Thales S.A.

Good morning ladies and gentlemen and thank you for standing by. Welcome to Thales Q1 2026 Order Intake and Sales Conference Call. The presentation will be held by Pascal Bouchier, Thales CFO. It will be followed by a question and answer session. If you wish to ask a question, 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 hand the conference over to Mr. Louis Gonnet, VP, Head of Investor Relations. Please go ahead, sir.

Thank you. Good morning, all. Welcome and thank you for joining us for the presentation of Thales Q1 2026 Order Intake and Sales. I am Louis Gonnet, Head of Investor Relations at Thales. With me today is Pascal Bouchard, Chief Financial Officer of Thales. As usual, this presentation is audio broadcasted live on our website, thalesgroup.com. where the slides and press release are also available for download. A replay will be available soon after the end of the event. With that, I'd like to turn over the call to Pascal Bouchard.

Thank you. Thank you, Louis. Good morning, everyone. Let me start with Q1 2026 highlights. I'm now on slide two. We wish today a robust first quarter 2026 that reflects the continued positive momentum across our businesses. Order intake was sharply year-on-year, driven by the high level of demand for Thales products and solutions in a global supportive market environment. Even though I would like to reiterate that looking at order intake on a quarterly basis can be misleading, this performance illustrates the relevance of our premium portfolio, moreover in light of the current events. Sales posted almost 10% organic growth in the quarter, with a particularly strong performance in defense. This strong start to the year reflects both the quality of our backlog and continued solid execution across programs. Q1 also saw the continuous enrichments of our offer, notably in defense. We are already well aware of Calais' technological leadership and the increasing efforts we put on innovation. And this is a new testimony with solutions increasingly powered by AI. We indeed introduced Skydefender, a multi-layer and multi-domain air defense dome designed to provide full protection against the growing complexity and diversity of aerial threats. Sky Defender naturally includes the SAM-T-NG for mid-range air defense alongside other multiple Thales solutions to also address short- and long-range threats. We also unveiled Expeditionary Pathmaster, a turnkey system that enables the conduct of full naval mine countermeasure missions. These leading offers, both boosted by our AI algorithms, illustrate how Thales is combining advanced technologies with operational expertise to deliver differentiated solutions that are more than ever at the heart of our clients' key priorities. Finally in space, Thales once again demonstrated its role as a trusted partner for its clients' sovereign capabilities. Thales Alenia Space was selected to supply a defense geostationary communication satellite to Luxembourg. This contract highlights our ability to support governments with strategic space capabilities and confirms the strength of our positioning in a domain that is becoming ever more critical for national autonomy and security. Overall, Q1 was a very solid quarter in the context of our 2026 objectives. Moving on to order intake on slide three. Q1 2026 order intake was strong and amounted to 4.7 billion euros as of end of March. which is a 27% organic growth versus Q1 2025. The commercial momentum remains strong across our businesses and in particular defense. Large orders were a significant contributor to this performance. Seven of them were booked at group level in the first quarter this year for a total amount of 1.6 billion euros against five large orders last year. Two large orders were booked in space, of which the Defense Geostationary Communications Satellite for Luxembourg I already mentioned. Five large orders were booked in defense this quarter. Among them, the SAMTI-NG order from Denmark, as well as an air surveillance contract for Qatar, comprising various Grand Master WADA. Besides large orders, the high granularity of order intake is also a source of satisfaction and resilience. In terms of value, the orders with a unit value below 10 million euros were again up year over year, and they accounted for half of the orders recorded in Q1, 2026. It reflects the strength and diversity of demands across our businesses. Well, finally, the performance by regions. Order intake was particularly strong across Europe and Middle East this quarter. Two regions that are seeing strong demands. Moving on to sales on slide four. Sales amounted to 5.3 billion euros in Q1 2026. and grew by 9.7% organically versus Q1 last year. This performance was primarily driven by defense, where sales increased by 14.3% organically. Aerospace also delivered a good quarter with organic growth of 5.9%, driven by both avionics and space. Cyber and digital recorded a 2% organic growth. From a geographic standpoint, growth was well distributed. Both mature and emerging markets showed solid sales growth and contributed to the overall performance. In mature markets, Europe posted organic growth of 11.8%, while Australian New Zealand grew by 14.3%. In emerging markets, which grew by 9.8% organically, the quarter, Middle East was particularly strong with a 29.8% organic growth. This broad-based dynamism underlines the strength and the relevance of our positioning with customers worldwide and our capacity to deliver. A word lastly on technical impact. Scope was not material this quarter. By contrast, currency effect was significant, mainly due to the year-on-year evolution of the euro against the US dollar. Overall, currency led to a 2.5 points headwinds on reported growth. Let me now turn to performance by segments, starting with aerospace on slide five. Order intake in aerospace remained at a solid level in the first quarter and amounted to 1.5 billion euros, up 1% in organic terms. The too large orders booked in space offset the absence of large orders in avionics this quarter, while Q1 last year benefited from a specific large order booked in avionics. This reflects the natural lumpiness of order intake from one quarter to another, while underlying demand trends remain solid. To that extent, original equipment in our avionics business notably saw good order momentum in the first quarter. Sales reached 1.4 billion euros in Q1, and posted robust organic growth of 5.9% over the period. Evionics saw continued growth on a demanding comparison base as Q1 2025 sales were already up by strong double digits. This highlights the continued good level of activity across our end markets. While the current conflict in Iran had a negligible impact on Q1 performance, it could weigh on the aftermarket business from Q2 and onwards, depending on the evolutions of air traffic in the short to mid-term. In space, sales growth was also solid, notably supported by the progressive contributions of orders booked in 24 and 25, which are now moving into executions. On a reported basis, total sales growth was impacted by foreign exchange. Moving on now to defense on slide six. Defense delivered a solid start to the year, with order intake in the segment that amounted to 2.2 billion euros in the first quarter a 75% organic growth. Five large orders were booked in Q1 2026 compared to one in the same period last year. This strong order intake reflects ongoing commercial momentum across our entire portfolio and in all domains. The recent events and the global geopolitical climate highlight more than ever the relevance of status capabilities supported by the depth of our portfolio. Two critical domains where Thales technologies and positioning is considered as best in class are particularly in the spotlight, namely air surveillance and defense and mine hunting capabilities. Perspective in those two areas are stronger. Sales amounted to 3 billion euros a robust 14.3% token growth. This performance was a result of sound program execution and was supported by further deliveries in a context of production ramp-up. We saw sustained momentum across the board, notably in the airborne, naval domains, as well as sensors and effectors. Moving now to slide nine. Excuse me, moving now to slide seven. Cyber and digital sales amounted to 0.9 billion euros and delivered low single digit sales organic growth in the first quarter, in line with the phasing anticipated for the year. In cyber, the year started slowly, as expected, with slightly negative organic growth. We anticipate a gradual and progressive growth recovery over the coming quarters. In digital identity, sales posted good organic growth as they were up 4%. This performance reflected continued sustained momentum in digital solutions, both in payment solutions and in secure connectivity. By contrast, payment counts still saw low volumes as expected. Torex's impact was overall matter to report its sales growth over the quarter. Concluding now with our financial objectives for 2026 on slide eight. The fundamental underpinnings of the group's activities are robust, supported by structurally favorable trends and offering strong visibility on the group's growth trajectory. We also remain attentive to the evolutions of the global geopolitical situation and its potential short and mid-term effects. In that context, the robust first quarter and the visibility we have are giving us confidence to confirm all our objectives for 2026. Book-to-bill ratio will be above one, Sales are expected to grow organically between six and seven persons, corresponding to a range of 23.3 to 23.6 billion euros. And the adjusted EBIT margin is expected between 12.6% and 12.8%. Many thanks for your attention, and I will now be pleased to answer your questions.

As a reminder to ask a question, please press star one one and wait for your name to be announced. To withdraw your question, please press star one one again. Once again, please press star one one and wait for your name to be announced. To withdraw your question, please press star one one again. We are now going to proceed with our first question. And the questions come from the line of Alessandro Pozzi from Mediobanca. Please ask your question.

Good morning. Thank you for taking the questions. I have two. You're showing strong top-line growth in defence on the back of capacity expansion. I was wondering if you can give us a bit more colour there and what should we expect for the rest of the year in terms of growth in defence. And my second question on order intake, you had a stronger Q1 as well. With seven large orders, of course, the order intake can be lumpy. But I was wondering whether we are starting to see any impact, let's say, or positive benefits from the increased geopolitical tension that we've seen in the Middle East. You talked about air defense products with the Sky Defender. and SMPTE and if you can give us maybe an update on your commercial momentum in defense also for the SMPTE we heard about Turkey potentially being interested in the system and any thoughts that will be appreciated thank you thank you very much and good morning Alessandro so first on defense

It's true that the 14% organic growth that we reported for Q1 is above our overall guidance and expectation for the full year. Let's be clear about that. I mean, we guided the market as we released our 2026 objective for defense at, I think, a legit, and I do confirm, I mean, this overall guidance for defense organic growth in 2026. Of course, I mean, always good to start on a positive footing. Maybe I could also update you on our challenges in terms of growth for defense and the reason why we are still a bit cautious. as we look forward, in particular for the rest of the year. Today, it's true that, as I said, we managed to ramp up a number of production capacities in many sites across the board at Thalès. Second point, we see still today some constraints not issues, but some constraints when it comes to supply chain, even though overall, I mean, we've been able to manage supply chain challenges in particular in defense pretty successfully over the last few years. It's true that at this point, it's not over. And I mentioned many times in particular constraints with regard mechanical parts but also PCB and PCBA so those electronic bonds that are absolutely critical for us and to that I would also add today I mean some concern when it comes to supplies on energetics and propellants which are also pretty important when it comes to are producing effectors. So this is, I mean, why we're at this point a bit cautious when it comes to 2026 organic growth for defense. Now, in terms of momentum, and I guess your second question was about order intake, pretty strong Q1, and what we see today. So, I mean, when it comes to a defense order intake and as we look forward in 2026, we are pretty positive. Overall, I mean, we see a pretty strong level of momentum, level of demands, and you mentioned in particular, I mean, the potential positive impact from the Middle East situations. It's also true that We got requests for what is called UOR urgent operational requirements from some clients in the Middle East. So which is, I mean, in terms of business development, pretty positive. Will this positively impact our 2026 order intake? The answer is yes, this is my view on this matter. Will we start seeing concrete additional revenue in 2026? At this point, it's probably a bit too early. Even so, I mean, we've got this type of demands. We know that in particular in these regions, it can take a bit of time to move from request for proposal signing the contract and to effectively being able to start recognizing revenue. But overall it is positive. And it's true that in particular in these regions, but even more globally, it's true that air surveillance, air defense, in particular domains where we see today a number of requests, You asked me about the overall commercial campaigns with regard some TNG. And that I cannot give you more insights on this matter, because as you can imagine, it is pretty sensitive. But globally, when we go through, I mean our spectrum of businesses, of activities, it's true that air surveillance, which is much broader than some TNG, and in particular, We get today a number of requests when it comes to air surveillance, so what are driven type of demands across the board. Second point is also with regard to ammunition. Rockets in particular are also in a domain where we see a strong level of demand. So overall, making a long story short, We need to be a bit cautious when it comes to revenue growth, but I do confirm the high single-digit growth for 2026. When it comes to order intake, my tone is probably even a bit more positive than it was a few months ago, considering the prospect that we see today coming from the overall geopolitical context.

Thank you. Just to follow up on the Sky Defender, how are you planning to market that product? Is it mainly for European countries, for the Middle East?

I mean, Alessandro, the answer is yes, of course. I mean, Sky Defender is a multi-range overall protection dome moving from what we call Vichorad, very short-range air defense to long-range air defense capabilities through mid-range air defense capabilities through our SMPTE-NG offering. So it's really a comprehensive set of capabilities. Very short-range is about what we call our force shield type of capabilities based on both RADAR capabilities, but also effectors, in particular what we call the LMM and also Rapid Ranger type of offering. Mid-range is, as you know, some TNG, and long-range is early warning capabilities that allows to get early detections. And all of that powered by AI-driven command and control, which is in the name of Skyju. So all of that is available today. And, of course, we market this offering across the board in various countries. You mentioned Middle East and Europe are two examples of countries where we market this overall offering.

Thank you.

We are now going to proceed with our next question.

And the questions come from the line of Olivier Brochet from Rothschild & Co. Please ask your question.

Oui, bonjour, Pascale. I had three quick ones, please. The first one is on defense orders. Can you just give us a bit of a flavor of what happened in France? Did we get any delays or anything related to the delay in budget in that country? Second, on mine hunting, you flagged that as an area where you have a lot of skills. Can you just remind us how significant it is in terms of revenues for you? And third one on cyber, you also mentioned a gradual improvement in revenues throughout the year. Can you elaborate on the factors that will contribute to that improvement, please?

Okay. So first, good morning. Bonjour, Olivier. On your first questions about defense order and the... the French component of defense orders. Nothing very specific to report to you on this matter. In 2026, probably, as you know, I mean, the French budget was voted being of the year, pretty much like what happened in 2025. Now it's true that in Q1 2025, was seen, I mean, some kind of freeze in terms of all the intake, at least for Thales with regard the French MOD. This is not what happened in Q1, 2026. And I mean, today, no specific point to report with regard, I mean, the French budget for 2026. except that it has been confirmed, as you know, with overall, I mean, what is expected in 2026 in the overall French defense spending is a growth of 13% in 2026 against 2025. So overall, it is positive. Mine hunting capabilities in terms of revenue. Today, this is a small business. And the reason is at this point, I mean, only a few navies have decided to get equipped on this type of pretty sophisticated system. And it's true that if I look back over the last 20 years, it's true that a number of navies I would say it's given up, I mean, this type of capabilities. And what happened in the Hormuz Strait was a bit of a wake-up call for a number of navies, and they're challenging themselves about the need to come back on this type of capabilities. It's good because you've got a few countries, in particular, I mean, UK and France, who, as opposed to other navies, have decided a bit more than 10 years ago to launch developments of new mine hunting capabilities. And this is what they've done with Thales. And we started developments of this new type of capability, what we call today the Expeditionary Pathfinder, 10 years ago. and we are today in the process of delivering our systems to the UK and to the British and the French navies. It's a pretty sophisticated type of system that involves various drones and robots starting with what we call a USV, an unmanned surface vessel that carries payloads, in particular, I mean, towed away, plus robots that are able to put a military chart just close to the mine. All of that driven by AI. So I can tell you a pretty sophisticated type of system. And yes, this really, I mean, reflect Thales' capability to come up with pretty complex, autonomous, AI-driven system for clients, and in this case, for navies. So we'll see, but at this point, a pretty low level of revenue, but I mean, probably a type of capabilities where we see demands growing in the next few years. So cyber. So cyber, what is positive is that we have seen in Q1, I mean, order intake in two segments getting back to growth, and those are the two most important segments overall for Thales, which are data sec and app sec, so which is positive. So the factors behind that, as you ask Olivier, is I would say it's getting back to normal, which is today our commercial forces are fully trained with the right level of incentive. As we mentioned, as we release our 2025 figures today, level of turnover when it comes to this commercial force, getting back to what is normal, i.e. 15% overall annual turnover for sales reps, whereas in 2025, it went up to 25%. So overall, I mean, we should see now, and as from Q2, a positive growth on cyber. And all of that consistent with what we said for the full year in terms of expected growth for cyber that should be mid-single-digit, mid-single-digit plus. Very clear. Thank you, Pascal. Thank you, Olivier.

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

Yes, good morning. Thank you for taking my questions. I had two actually on cyber and digital. First, continuing on cyber, just reflecting on recent developments we've heard about AI, has it changed your approach to product development? Any updated view you have on this? Given also your good knowledge of AI, it may be applicable to your cyber product line. Another question is on biometry. I may have missed it, but I don't think you've talked about it in the release. Is it stable, or what is the outlook for biometry for the rest of the year? Thank you very much.

Okay. Bonjour, Christophe. So, on your first... Questions about AI for cyber, in particular in terms of product development? The answer is yes. We now use AI for cyber product development. Commercial cybersecurity is mainly software development. So it is about coding. And it's true that AI-driven coding allows to go much quicker in terms of product development and using our engineers no longer to code, but to test, to validate what AI produced in terms of coding. So I'm not telling you that there is no more manual coding, but I mean the proportion between manual coding from engineers to AI coding has shifted pretty significantly. So the answer is yes, AI, this type. And your question was about product development. Yes, AI driven by automatic coding. Biometric overall, Q1, I would say, is stable. Now, I mean, maybe a point of vigilance on this matter, and I guess there will be also a question about our evening business. We're a bit vigilant when it comes to biometrics. It's a side effect of the Middle East crisis because biometrics goes together with mobility, with people traveling. with air traffic because a number of our solutions are both secure documents and basically the renewal of secure documents is very much linked with people deciding to travel, plus biometrics used in particular on airports. So all of that being being driven by air traffic. So this is why we're a bit cautious today and looking at what is going to happen in terms of evolution of air traffic, considering what is happening in the Middle East.

Thank you very much. May I ask just a follow-up on the AI? I was also thinking that given that AI may show some increased vulnerabilities on infrastructure, are you planning to spend more on R&D in cyber or same type of amount?

No, overall, I mean, the level of R&D spending on cyber is pretty high. I mean, you probably have in mind that this is... This is a business where, I mean, gross margin is around 75%, but where, I mean, behind that, you've got a level of sales and marketing around also, I mean, 25%, 20% plus, and R&D also in excess of 20%. So this is the standard level of R&D. And our intent is to keep adding it at this level. However, it's true that AI is a bit of multiplying factors in terms of overall effectiveness of our R&D. If we can use AI for coding, it means that our engineers can spend more time on other type of things. So this is why, I mean, for a same level of spending, you could have a global positive effect, in particular in terms of speed of development. This is our view.

Thank you very much, extremely clear.

We are now going to proceed with our next question. And the questions come from the line of Sebastian Grove from BNP Paribas. Please ask your question.

Good morning, Pascal, and thanks for taking my questions. And the first one would also be on avionics. And in the wake of the Middle East conflict, there are apparently concerns that jet fuel availability is only being guaranteed until the middle of May, especially for the European Airlines. With that, it might lead to forced capacity cuts. So the question that I'm having is, how do you prepare for any such scenario and how should we think of the visibility in terms of weeks or months that you have at this stage? And then I would have two more on defense and a quick one on digital. So maybe you can take the avionics question first.

Okay. Okay, good morning, Sebastian. So avionics, jet fuel, and so on. So, I mean, there are two... two side effects of the Middle East crisis. I mean, one is, of course, I mean, jet fuel prices going through the roof. And second, potential jet fuel availability. So what we start seeing today is some airlines, even though they are have still access to jet fuel, considering that some of their flights are no longer profitable because of the steep increase in the jet fuel price. And in particular, those airlines that are not hedged on their jet fuel exposure. This is today what we start seeing at this point more than the jet fuel availability. It seems like, and here I'm referring to statements from various authorities, that at this point in Europe there is no shortage of jet fuel. We have seen some alerts in particular in Italy, but it's very specific. The situations could be a bit more difficult in Asia in terms of jet fuel availability. Not today, but for the next few months, yes, it could be jet fuel availability in some countries, in particular in Asia, could be a second issue. Now, what we see today is more about the impact of higher price for jet fuel and some airlines deciding to reduce overall capacity, deciding to start reducing what they call ASK, available seat a kilometer. This is what we see. And this is why, at this point, we are a bit vigilant in terms of aftermarket. I mean, Q1 for Avionics aftermarket was pretty solid. Now, I mean, I guess it's a recognized the fact that air traffic as compared to the initial 2026 projections, air traffic will be lower overall. Of course, all of that will depend upon the length of the crisis. But overall, we need to consider, I mean, a drop in air traffic against the initial 2026 expectations. And this will have probably some kind of side effect on after markets. What will be, I mean, the size of the reduction in demand at this point is really too early. Again, MQ1 was not affected. because the crisis started at the end of February, so because of the lagging effect, we have not seen any impact in the aftermarket. We could start seeing some impact as early as Q2, but at this point, probably too early to give you more insight on this matter, which is moving pretty quickly.

Thank you very much for the comprehensive answer. Then quickly on defense and the orders part, and here particularly on the S&P TNG order for Denmark, can you provide some more color with regard to the number of systems that were sold, and how should we think of the potential follow-up order eventually from Denmark? I think there was a lot of talk and also around the configuration previously, which was not defined yet. So you could also comment on how we should think of the number of launchers, the missiles. Please, that would be helpful.

So thank you for the question, Sebastian. So what can we say on this matter, which is As you can consider, this is pretty sensitive information. So we have not communicated, and our belief is that our clients have not communicated in particular on the number of systems, and they have not communicated on the number of missiles. So I cannot go very deep, and sorry for that. Maybe what I can explain is what does this represent overall? I mean, the sales of one battery. We said a few months ago that one battery with 48 missiles This represents approximately 500 million euros. And we explained that when we look at the system parts, putting aside missiles, Thales' share represents more than 50%. And because what we do is we provide both the radars plus most of the command and control for any battery. And second, what we say is that on the missile part, we represent approximately 10% of the price of any missile for 70 NG as we produce a seeker. So this is what I can share. Now, I mean, I cannot go further because once again, it's not public information.

That's understandable. I think that helped me at least quite a bit. So thank you for that. And then lastly, on the digital part within Cyber & Digital, you pointed to low volume in payment cards in the first quarter. So the question here is, can you comment on the business outlook from here for the rest of the year? And I'm asking the question in the wake of, I think, a pretty sizable difference in the margin quality within the various activities inside the digital business. So if you could comment on this, it would be much appreciated. Thank you so much.

OK. So on payment count, as opposed to digital solution, it's true that we keep seeing a level of volume that is slightly positive, however, with a pressure on prices that is still there. So this is why, I mean, we're a bit cautious in terms of margin for payment counts. This is, I mean, all of that is reflected in the overall 2026 guidance for CDI that we mentioned when we released our 2025 financials. We said that 2026 a bit margin for CDI should be around 13%. So this is what I can confirm. Now, it's true that most likely, I mean, H2 in terms of EBIT margin would be higher than H1. And the reason in particular is also because Q4 on CDI is traditionally a pretty strong quarter in terms of volumes and in terms of margin. But overall, I mean, what we see today in terms of level of demands and payment counts is really in line with the guidance that we shared with you a few weeks ago. Now overall, I mean, you have seen our digital business in Q1 reporting a 4% organic growth. which was a bit above expectations, which means that overall, I mean, payment cards was absolutely decent in terms of level of revenue. And also, I mean, the mobile communication system in terms of demand was also pretty satisfactory in Q1.

Right.

Thank you very much.

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.

Hi. Good morning. Thanks for taking my question. I'm just going back to the full year guidance. At what point would it be reasonable for you to revisit your full year guidance, especially I'm looking at the six to seven percent organic growth for this year. I mean, it looks to one quarter that cyber is tracking finally in line with your expectations. Defense is clearly tracking ahead, although I recognize what you're saying on supply chain. At what point would it be credible to revisit that? Or is it is it literally just the aftermath of the civil aviation uncertainty that's holding you back? And then secondly, could you talk about the I hear what you're saying about the incremental demand coming through from the Middle East, and it's great to hear how you're helping your customers in region. How durable do you think that demand is? Is this something we're still going to be talking about, you know, in a year's time? What's your sense here?

Thank you. Good morning, Yann. So, in terms of full York guidance, I guess, I mean, based on H1, I mean, so mid-July, as we will report our H1 figures, Of course, I mean, we'll share with you our update, how we see the situation. And of course, I mentioned, I mean, various uncertainties. I mentioned in particular, I mean, the impact of the Middle East crisis. And hopefully, I mean, mid-July, we'll know much more about whether, I mean, it will have been fixed. or whether we need to get ready for a prolonged period of crisis. And as I mentioned, I mean, the potential impact on our avionics business and on our biometric business. Of course, I mean, mid-years we know more about that and we will be more comfortable to guide you on this matter. And by the way, also pretty much the same thing when it comes to potential opportunities, in particular in defense. As I mentioned, today I'm in a number of urgent operational requirements that I have detailed, and mid-years we'll get a better view on how many of them will be converted into order intake. and how much of that we could deliver in H2. So potentially providing a tailwind on our overall defense revenue. So my view is that mid-year is probably the right timing for us to provide updates on how we see I mean growth for the full year 2026. Middle East, Our view is that you need to understand that what is happening today in the Middle East is really a trauma for all countries in the regions. The intensity of the strike from Iran to a number of countries in the regions is such that our view is that it's not just for the short term that those countries are willing to get better equipped. We believe that it's here again, a long-term view, I mean, how to build up better protection capabilities, and in particular when it comes to air defense, whether it's against long-strike missiles, but also drones, which means that everything which is connected with with air surveillance, with air defense is a matter where, I mean, those countries will probably consider for the long term having a level of capabilities which is much higher than it was. Also considering that, as you know, I mean, you have heard about the number of US-made missiles that have been launched in the regions. And it seems like US providers could be also struggling to replenish inventories. So all of that will be also probably a driver for effectors, which is also overall positive. And last point, as I mentioned, the threat from maritime mines is a new topic which has been which has been forgotten in the past and which can be also a driver for growth in these regions. Maybe last point and also a link to the number of Patriot missiles that have been launched. It's true that here again, I mean, Thales and through Eurosum and NVDA being able to come up with ability to deliver more quickly, this type of equipment, air defense in particular, can be also a positive factors, I mean, to develop revenues in these regions. So our view is not just for the very short-term, it's more a mid-long-term, a positive trend in terms of need for better air surveillance, air defense capabilities in these regions. And I think, yes, this is okay. Okay, Yann.

Next question, please. Oh, I'm sorry. Yes, thank you very much. That was very clear. Thank you.

Thank you, Yann.

We are now going to proceed with our next question. And the questions come from the line of Hervé Tourway from CIC CIB. Please ask a question.

Bonjour, Pascal. Thank you for taking my question. Two on my side. First one, could you give us an update on Bromo with the consolidation of the satellite business from your side on Airbus? Did you get some indication on the regulatory side already on how that can go further? And I was also wondering with the recent project in Poland, the military satellite project, was it signed with Bromo or with Airbus and Thales? separately, but that was my first question. The second question is regarding the French military law which is likely to be passed to the French Assembly. I mean that's been in the press despite the increased budgeted some analysis saying that there will be some project which will be canceled while other will be more prioritized. And I was wondering if you can share with us if there is any of those projects which could be impacted, is Thales, you know, significantly involved? And reversely, if there are some which are going to be accelerated, how that also can potentially impact Thales? Thank you.

Okay. Bonjour, Hervé. Thanks for your two questions. So first on Bromo and Poland. And first on Bromo, I mean... we initiated, we started the overall consultations processes with Works Council, and this has started, I mean, each of the three players have started, I mean, this type of consultations, and it is progressing, so no specific matter on this, concern on this matter, And second, which is on the critical part of the closing of these transactions, is the feedback from the anti-trust authorities, in particular the European Anti-Trust Authority. So on this point, we started engaging with them in a positive way, in a positive mood. Now, I mean, we are at the beginning of the process, and I cannot be more explicit because it's going to be, I mean, interactions in the next few quarters with, in particular, the open antitrust authorities. And this is why, I mean, we said that the closing of the BOMO project shouldn't happen before 2027. It will be in the course of 2027. So nothing more to report on this matter except to say that the things on those two matters are progressing as expected. So Poland on military satellite together with Airbus. it shows that when it comes to export, in particular on defense satellites, I mean, we work together with, but it's not linked at all to Bromo, at all in the past. In a number of cases, when it comes to export, and in particular when it comes to export to MODs, we we may, I mean, the two companies may decide to partner together. And this is the case in Poland. So it's good to see, I mean, a new European country deciding to buy from from from the space and an Airbus, this type of sovereign capabilities. I mentioned in my introduction that in Q1 2026, we managed to to book a defense geostationary satellite for Luxembourg. So, I mean, two examples of European countries deciding to increase their overall space defense capabilities. And we keep working on all the type of opportunities of this kind. Your second question was more about the French and what we can say on this matter. So first, it is positive to see that the update of this 2024-2030 program law has confirmed a significant ramp up in terms of French indefinite spending. So overall, looking at the 2026 to 2030 period of time, so the additional level of budget that is today embedded in this update, this additional level amount to 36 billion euros. So which comes on top of the previous LPM, which you probably remember was voted in July 2023. I need to say that this update will have to be voted also at the French Parliament, which is still not the case, but we see here again a broad consensus across political parties on increasing French defender spending. So good to see that all in all this represents an additional €36 billion of defense spending over 2026-2030. This also confirms what we're expecting for 2026 and 2027. So overall, the growth in the French defense budget in 2026 will be 13% versus 2025. And if you look at 2027, it should be 11%. So good to see that the need for higher spending is now translated in this update of this LPM. Now, in terms of priorities, capabilities, and so on, first one is true that there have been comments about the number of platforms, and it's true that the priorities I've been more on specific items that I'm going to explain in a few minutes, as opposed to getting more platforms. And this is maybe what you got in terms of commands, cancellation of programs. No, it's not cancellation of program, but at this point, there is no more free gates. For instance, there is not a second aircraft carrier, no. However, I mean, we see a number of domains where there will be a significant growth in terms of spending. So first is ammunition and effectors. With overall, as compared to the previous LPM, a 50% increase in defense spending for ammunition effectors. Second is space, where there will be a 65% increase in defense spending as compared to the initial LPM. Third is drones, where there will be almost 40% increase in spending. Fourth is air defense overall with 32% higher spending. And fifth is operational innovations with a 14% increase in defense spending. To that, on top of that, also three additional elements where the progression is more limited, but we still have quite significant progressions. One is in-depth strike capacities. Second is naval combat. And third is electronic warfare. So all in all, it represents nine specific items that will cover those priorities. I've forgotten, I'm sorry for that, I've forgotten also the key domain of priorities, which is military aircraft, with in particular the Rafale F5 standards being a key priority. And what is also positive is as you go through this list of nine priorities, I mean, Thales, we click all the boxes, which is positive, whether it's effectors, military aircraft, space, drone, air defense, in-depth strike capacities, innovations, naval combat, electronic warfare. I mean, we click all the boxes. So overall, I mean, we are pretty happy with this outcome and this list of priorities.

Thank you. That's clear. Thank you.

We are now going to proceed with our next question. And the questions come from the line of Benjamin Hillan from Bank of America to ask a question.

Yes, thank you. Morning, Pascal. Hope you're well. I had three. Just wanted to follow up on some of your comments on cyber and the margin. You mentioned the 13% margin. But at the full year, I believe the kind of messaging was a slight improvement from 2025 underlying, which was around 13. So just wanted to see if there was any change there. Secondly, on the defense capacity increases, right? Obviously, the capacity increases is what's been capping growth. And obviously, as you're investing, you're growing, right? So it's the capacity that's been the constraint. Where are you on this journey? Can you talk a little bit about capacity? What are the big areas of the defense business that you're expanding capacity and how much more is there to go? Is there a framework that you can provide for that? And I know you've had a couple of questions on avionics already. and the impact to the Middle East. Just wanted to add one. So over the last six weeks, you haven't really seen any impact to the aftermarket component of the avionics portfolio. Is that a fair summary of what you've seen so far? Thank you.

Okay. Good morning, Ben. So starting with cyber. So I mean, this guidance to a certain person is right in line with what we said earlier. at the uh as we release our 2025 uh financial we mentioned you probably remember that when we commented 2025 for a cdi we mentioned that we benefit from a few positive one-offs that in 2025 amounted to 0.7 percentage in terms of a bit margin and we said that those one-off of course will not happen again in 2026 and hence the fact that we guided that at 13% so no change on this matter seconds increase in defense capability it's really across the board on many sides it is I mean airborne type of capabilities on on warfare in particular whether it is your radar the uh i mean what we call the the spectra which is a device is a system that protects the aircraft uh whether it is the um the um the pods um that allows to designate the target uh it's it's it's it's about uh uh ground master radar ramp up in capabilities both in france but also and in particular in 2026 in the netherlands where we're growing our overall production output. It is a factor in particular with significant investments in Belfast, but also a new production investment in France about in particular, I mean, the ammunition. So here I'm talking about many, many sites. It could be also electronics. in countries. It is in Germany as well in terms of radar capability. So it's really across the board. Just to give you an idea, a good way also is to track the overall level of capital expenditure. When I look back a few years ago, what we used to spend on an annual basis was around 500 million euros per year. In 2026, I said that we should be around 840 840 million euros. So you see the progression of our overall capital expenditure that supports these progressions in terms of production output. Middle East aftermarket, so as I mentioned, no impact in March because there is a bit of lag effect. We think that there will be a first impact and on our after markets in Q2. The first impact, the magnitude of it at this point, it's probably too early to be more precise on this matter, but it's part of the overall uncertainties. It's also true that we see airlines' behaviors being quite different from one airline to the other. Of course, the most affected are the ones in the Middle East. But we also see some airlines, particularly in Asia, considering the issue about jet-shoots that I mentioned, starting to cancel flights. And we need to see the impact of that now. As we discussed with airlines, it's also true that they also tell us that management of their fleet until now was pretty tight. And it might not be, I mean, their first decisions will not be to cut or to stop maintenance. And in particular, as we're approaching the summer season, This is what we get from some of our customers. Where there will be probably more uncertainties is, in particular, if the Middle East crisis continues throughout the summer, it's probably decisions that airlines will make probably early September, following the summer season, to decide to reduce capacity. So this will be, of course, a bit more challenging in terms of situations. This is not the case. We see a number of airlines willing to have the right level of capacity in order to address the summer season. It's more afterwards, in case we see, I mean, the Middle East crisis continuing, that some of them could make more structural decisions, including by the way to exit some old aircrafts.

Okay, great. Very clear. Thanks, Pascal.

Thank you, Ben.

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

Thank you for taking my question. Most of them might have been answered already, but I did have one on MBDA. They recently commented on a step up in production in 26 by 40% and doubling CapEx plans to 2030. So I just wanted to check, first of all, have you seen orders for your components from MBDA that would kind of support that 40% growth? And was that included in your initial defense guide? And do you feel confident in this type of ramp, given your comments on PCB supply constraints? Thank you.

Bonjour, Chloé. So, of course, I will not comment about how I see the likelihood of MBDA, I mean, to deliver on their commitment. I mean, this question should be directed to MBDA. Now, it's true that... the level of demands for missile producers have never been so high. And it's a matter of fact that MBDA is doing whatever it can to increase its overall production capacity. So no more comments. But of course, we will be glad to see MBDA accelerating. So all of that is overall positive and nothing more to add on this matter.

All right, thank you. This is helpful.

We are now going to take one final question. And the final questions come from the line of Ross Low from Morgan Stanley. Please ask your question.

Hi, morning Pascal. Thanks for the question. Just a couple of thoughts really. The first is on the LPM and I guess bigger picture, how this impacts your medium-term outlook, both in terms of guidance for growth, which you've already raised to the top end of the 5% to 7% range at the full year, but also in terms of capacity and expansion plans and capital performance that you see going forward. And then the second question, just on the SAMT, can you just remind us of the current production rate of that program and the ramp-up you're planning for the coming years? Thank you.

Good morning, Ross. So, on the LPM, of course, I mean, this update of the French LPM provide us even more comfort about our overall defense trajectory. So I mean this is positive. Does it mean that today I'm going to change the midterm view on defense? The answer is no, but you have seen that I mean that my tone is pretty positive when it comes to 2026 overall in terms of order intake and My view is that it will continue going forward. Month after month, we see signals, all of them in the same directions, about clear tailings with regard to our defense business. Today we discussed two key elements. One is about this update of the French LPM. And the second is, I mean, those opportunities from a business standpoint, coming from the Middle East crisis. So which means that in just a few months, the last three months, we add, I mean, two, I would say, two significant positive inputs when it comes to our overall defense business. With here again, I mean, not just a level of demand, but a nature in terms of type of capabilities that our clients are looking for that really match overall positioning, which is positive. SAMTI, as you know, I mean, we are today finalizing the development phase of the new generation of SAMTI. And we also said that the first battery for Denmark should be delivered, I think that we said end of 2027, beginning of 2028. We've got also, I mean, the delivery to our French customer as well that should start shortly. Now with regard, I mean, the overall production output, Here again, as we did in overall defense businesses, we will be able to adjust to ramp up our production capability at Thales to follow the level of demand. It is essentially for us. Weather in particular which we what we call the. A grand fire 300 this new. flat panel type of capabilities. And the second point is the command and control. Here again, we'll be able to adjust the level of productions to match the level of demand. It could take a few years, yes, but eventually we'll be able to follow the level of demand. As, by the way, we did over the last three years on most of our overall productions, and in particular, I mean, the growth on the radars, but also on airborne equipment has been, this growth has been done as we manage to ramp up our production output in line with the level of demand. Where, and this is what I said earlier, we might see and where we are a bit vigilant is about the supply chain in some cases where we need to apply to keep working on the overall ramp up and the resilience of our supply chain for our defense business. But this is what we have been doing and pretty successfully. If I look at the 24, 25 and Q1 2026 growth for our defense business. So this is what I can say to you.

Thank you very much.

So thank you. Thank you very much. Thank you all for your questions. Of course, I mean, the investor relations team is at your disposal. If you have any follow-up questions, so don't hesitate to reach out. Thank you very much. I wish you all a very good day and see you in the next few days, few weeks. Bye-bye.