and secure Europe's strategic autonomy in this critical domain. So moving to slide number three. To illustrate our ramp-up and successful positioning in the European rearmament dynamic, I'd like to mention our groundbreaking success with SAM TNG, a strategic milestone that reshapes the air defense landscape. The SAM TNG, produced in partnership with MBDA through Eurosam, is the world's most advanced air defense system, which offers long-range air defense, with a unique detection and tracking capability against all current and future threats, aircraft, helicopters, UAVs, cruise and ballistic or hyper-velocity missiles. It definitely sets a new standard in air defense with 360 degree and 80 degree coverage, meaning it can intercept threats anywhere in the sky. Extensive interoperability with NATO systems, ensuring seamless integration with allied forces, high firepower with low manpower requirements, optimizing operational efficiency and camping and decamping, and 24-7 operations. So with some TNG, we have disrupted a long-standing de facto monopoly. Denmark's decision to select some TNG over their legacy system is unexpected. a clear validation of our technology, performance, and value proposal, proving that European sovereignty in air defense is now a tangible reality. And this is only the beginning with SAMT-TNG being a high-value, large-scale system. We expect many more export successes. Moving to slide four. Now to discuss what truly differentiates Thales, our innovation and technological leadership, I would like to focus on AI where we are leading the transformation. Our AI leadership is built on scale and expertise with 800 AI experts and 100 PhD students. We are also expanding Cortex globally with five country hubs across the globe 200 patents covering the full spectrum of AI technologies, securing our intellectual property and competitive edge. Our Cortex accelerator is now fully deployed across all TELES divisions, embedding AI into 100-plus products with 250-plus use cases deployed or in development. Another of our strengths lies in our strategic partnership. We are joining forces with industry leaders to co-develop solutions or use cases. With Dassault Aviation, for instance, we are integrating Cortex into next-gen aviation systems and enhancing functions for manned or unmanned aircraft for observation, situation analysis, decision-making, planning, and control during military operations. With Naval Group, we aim to accelerate the development of trusted AI solutions applied to critical systems in several key areas, collaborative combat, decision support systems, electronic warfare, training and simulation, logistics and support, just to mention a few. Then to give you concrete examples of how we are turning AI and innovation into customer value, Number one, our Talios reconnaissance and targeting pods capabilities are now unmatched, boosted by Cortex AI. It provides AI-assisted targeting, passive detection, and enhanced vision to overcome stealth threats, electronic warfare, and poor visibility. It maximizes mission efficiency, entering safety, and maintaining superiority across all domains for the end users. The second example is in the maritime domain, our autonomous mine countermeasures with first delivered in 2025 to the French Navy as AI augmented detection, classification and identification capabilities. I am now on slide five. Moving on to our strategic ambitions in space. an area where TELES is positioning itself at the heart of Europe's sovereign capabilities. We have taken a major step forward by signing a memorandum of understanding with Airbus and Leonardo to create a leading European space player. This partnership will combine our complementary strengths to build a global scale champion for Europe. Our target is to launch operations in 2027, subject of course to regulatory approvals and closing conditions. And this initiative holds significant value creation potential for all stakeholders, for customers, for Europe, for investors. For customers, it means end-to-end space solution from secure connectivity to Earth observation and exploration. For Europe, it ensures strategic autonomy in a critical domain. And for investors, it opens new avenues for growth in one of the fastest evolving high-tech sectors. Let's now move to slide six to look at our financial performance with a few charts. As previously said, we have enjoyed strong commercial momentum in 2025, reaching 25.3 billion euros for the second year in a row. The book-to-bill ratio is maintained significantly above 1, with reaching 1.14. Sales recorded a sharp 8.8% organic growth, reaching a record high 22.1 billion euros. Adjusted EBIT rose by more than 13% on a reported basis, while EBIT margin improved to 12.4%. Adjusted net income, group share, grew by 5.5%, crossing the 2 billion euro mark, and a very strong generation of free operating cash flow from continued activities, which increased by 27%, reaching 2.6 billion euros, notably supported by the solid momentum in our order intake. And the last chart, the dividend. This new year of strong financial performance is leading our board of directors to propose at the next AGM in May a 5.5% increase to 3.90 euros per share. It demonstrates Thales' confidence and commitment to regular shareholder returns. Turning now to slide seven, looking at our extra financial performance in 2025. I indeed wanted to come back on the continuous progress we've made in terms of corporate social responsibility. First pillar, society. The Thales Climate Passport training deployed in 2024 raises employees' awareness to climate change and its impact on society. The 2025 campaign was a success with over 94.6% of managers who completed the training way above the 85% target. We are clearly ahead of time on this pillar. Second pillar regarding our strategy for climate change. Our CO2 emissions from scope one and two decreased by 75%. in 2024 and scope three emissions decreased by 15.4% compared to 2018. The group has thus achieved its 2030 targets ahead of schedule for the third consecutive year. The absolute carbon footprint reduction targets remain relevant for 2023 in light of the group's growth prospects. Finally, our third pillar, named People, aims at strengthening gender diversity, where at the end of 2025, we are in line with our 2030 trajectory. First, the percentage of women in senior management position reached 21.8% and this performance is in line with the group's trajectory to reach the set goal of 25% by 2030. Second, the percentage of management committees with at least four women reached 69.2% in 2025 compared to 64.1 at the end of 2024. For 2030, we have set an ambitious target to have 85% of management committees with at least four women. After this introduction, I now hand over to Pascal, who will comment our financial results in greater detail.

Thank you, Patrice, and good morning to everyone. I'm now on slide nine. So, starting with order intake. As Patrice mentioned, 2025 was again a strong year in terms of commercial momentum. Our order intake was maintained at a record level, namely 25.3 billion euros. This reflects the quality of Thales' diversified product and solutions portfolio, fit for our clients' purposes. The book-to-bill ratio stood at 1.14%, meeting our expectations for the year and even 1.24 for different segments. This bodes well for future revenue generation. This robust performance was driven by all types of orders, with a notable strong momentum for orders below 100 million euros. Looking at large orders. 28 orders with a unique value over 100 million euros were booked in 2025, of which half in the sole fourth quarter. Twenty large orders were booked in defense with several flagship contracts, notably in air defense. I can in particular mention the LMM, Lightweight Material Missile Contract, with the UK MOD, or a major land surveillance contract with the German MOV. 2025 saw also a good momentum in space with large, with five large contracts booked, of which one in OEM and four in DELCO, including the Iris Square initial phase contract. Avionics booked three large contracts, of which a flagship contract for IFE, with a major US airline in Q4, 2025. Overall, a strong performance in 2025 for order intake, driven by continued high demands from our clients in all our businesses. Now, moving on to sales on slide 10. Sales in 2025 reached 22.1 billion euros. translating into an organic growth of 8.8%, significantly above the top of our guidance range, which was upgraded in July. This robust performance was notably driven by this impactivity, which recorded double-digit organic growth again this year. Aerospace also contributed significantly, with strong organic growth fueled by both avionics and space activity. Cyber and digital sales were slightly down organically in line with the latest expectations. I will comment further the performance in the following slides. From a geographical perspective, sales organic growth was again well balanced between emerging and mature markets. It's worth noting that all our emerging markets, Asia, Middle East, and rest of the world, recorded double-digit growth. Reported growth was negatively impacted by material currency impact this year, as euros strengthened against most currencies in 2025. Against the US dollar, as we are all aware of, but also against other currencies, like the Australian and Canadian dollars. Overall, currency led to a 1.5 percentage points headwinds on 2025 sales reported growth. Scope impact was positive and resulted mainly from Cobham Aerospace communication acquisition in April 2024. Taking to account these elements, 2025 sales recorded a 37.6% reported growth year on year. Let's now have a look at adjusted EBITs. I am on slide 11. So as you can see, adjusted EBITs increased sharply in 2025 and reached 2.7 billion euros. This increase mainly was driven by the significant progression of our gross margin up by 391 million euros. This was mostly the result of the sales volume progression in defense and aerospace. Looking at indirect costs, R&D expenses continued to increase in volume and represented 6% of sales in 2025, in line with our expectations. Marketing and sales expenses were broadly stable organically, reflecting Thales' ability to optimize its indirect costs in line with the evolution of the business. This was notably the case in cyber and digital in 2025. G&A grew organically at half the pace of revenue, which is also satisfactory. Equity affiliates contributed positively for 61 million euros to adjusted EBIT growth in 2025. This includes, in particular, a stable contribution from Naval Group, which includes a fiscal surcharge in France. It also includes positive contributions from various JVs, notably from our descent JVs. It also reflects the one of positive effect linked to the TELIC JV, which is accounted for in our digital identity business. A word on mechanical effects. As for sales, negative currency impact at minus 37 million euros outweighed scope positive impact at 24 million euros. Moving on now to performance for you by segments, starting with aerospace on slide 12. Orders in the aerospace segments amounted to 6.1 billion euros. slightly down versus last year on the back of high comparison basis. Underlying momentum in both avionics and space remain solid. In avionics, this solid momentum extended into most activities. In space, five orders with unit value above 100 million euros were booked, including several geostational communication satellites and the initial phase contract for ARRI2. Those wings enhance visibility for the coming year. Sales reached 5.9 billion euros in 2025, recording a solid 8.7% organic sales growth. Both Avionics and Space contributed to this performance. Avionics indeed saw double-digit growth year-on-year, driven by all activities. Both flight, avionics, OE, and aftermarket enjoyed strong dynamics, supported by continued ramp-up in aircraft production and also a solid air traffic momentum. Both civil and military domains were supported. In space, sales were up as well in 2025, mostly driven by the OEM business. Looking at profitability, adjusted debits stood at 560 million euros in 2025, an outstanding 39% organic increase, which led margin to reach 9.5%. Avionics posted a solid increase in its profitability, driven by stronger aftermarket and further contribution from Cobham Aerocom. Space recovered. even better than announced a year ago, posting a positive EBIT in 2025. Now, commenting defense on slide 13. Order intake in defense amounted to 15.1 billion euros in 2025, setting this year again a new record high. The book-to-bill ratio stood significantly above 1, It's now the seventh year in a row that DeFence sees its book-to-bill ratio stands above 1.2. With a backlog of 42 billion euros, the level of BGB in this activity keeps being high at 3.4 years of sales. Thales booked 20 orders with a unit value of over air defense, effectors, airborne solutions, or in the naval domain. We also believe that stronger European collaboration, for example, through a UE mechanism, such as SAFE, up to 2.2 billion euros, up 12%. totally supported by further production and deliveries ramped up across the portfolio. Surface radars and effectors are, for instance, areas where efforts have been paying off in 2025. Overall, organic growth has outpaced our expectations in 2025, and I want to highlight the tight execution throughout the year that led to this excellent performance. Award, finally, on adjusted EBIT. They were in EBIT in 2025 versus 2020. Now, moving on to side-run digital on slide 14. Sales in the side-run digital segments were broadly flat organically in 2025. reflecting a mixed performance. In reported figures, it's worth noting that the effect impact was significantly negative and led to a 3.4 point headwind on sales goals, starting with cyber as a whole, which was down 3.8% organically over the whole year. Cyber products, which represented a bit more than 80% of the cyber business in 2025, recorded a low single-digit organic decrease last year. As you know, until Q3, we have been impacted by the merger of TALES and Imperva sales forces, which notably led to a higher staff turnover and weight on the performance. Employee turnover is now back at a benchmark level. In Q4, cyber product was back to growth, which is positive and paves the way for further growth in 2020. Market momentum keeps being supportive and in sales integration being now over. We should progressively recover a sales growth profile. Cyber services sales were down double digit organically year on year. as it kept being impacted by soft markets in Australia. The premiumization strategy Thales has adopted for this business shows encouraging signs in related geographies as we're focusing on selective, profitable segments. Digital identity sales were up slightly, 1% in organic terms. Digital solutions kept driving roads not having secure connectivity solutions and payment services. However, volumes on payment cards remain low in 2025, and at this stage, we don't expect the market to improve materially in 2026. Having a look at profitability, adjusted EBIT margin resisted in the context of low revenues in 2025 and stood at 13.7%. This is mainly the result of tight cost management in the cyber business, which saw an increase in margin in 2025, as well as a positive impact from one-off elements in the digital business we already mentioned in July 2025. Turning now to slide 15 and looking at below adjusted EBIT items. So the line cost of net financial debts and other financial results was moderately up in 2025 as expected. Net financial interest was significantly down in 2025 and stood at minus 160 million euros in 2025 versus 166 million euros in 2024. driven by the ongoing debt averaging following the acquisition of Coba Myrocom. Other financial results amounted at minus 28 million euros versus plus 35 million euros in 2024. This evolution is due to the non-recurrence in 2025 of positive runoff recorded in 2024. The final cost on pensions and other employees' benefits were slightly up in 2025 to minus 56 million euros. Moving on to income tax, at minus 561 million euros, the amount of income tax integrates 75 million euros of tax surcharge in France in 2025. This led the effective tax rate to reach 24.20% in 2025. But it's worth mentioning, it is broadly stable, excluding the surcharge. The 2026 French budget includes a recurrence of this tax surcharge in 2026. The expected impact for Thales in 2026 PNN should amount to around 90 million euros, a 15 million increase versus 2025. In addition, the impact on our share in Navel's Group's net income should be broadly stable at minus 8 million euros. Minorities have significantly decreased year on year to 26 million euros. This is mainly driven by the reduced net losses incurred by tax. All in all, this led to an adjusted net income group share at 2 billion euros, an increase of almost 6%. The adjusted EPS stood at 9 euros and 76 cents in 2025. Excluding the tax surcharge in France, adjusted net income group share would have been up by more than 9%. Having a look at the bridge from adjusted EBIT to FRIO 13 cash flow, I'm now on slide 16. So in 2025, on slide 16, we see DNA depreciations and amortizations, body stable, while net operating investments were significantly up at minus 746 million euros in line with our guidance of 3 to 3.5% of sales. This reflects the group strategy to keep investing for future goals. For example, with additional industry capacities as already commented. Overall, the balance of DNA and net operating investments amounted to a negative minus $260 million. Change in working capital requirements was a strong tailwind in 2025. I recommend further in the next slide. All in all, 2025 is again an impressive year in terms of cash generation. Free operating cash flow, amounted to almost 2.6 billion euros in 2025. This means a convergence from adjusted net income to free-breaking cash flow of 128 persons, a very strong performance. Let's now have a look on what drove this impressive performance. I'm now on slide 17. Firstly, and we have discussed it already, 2025 was once again a year of strong momentum for order intake. Major orders were booked, while orders with a unit value below 100 million euros were solid as well. Secondly, the payment profile from our customers is very satisfactory. This includes down payment, but also highlights Thales site management's of contract structure. Lastly, the emphasis that we keep putting in Germany on stocks optimizations over the last few quarters. And the year showed a positive outcome in 2025. All in all, the conversions ratio has outpaced expectations for the year at 128%. For 2026, we anticipate a cash conversions ratio between 95 and 100%. This gives us confidence to reach the high end of the guidance we gave at our 2024 Capital Market Day, which is an average conversions ratio of between 95 to 105% over 2024-2028. Now, awards on net debt evolutions, moving on to slide 18. Net debt saw significant reduction in 2025, and Thales' financial position is particularly strong as of end 2025. This was primarily driven by the strong 3.0 cash flow generation I just detailed. The impact from acquisition and disposal amounted to a negative 69 million euros, which corresponds mainly to final price adjustments related to the sales of Thales Transport Business to Itachi Rail, finalized in May 2024. The dividend cash out amounted to 781 billion euros in 2025, corresponding to a payout ratio of 40%, and reflecting the increase in adjusted net income. All in all, net debt stood at 1.6 billion euros as of the end of December 2025. Finally, on slide 19, awards and dividends. As I just described, 2025 was again a year of robust financial performance and value creation. This leads our board to propose to the next AGM a dividend of 3 euros and 90 cents at 5.5% versus 2024. This is in line with the payout ratio at 40% and reflects the increase in adjusted EPS. A quick look at the chart on the right hand side shows the steady growth of adjusted EPS over the last year, reflecting Thales' ability to consistently deliver sustainable and profitable growth over the years. This marks the end of this financial review. I'm now turning over the call to Patrice, who will address our strategic priorities and guidance.

Thank you, Pascal. So now turning to our strategy and outlook for 2026. So let's move to slide 21. And before talking about our 2026 strategic priorities, I'd like to briefly give you the big picture on the tailwinds supporting our different businesses and the key differentiators that Thales can leverage to keep delivering strong and profitable growth. Thales is a unique business in the sense that we are only positioned on markets which benefit from positive long-term momentum supported by proven resilience and sustainable macro trends. First, if we start with defense, our activities are supported by a strong need for more security, more protection in a context of geopolitical instability. This is shown by the global increase in defense spending with a notable concentration in Europe, where it is projected to grow high single digits annually until 2035 in Europe. and also by the need for our clients for speed as they seek both high-performance products and solutions as well as good enough products that are quickly available. The competition is fiercer than ever, but we have significant competitive advantages. Number one, our deep and diverse portfolio with a unique and historic ability to fill products with the latest technologies, our AI augmented readouts, for instance. Number two, our strong customer intimacy and historic knowledge of our clients' concept of operations, or CONOPS. And number three, Thales is the strategic partner of choice at the heart of European rearmament. Our position is unmatched because we are deeply embedded in Europe's defense ecosystems. Moving to Avionics, well, in Avionics, we have a great visibility thanks to a sustained and powerful demand for travel and mobility that shows no sign of slowing, resulting in continued growth in global air traffic as IATA, the International Air Transport Association, predicts passenger numbers to double in 20-year forecasts. And at the same time, a global renewal of commercial fleet, which increases demand for our equipment from OEMs. And, of course, we have strong differentiators, thanks to our commitment to developing more sustainable and connected avionics, bringing skills and technologies to build the future of avionics, for instance, through predictive maintenance, and new generation of flight in management systems. Space now, well, demand in the institutional market is improving with a growing number of opportunities, thanks to the rise in government investments, typically growing ISA budget and EU MFF, and the need for large scale projects like Iris Square, on the space early warning initiative. We have won very important contracts and delivered truly emblematic projects which are testament to the relevance of our positioning and the quality of our products in exploration in science with the lunar descent element for the Argonaut mission in the 2013, regarding observation, the long-awaited entry into force of the all-in-one contract with Indonesia and the first slice of the Leonardo constellation. On the telecom side as well, where we recorded a good level of orders and the launch of the initial phase of Iris Square will allow us to start the technological developments of the payload. And lastly, in cyber and digital, Well, the omnipresence of connected devices and the digitalization of our daily lives with the consequential need to protect our data, our applications, our identities from cyber attacks continues to show our activities. We are a world-class player in cyber. with best in class products across application security, data security, identity and access management, and also premium cyber services. And the services we provide to accompany all industries in their move to cloud are ideally positioned in the competitive landscape. So moving now to slide 22. To seize all the opportunities created by this environment and to address the many challenges facing Thales, I have identified four key priorities for 2026. The first one being our ability to capture profitable growth. To seize this growth, we will continue to ramp up our capacity, which means continuing to scale up production across both existing and new facilities with a clear focus, focusing on high-end demand products such as the radars, the munitions and optronic cameras, systems like our SAMTI-NG, raffle equipment, Contour US, just to mention a few. And at the same time, ensuring we have the right talent. Hence, we plan to recruit more than 9,000 employees worldwide in 2026. Secondly, we'll put a heavy focus on competitiveness through operational excellence, i.e., continuously improving internal processes to continue to deliver on time at cost and quality, but also AI-driven productivity, leveraging artificial intelligence to transform how we operate from AI-optimized logistics to so-called software companion, accelerating development cycles and reducing time to market. Lastly, to fully capture the current momentum, we will continue addressing our customers' core expectations, proximity, intelligence. Proximity, our customers expect alignment with their local realities and sovereign requirements, typically leveraging our ability, we will further strengthen customer intimacy by localizing critical parts of the value chain where it creates value, as we demonstrated, for instance, with the recent radar factory opening the UAE. Intelligence as well, we will continue to enhance The value we deliver by embedding AI across our entire product portfolio, building on our track record of combat proven AI enabled systems already deployed operationally. We are scaling AI capabilities across all our offerings. Another key area of focus in 2026 will be to restore growth in our cyber business via integration of improvised freedom as said by Pascal. So we are now ready to go back on the offensive, first by reaping the benefits of the sales team reorganization, which is now fully up and running, to gain traction and go after significant opportunities across all our segments IAM, software monetization, data sec, application security, and the likes. And second, by continuing to deliver on commercial synergies by offering to our clients solutions combining the best of Imperva and the best of Thales across all our activities, for instance, via cross-selling. Lastly, our teams are working on the next generation of cyber products, these developments will be essential to ensure that we outperform the competition. So, in a nutshell, we have everything in place to position ourselves for growth on these markets. Regarding the Bromo project, well, if everything goes as planned, this joint venture will be operational within two years. So during this time, we are focused on securing support from all stakeholders. This includes the European Commission, but also many key states and their regulatory bodies. And above all, in the meantime, we remain focused on delivering our roadmap and maintain a solid pace of recovery. This is essential as, by definition, there is still a lot of work to do before the merger is authorized, if it is authorized. So it is critical that we continue doing business to the best of our ability on a standalone basis. And as such, the recovery plan we have been implementing is now bearing fruits, as you have seen in 2025. But behind that, we will agree that this project has a strong rationale, securing Europe's future in space and allowing to accelerate innovation through joint R&D and cutting-edge space missions, enhance competitiveness against global players, lead sovereign and military space programs for European nations, and strengthen the European space ecosystem creating opportunities for suppliers and employees alike. Last but not least, regarding avionics. Our focus for 2026 will be to expand that business above and beyond. Today, we benefit from a world-class portfolio, supporting our customers in making aviation greener, more digital, and more connected. Our ambition is to extend our leadership across all aircraft manufacturers. As you know, the most powerful structural trend in the market, in both civil and defense markets, is the renewal of most aircraft platforms around the 2030s. And we are already actively preparing for this significant opportunity. To that end, in 2026, we are continuing to invest heavily in technologies, in industrial capabilities. In technology, our nine product lines, including flight controls, high-performance IMA, integrated modular avionics, help displays, navigation heads, are already competitive and are being further enhanced to address the next generation of platform requirements. in industrial capabilities as well, while we continue upgrading our industrial sites to ensure best-in-class performance and competitiveness. So thanks to the actions already taken and the investments underway, we are extremely well positioned for the upcoming competitions. We are excited to deliver the most advanced, reliable, and industrially competitive IONIX solutions. So now I'm on slide 23. Well, all these priorities will bring Thales to pursue ambitious financial targets in 2026. First, a book-to-bill ratio above one. Second, the dynamic organic sales growth between 6% to 7%, which should correspond to sales ranging from 23.3 to 23.6 billion euros, including FX impact. Number three, 12.6% to 12.8% adjusted EBIT margin, which puts us well on track to deliver our 2028 targets. And number four, a free operating cash flow conversion ratio, still high, expected between 95% and 100%. This is clearly a key strength of our model. So, overall, we are well on track to deliver the various commitments we made back at our 2024 CMD, where we provided some outlook by 2028. We are not even halfway through the 2024-2028 period, but I can already tell you that we feel very confident in our ability to reach the high end of our organic sales guidance, given what I've just described in terms of business opportunities. In terms of operating margin, we are clearly on track to deliver 13 to 14% by 2028. and as far as free operating cash flow generation is concerned, there again, we are confident we will be in a position to reach the high end of our guided branch. Many thanks again for your attention and we will now be pleased with Pascal to take all your questions.

Thank you, ladies and gentlemen. We'll now begin the question and answer session. As a reminder, if you wish 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 to ask a question and wait for your name to be announced. Thank you. Again, please press star 1 1 to ask a question. We are now going to proceed with our first question. And the questions come from the line of Chloe Le Marie from Jefferies. Please ask your question.

Yes. Good morning. Thank you for taking my question. Could I start with the guide and digging into the divisional growth expectation, please? So for 2026, what do you factor in in terms of organic growth, the defense, aerospace, and cyber and digital? And in cyber, what do you call a vigorous market? And how do you think TALIS will perform compared to that market growth, please? Thank you.

Okay. Good morning, Chloé. So first, I mean, giving you a bit of insight on our segment expected goals for 2026. So in total, as you mentioned, the guidance, of organic growth between six and 7% at group level for 2026 over 2025. So going through our billions, starting with defense. So defense at this point, I think a digit. Overall, that was by the way, what was our guidance for 2025? You have seen that they weren't about this level ultimately. Now, as we move into 2026, we believe that I think that it is a reasonable guidance for defense overall and consistent with the six to seven persons overall for telescope. Second, on aerospace. So aerospace, I mean, growing, by the way, both from avionics and also from our space business. So aerospace overall what we see probably mid-single-digit to mid-single-digit plus with Avionics mid-single-digit. We mentioned as we presented 2025 both that Avionics in 2020, in 2025 was more low double-digit. So we are at this point probably a bit more conservative on ABNX for 2026. And today, as we see, mid-single-digit, this being based on also, I mean, the announcement from Airbus in terms of OEM, but also, I mean, as we see, I mean, the air traffic developing in 2026. Space, we are positive on the back of, I mean, the 2025 order intake, and as we see, 2026 overall. And lastly, I mean, CDI overall mid-single digits. with of course, I mean, a cyber above this level and digital lower than this level. So as you know, I mean, one of our key priorities that Patrice mentioned is to get cyber back on growth in a market which is today pretty positive as we said. So at this point, Of course, and we mentioned that Q4 for cyber product was getting back to growth, which is not the case for the cyber services that was down in Q4. At this point, of course, I mean, we need to be a bit cautious. But the market is there in terms of demand. Now, it's up to us, I mean, to get back to growth. in particular in the cyber product, which is absolutely essential for us in terms of value creations. More to come as we move forward in 2026. But overall, yes, I mean, one key priority for us is to recover, I mean,

Next questions maybe?

Thank you. Maybe we ask analysts to limit yourself to two questions so we can give opportunities for all the analysts to answer questions. Thank you. We are now going to proceed with our next question. And the questions come from the line of Benjamin Hillen from Bank of America. Please ask a question.

Yeah, good morning guys. I hope you both are well. I had a question around AI and the implications around Cyber, obviously, there's been a lot of pressure on software companies over the past couple of months around the threats of agentic AI. I was wondering if you could talk a little bit about what you're seeing in the cyber market. Do you see it as a threat? Do you see it as an opportunity? How can we on the outside think about the impact of agentic AI on cyber? And then the second question was, I guess, a bit of a follow-on from that. Can you talk a little bit about, given what is going on from a technology perspective with AI, how is your M&A strategy evolving to encompass that? Is it a time to accelerate doing, you know, deals in cyber or moving into different areas? Is it a time to slow down and see how things progress? Is there any update that you can provide us from that? Thank you.

So I will take this one, Ben, and good morning, and thanks for your question. Yes, indeed, there has been recently a lot of debates about AI, and in particular, agentic AI, and how will it, or not, by the way, disturb the software market. Well, as far as the cyber market is concerned, our market, first it's a mix of hardware products and software solutions. and typically for hardware there is no real, I would say, worries to have in mind. For our software solution, I do think this is a clear opportunity to have even more, I would say, efficient solutions to fight against AI, to fight against cyber attacks, sorry. So this is for me a great opportunity and in particular we are, I would say, on the verge of, I would say, launching new solutions, leveraging Atlantic AI to serve some of our products, cyber products. That's a key plus for us. Now M&A, if I move to M&A, well, you know, no change, if I may, in our global, I would say, approach or mindset in terms of capital allocation in general and M&A in particular. We will be always, I would say, very pragmatic and financially disciplined. We are looking at every, I would say, vertical justice, defense, aeronautics, or cyber and digital. Probably putting a little bit of space aside because we have already a big M&A, I would say, initiative to conclude with the Bromo project. But clearly I do not exclude any segment per definition to benefit from an M&A, I would say, opportunity. So clearly I would say we'll see if something will make sense in the next future, but I would say no chance versus what we've already discussed for several years in a row.

Okay, very clear. Thank you.

Operator?

Operator, are you still there?

The next questions come from the line of Olivier Brochet from Rothschild and Co. Redburn. Please ask your question.

Thank you so much. And bonjour, Patrice. Bonjour, Pascal. Two questions then. First of all, on cybersecurity, You're positioning yourself for growth. Does it mean some pricing efforts that needs to be done there? And what impact do you see for the margin in cyber and digital in 2026? Consensus is at 15.1. Is that something you think is reasonable? And second question is, in your revenues in 2025, how much was done with Ukraine, direct and indirect, please?

Maybe I will start and let Patrice to complete, maybe. So, I mean, first, let me start with this cyber product, which, as you understand, represents 80% of our cyber business. This is where, I mean, clearly our challenge to get back to growth, and, of course, not at the expense of prices. So basically, I mean, this is, I mean, right under this. And for us, I mean, this represents, when I talk about the rule of 13, it should represent a level of epic margin of around 20%. and overall a level of growth of 10%. This is basically what we have in mind in terms of mid-term objective for this business. And of course, as we enter 2026, our view is not to give up on prices just to get back to growth. This is absolutely not what we are willing to do. Second point on Ukraine and our level of revenue directed to Ukraine, giving you just three figures. I mean, 2024, overall revenue directed to Ukraine was around 200 billion euro. It went up pretty strongly in 2025, with overall in 2025 level of revenue of around 450 million euros. All of that to be compared to a different level of revenue for Thales at 12 billion euros. So if you look at 2025, 450 out of 12 billion euros is something like 3.5, 3.6% of our revenue directly to Ukraine. Now, we believe that revenue to Ukraine will keep growing in 2026. is a level of revenue to Ukraine that should be close to 600 million euros. So it's a growth driver. Now, when you look at what it represents against our global defense exposure, something like 3.5 persons of the defense segment.

Thank you. That's very helpful. Sorry, I didn't catch if you commented on the consensus in cyber for 26.

The consensus is at 15.1%. It's 15.1%. Overall, I mean, what I mentioned is overall for cyber and digital, level of growth mid-finger digits. So if you start from a level of revenue in 2025, and if you add up, I mean, 5%, this is what you get for the 2026 level of revenue. So overall, starting from 2025, level of revenue So if you add the prices on top of that, this is how you should get to a 2026 expected revenue for CDI. Sure.

I was thinking of the margin consensus at 15%.

Oh, no. So overall, I mean, it's above what we have in mind. It's above what we have in mind. If I start with 2025, we mentioned a level of margin for CDI at 13.7%. But we said that we had in this level of margin, I mean, a few positive one-offs. We believe that the 2025 recurring level of margin is more in line with 13%. but in person for 2025, putting aside those one-offs. By the way, I mean, you need to understand that in 2025, CDI had also to face with two headwinds, one being the drop in the U.S. dollars, plus implementations of the U.S. tariffs, So all of that representing probably something like one percentage points of headwinds. And this leads to a recurring level of margin in 2025 at 13%. And, I mean, from that, this is what we could expect for 2026. So maybe slightly above this level, but this is, I mean, the overall ballpark that we could expect for CDI, EBIT margin in 2025. in 2026.

But I think, Olivier, your question was related to cyber and not CDI as a whole. You mentioned the 15.1% consensus for 2026 for cyber, which corresponds to what we see globally for the cyber segment of CDI for 2026.

Yes, 2026. I'm sorry for that, but the connection is not great. So if your question was about cyber EBIT margin for 2026, so overall a 15.5% EBIT margin for 2026 is what to have in mind.

Very clear. Thank you very much.

We are now going to proceed with our next question. And the questions come from the line of Alessandro Puzzi from Ediobanca. Please ask your questions.

Good morning and thank you for taking the questions. The first one is on free cash flow conversion. I was wondering if you can perhaps share your assumptions around working capital and CapEx. I think working capital was a key contributor in the factor in 2025, and given the order intake, perhaps maybe we should assume something similar for 26. And CapEx, I think you mentioned that you, of course, you have the ramp up going on, you increase the production of radars, and you mentioned that potential CapEx is going to go up again in 2026, and if you can quantify that as well. And the second question on capital allocation, which is a nice segue from the first question, is your net debt is substantially down, and we know that your priority is to deliver the company. But I think by 2026, probably that target will be accomplished, or you're going to be very close. And I was wondering whether we should think about a different capital location, maybe more buybacks as well. So any thoughts on that will be appreciated. Thank you.

Okay. Thank you very much. Thank you very much, Alessandro. So we can hear you loud and clear, which was not the case before. Much better. So let's start with, I mean, cash flow generation for 2026. I mentioned that, I mean, conversions ratio should be 95, 100%, and this takes into account a few assumptions that you want me to give you more insights. So first, in terms of CAPEX, it's true that we'll keep seeing our CAPEX moving up in 2026. Overall, I mean, if you look at 2025, CAPEX, We are at around 750 million euros. 2026, it should be higher, and probably, in my view, 820 to 850 million euros capex for 2026. Pretty much in line with the overall capex to revenue ratio around 3.5%, which was the high end for guidance that we share with you at Capital Market Day in November, 2024. So first point, and second point in terms of working capital is so that 2025, I mean, change in working capital was a clear tailwind and reflecting, I mean, in particular down payments and large down payments, on in particular defense export contracts. 2026, at this point, we believe that the guidance that I mentioned about conversions ratio is more based on a flattish level of working capital. So this is, I mean, what we have in mind. Of course, it will depends at the end of the day of the year. of our order intake and the profile of order intake in particular coming from export . But at this point, what we share with you is a level of cash flow generations. So, I mean, close to 100 persons being based on something like a stable level of working capital. So, again, with a stable level of working capital, a pretty strong level of cash flow generations again. With Thales investing also more in terms of capex. As I mentioned, I mean, a level of capex 820, 850, it has to be compared to level of depreciations slightly above 500 million euros. So basically, we keep investing on all our industrial science, we keep investing on ISIT, we keep investing in engineering tooling for us to benefit from the growth that we see in the world. Maybe a capital indication for Patrice?

Yes, I can, I can come back on this point in a more global way. As you know, we said that for a while now we have all the different levels available in what we call the toolbox, in fact, Thales. Clearly, you've mentioned, number one, delivering the company, which is an important stake for us as we do want to keep Thales being an investment grade company with a strong balance sheet. Clearly, funding our organic growth with APEC and R&D, and you know R&D is super important for us. M&A, we discussed M&A with the same, I would say, philosophy as already discussed. Dividends as well, and we said that the 40% payout ratio will be proposed to the AGM, giving a clear visibility on this front. And last but not least, buyback. So buyback is part of the toolbox, clearly. Now, don't always keep in mind, sorry, that among the different criteria that we look at if and when we have to decide for a buyback is clearly the price of the company, the share price. Is there a gap or not? Do we think there is clearly a potential in terms of valuation of the company that is not well-deserved by the market? And it's true that currently, if we look at the share price of Thales, I cannot say that there is a misunderstanding or mismatch between the full potential of the company and how the company is currently valued by the market. So all in all, the toolbox is there. We have all the levers in hand, and we do not exclude one among any others per definition.

Okay. Thank you very much.

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

Yes, good morning. Thank you for taking my questions. I had two. The first one on Bromo. Thanks for the update. Is there any extra update on the authorization, any progress being made on this, quite obviously? You mentioned it needs to be authorized. That's the key element. And the other question on SunPTNG, thanks for the update as well. The contract in Denmark, has it been confirmed – I mean – that has been announced back in September, but is it confirmed yet? And can you comment? I mean, you mentioned a few other potential markets. Do you see more interest since the September signature or the September announcement? And what is the updated potential? Thank you very much.

I can start, and Pascal will complement, of course, if needed. Well, on Bromo, I would say, so far so good. I mean, everything is on track. Number one, the social processes are ongoing. And I would say with constructive discussions with the unions, constructive discussions, they do understand that the rationale of the initiative And I would say the benefits for everybody, the customers, the employees, and as well the shoulders of the three groups. Of course, the second work stream which is important is antitrust authorization. On this front, discussions are ongoing in a positive, I would say, mindset of everybody. I'm not saying that we expect such or such outcome, but globally speaking, I would say the discussions are constructive on this front as well. That's the two main work streams. There are many others, but probably with less, I would say, importance than those two ones. So stay tuned. We'll keep you informed, of course. But for the moment, work in progress in a positive sense. On some key, there is, for me, no risk not to boot this contract in 2026. The Danish customer even passed us an LLI contract, long lead item contract, to, I would say, anticipate the formal and definitive full scope contract that was clearly expected in 2026. So no risk. No surprise on the fact that it was not booked in 2025. Denmark has chosen to go through OCAR. That's why it takes a bit of time. And again, it's just administrative process. No surprise on this one. So you should or you could consider that it is 99% secure, I would say. Now, of course, there are many other prospects in typically Europe, Eastern Europe, the Middle East as well. By the way, the recent events of this last weekend showed how air defense is important again and again. After Ukraine, it's another, I would say, very visible and striking example of how air defense is important. And, of course, it reinforced our conviction that some TNG has a lot of potential in the years ahead of us. I don't want to mention any country in particular, because they don't like us to disclose discussions. But believe me, the pipe is important in this domain, and in particular, both in terms of, we'll say, performance offered by Just Some TNG versus its main competitor, which is the Patriot system, and secondly, An important criteria of decision is lead time. And again, some T&G is, I would say, valuable in the short run, clearly before 2030, 2028, 2029, where the passive system, if you want to buy one tomorrow, you will have to wait much longer than the date of purchase. So all these criteria, all these elements are positive elements and that makes SEMT-NG a good candidate for future big orders in the year to come.

Thank you very much.

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

Thank you for taking my question. Good morning. The first question is on cyber again and just to understand the phasing of the re-acceleration, the gradual comments you make in the guidance and why does it take so long to regain the lost market share of last year? That would be the first question. And secondly, to follow up on Ben's question on AI implication for cyber, but perhaps broadening the question on the whole portfolio, I mean, what do you see in terms of the overall competitive impact? impact of AI on your various businesses? What are the most important challenges or opportunity? And maybe is there already some figures you can provide in terms of the contribution to sales or the benefit in terms of cost or the size of the investments that you're putting into your AI transformation? Thank you.

Maybe, I mean, first, good morning, Aymeric. Thank you very much for your two questions. Maybe I will start on cyber. So, in a nutshell, why is it so slow? I mean, so, of course, I mean, I guess it was quite clear that 2025 was below expectations, and we made it clear that, I mean, those difficulties that we faced in 2025 was above what we anticipated beginning of 2025. And it's true that it took us a bit of time, I mean, to put that under control in terms of, I mean, the organization of the Salesforce, implementation of the new variable compensations program, getting the right level of training across the workforce, I mean, developing the new element, the new level of intimacy with customers and, or sales force or sales reps having to get trained to a new portfolio of products. So it seems to be easy from the outside. Now, when you drive and you manage a sales force of more than 1,000 sales reps, I can tell you that it's not that easy. So, well, of course, a bit cautious. This is also our trademark globally. And we believe that we should see growth accelerating throughout 2026. Now, let's take quarter by quarter, I mean, to give you more input on that. But please be assured that we are doing whatever we can, I mean, to accelerate on this cyber product business. No, AI.

I tried to explain, but perhaps I was not clear enough during the presentation, how we do leverage AI for a while now in all our different lines of products. Be there, I would say, sensors. I took the example of the Talus pod, but I could have mentioned how do we embed AI in our radars. in our electronic warfare equipment, in our even radio communication equipment, number one. And number two, how do we leverage AI in the so-called decision-making system, the C2 system, if I take the military acronym. And we have already powered by AI several, if not many, C2, C3, C4I systems for several customers in the world. So it's not possible to give you a measure of how AI makes us even more, I would say, attractive, but that's what I observe with the conversations I have with our customers. Starting from world-class products and making them even more, I would say, attractive by enhancing their capability through AI, this is a clear and straightforward strategy for us. Last but not least, we do as well care about AI on our internal processes. That's another aspect of how do we use AI. It's clear that it is a key element of our global and overall competitiveness plan. Now it's one element among many others. So it's, again, not possible to, I would say, decouple this one from all the others and to say, okay, the contribution of this element helps us in this amount and this percentage to improve the competitiveness of the group. But definitely, it is a key element that we use or a key enabler that we use to improve the overall competitiveness of Thales.

Thank you.

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

Yes. Hi, Pascal. Hi, Patrice. Hope you are both well. So, two questions, one simple one, one a bit longer. The simple one is the associate line was very strong. If you could just comment on that, that would be helpful. The second one, if I can be a bit provocative, if I, You delivered a good EBIT number overall for the group. It was better than consensus. But if I compare it to expectations 12 months ago, you're kind of double digit better on EBIT in defense and aerospace, and you're about 20% worse in cyber and digital. And what is the chance in 12 months' time that you meet your group guidance, which you often do? but it's going to be a lot better in defense or aerospace and worse in cyber or cyber and digital. It can just give you a level of confidence overall on the individual parts. Thank you.

Good morning, David, and thank you very much again for your insightful questions. So, I mean, the first one, I mean, about equity affiliates. Yes, it's true that, I mean, 2025... was pretty good. Having said that, 2024, the 2024 reference base for equity earnings was pretty low. And it's true that we had in 2024 some negative one-offs. I think probably a better reference base for equity earnings would be more 2023 than 2024. And if you compare 2025 against 2023, you will realize that overall equity earnings in 2025 are 20% above what we reported two years ago. And this is basically, I mean, a normal type of expected contributions. And in particular, because it shows that our defense GVs, are doing pretty well, but also, I mean, fueled by, I mean, also the level of demands across the board. Maybe last point, it's also true that, and I mentioned it, we had on one of our CDI GV, a positive one-off in 2025. Now, the underlying, I mean... message is that overall across the board, we see contributions from JVs keeping moving up. By the way, it could have been even better absent the tax surcharge in France that it never took contributions by 8 million euros in 2025. So all in all, I mean a pretty good level of contribution, but reflecting in particular defense GVs that are performing pretty well. And I could also mention GVs in the agonics business that are doing also pretty well. Now your seven questions about what is going to happen in a year time when we meet again. Maybe I can start, Patrice, unless you want to. No, of course, I mean, we give you at this point, I mean, the best views that we have within TALENT, with, of course, I mean, defense with, I mean, quite a good traction on this matter. Avionics, also a pretty good track chance. Space as well. And that's, I mean, when you look at our level of growth for space in 2025, that's been above expectations. It's a matter of fact. I mean, I remember a year ago telling you space revenue should be low single digit in 2025. Eventually, we have done the mid single digit plus for space, so doing better. Now, I mean, then it's about cyber and we share, I mean, how we see the situations, getting back to growth progressively on cyber products. And, I mean, this is what we expect to announce in a year's time as we release our 2026 finances. But overall, what I see is that as compared to what we said a year ago, we are, well, Overall, whether it's order intake, whether it's revenue, organic growth, or whether it's EBIT, whether it is net income, whether it's free operating cash flow, at the end of the day, when you look at the 2025 figures compared to what we said a year ago, all those metrics in 2025 horizons are above what we said a year ago. I mean, this is just a fact-based command. So at this point, we're just entering 2026 with, of course, a number of open points. And we've seen in a year's time whether or not, I mean, we'll be at this level or whether we'll be above what we guided this morning.

But we have shared what we do... as we think, of course. But you know, David, every year we face, along the year, unexpected events. And typically, last year, it was the tariff. Who could have expected the decision taken by the U.S. president at the very beginning of 2025? No one, by the way. No one. Then it's our duty And I think it's part of the merit of the business model of Thales to deliver whatever it happens. And the fact that, yes, we are, I would say, involved in several domains or several verticals, maybe a source of complexity for you guys trying to understand Thales, but it's also a source of resilience Along the year when it happens something here or there and it always happen something here or there always always always So at the end what? really Counts it that is results even more importantly that the readers of division a B or C and again if we do our results by the end of this year a bit differently what could be even more important if a is doing our best, globally speaking. So we will see, David, we'll do our best to deliver, I would say, as expected per division, but what matters most is what we do at group level.

Okay. Something we can chat about over the next dinner, which we look forward to.

With pleasure, David, with pleasure. Of course. Maybe a last question.

Yes, we are now going to proceed with one final question. And the questions come from the line of Ross Lowe from Morgan Stanley. Please ask a question.

Hi, good morning, everyone. Thanks for taking my questions and squeezing me in. So just one on kind of high level on the medium-term growth outlook. which you've upped the upper end of the range of 5% to 7%. Can you maybe just provide some of the colour on the growth rates at the divisional level? That's the first one. And then just secondly on space, what is the absolute EBIT contribution in 2025 and what do you expect for 2026? Thanks.

Okay, so I don't... I mean, a bit cautious on the re-guiding you division by division for the 2024, 2028 period of time. I mean, what we said today is overall talent in terms of organic growth being at the highest end range of the five to seven seven persons, but at this point, we need to be more patient. I don't want to go deeper on this matter. Second point on space. So you probably remember your goal, we said that we're expecting 2025, pre-restructuring EBIT being positive. What I can share with you is that overall the post-restructuring, so full adjusted EBIT for space, was slightly positive in 2025, despite the level of restructuring that in my memory is something around 20 million euros. So overall being slightly positive despite the 20 million euro headwinds on restructurings. It shows that we've done a bit more than expected in this matter. And what we're expecting in 2026 is the further progressions of our EBIT. All of that being consistent with the 7% plus 2028 EBIT margin that we share with the capital market day with some kind of linear progressions in terms of EBIT margin. that this is what we said a year ago and this is what we can confirm today. So linear progressions from this black event plus a full EBIT margin in 2025 to 7% plus in 2028. Okay. Thank you very much.

So thank you for your questions. We'll be happy to meet you on the road in the next couple of days together with Pascal. If you have any follow-up questions, do not hesitate to reach out to Louis and the IR team. I wish you all a very good day. Thank you very much. Bye-bye. Thank you very much. See you. Bye-bye.

Thank you, ladies and gentlemen. If you didn't have a chance to ask a question on today's call, please do not hesitate to send your question 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 your lines. Thank you.