Thales Sa · EURONEXT:HO
Thales Sa — Investor Presentation (February 2019)
61 slides from Thales Sa's investor presentation, February 2019
Slide 1: Investor meeting
Investor meeting February 2019 www.thalesgroup.com
Slide 2: Introduction to Thales
Introduction to Thales 2018-21: targeting industry leadership Five key priorities for 2018-21 2018 Full-Year results Outlook
Slide 3: Thales today: a set of focused, technology-driven businesses
Thales today: a set of focused, technology-driven businesses 25% 13% Sensors and 8% Transport mission systems Other civil 13% Ground 31% 51% transport Rest of world 15% Defence Space Sales by & security Sales by 50% Sales by 13% 55% solution end market Defence region Europe Civil space 36% 5% Aerosp
Slide 4: Thales: a pure player focused on intelligent systems
Thales: a pure player focused on intelligent systems Ground Aeronautics Space Defence Security transportation Addressing some of the most demanding end markets… Critical decision chain …leveraging a Data Data processing Sensing and unique portfolio transmission and decision data gathering and storag
Slide 5: Thales builds on key strengths
Thales builds on 4 key strengths 2018 Connectivity Big data Mobility, IoT analytics Cyber- Artificial security intelligence Cutting Deep domain Growing digital Global edge R&D knowledge asset base presence €3bn, ~20% of sales Top 3 globally or Thales portfolio: Presence in 50+ ~75% customer- #1 in E
Slide 6: Resilience embedded in business model
Resilience embedded in business model High geographical diversification Geographical sales breakdown Sales >€100m in 28 markets Mature Platform-agnostic positioning markets: 69% 35 countries, of which 12 On-board all major aircraft, train with sales above €100m and metro platforms Serving 55+ armed
Slide 7: Thales delivers a best-in-class ROCE
Thales delivers a best-in-class ROCE 2017 ROCE 23% 25% 20% 21% 18% ROCE in line with best-in-class peers 13% 16% 10% Asset turn higher than peers Peer 6 Peer 5 Peer 4 Peer 3 Thales Peer 2 Peer 1 Thales before one-offs(a) Thales light asset base underpinned by No capitalization of R&D 2017 asset turn
Slide 8: 2018-21: targeting industry leadership
Introduction to Thales 2018-21: targeting industry leadership Five key priorities for 2018-21 2018 Full-Year results Outlook
Slide 9: Ambition 10: a 10-year journey to industry leadership in all segments
Ambition 10: a 10-year journey to industry leadership in all segments 2014 2018 2017 2021 Building a growing, Leadership in all segments more global and Grow faster than the market more profitable Thales Grow profitably in a sustainable way Investor meeting - 9
Slide 10: All Thales markets benefit from solid underlying trends
All Thales markets benefit from solid underlying trends… Overall market Aerospace Transport Defence & Security Stable to improving Long-term growth in Urbanization and Confirmed trend-up of trends in government global air traffic increasing need for defence budgets in budgets and GDP growth mobility
Slide 11: Supporting ~3% sustained market growth
…supporting ~3% sustained market growth… Civil Rail Civil Global defence Space aviation signalling cybersecurity budgets +8% +6% +4% +3.5% +3.5% +3% +1% 2017-36 2018-21 2018-30 2014-20 2018-21 Europe Asia-Pacific and Annual growth forecasts - sources: 2018-22 Middle-East • Civil aviation: IATA (air
Slide 12: Combined with Digital as a long-term disrupter
…combined with Digital as a long-term disrupter Digital technologies will Adoption of digital technologies revolutionize the future of will take time Thales markets Leapfrog in performance: enhanced Highly regulated markets requiring features and/or new capabilities long certification processes Pote
Slide 13: Five key priorities for 2018-21
Introduction to Thales 2018-21: targeting industry leadership Five key priorities for 2018-21 2018 Full-Year results Outlook
Slide 14: 2018-21: five key priorities
2018-21: five key priorities 1 2 Reinforce customer- Relentlessly centric organization optimize operational and culture performance 3 4 5 Accelerate R&D Lead in digital Execute on transformative investments to drive transformation of markets acquisition of Gemalto technological excellence Investor m
Slide 15: Reinforce customer-centric organization and culture
1 Reinforce customer-centric organization and culture Three 2018-21 priorities… …capitalizing on marketing and sales excellence New marketing initiatives focused on Deepen digital value propositions and Group customer intimacy positioning as partner in digital transformation Consistently optimize Ce
Slide 16: Relentlessly optimize operational performance
2 Relentlessly optimize operational performance Group cost structure Focus on 4 high impact initiatives 8% Other Procurement performance 17% Project delivery(a) (bids, project management, Engineering competitiveness production, €14.2bn customer service) total costs Support function efficiency 9% Sup
Slide 17: Key initiatives to sustainably optimize operational performance
4 key initiatives to sustainably optimize operational 2 performance Procurement performance Engineering competitiveness New worldwide integrated organization, fully Deployment of state-of-the-art engineering accountable for performance tools and agile methods Full leverage of Thales global scale thr
Slide 18: Good progress on Ambition 10 competitiveness initiatives
2 Good progress on Ambition 10 competitiveness initiatives Procurement: transformed Continued roll-out of support organization starts to deliver function transformation Support function cost(a) Global procurement organization fully as a percentage of sales operational 9.1% 90% of external purchases
Slide 19: Accelerate R&D investments to drive technological excellence
3 Accelerate R&D investments to drive technological excellence Thales’s core competitive advantage: world leading R&D capability R&D total spend €bn ~4 ~3 ~3 Customer- funded R&D ~2.2 6 times winner 2012, 2013, 2015, Prestigious recognitions 2016, 2017, 2018 for researchers Self-funded 0.8 ~1 R&D R&
Slide 20: Digital: facilitating growth acceleration now and beyond 2021
4 Digital: facilitating growth acceleration now and beyond 2021 New digital Quick adoption of digital services and technologies inside core breakthrough products to support top-line innovations growth Emerging digital services boosting longer-term growth Digital-inside post 2022 dream products “As a
Slide 21: Lead digital transformation of markets: recent examples
4 Lead digital transformation of markets: recent examples Big data-enabled Demonstrations of Autonomous First Digital Factory observation autonomous rail mine warfare solutions launched constellation technologies commercially Capitalizing on critical mass of expertise in digital technologies Investo
Slide 22: Gemalto: a global player in digital security
5 Gemalto: a global player in digital security 2017 revenue breakdown by division Global specialist in authentication systems and data protection Government Leading technologies with applications programs ~€600m, 19% in broad range of industries Payment ~€800m, 28% Moving from hardware to embedded s
Slide 23: Powering and securing the complete critical digital decision chain
Thales + Gemalto: powering and securing the complete 5 critical digital decision chain Critical Data Data processing Sensing and decision data gathering transmission and decision chain and storage making Platforms Platforms Mission Networks & Mission Objects to manage to manage sensors Gateways appl
Slide 24: Thales and Gemalto: selected use cases
5 Thales and Gemalto: selected use cases Smart rail infrastructures Battlefield cloud Silent authentication 1 2 SMS 3 Investor meeting - 24
Slide 25: Creation of a digital security Global Business Unit
5 Creation of a digital security Global Business Unit Gemalto well advanced in its transition from its historical businesses to faster- growing markets Thales to combine key digital assets with Gemalto in order to: Segment revenue breakdown(a) Strengthen common digital capabilities Transport 10% Acc
Slide 26: Gemalto acquisition progressing well
5 Gemalto acquisition progressing well Execution of transaction Integration planning Offer formally launched in March 2018 Common ‘DNA’ and culture: a strong foundation for successful integration €4.8bn offer price fully financed at very attractive rate (<1%) Extensive preparation over past 12 month
Slide 27: Summary
Summary Unique portfolio positioning Executing on long-term vision: Markets benefiting from solid underlying growth leadership in all segments Increased opportunities for technology leaders Continued focus on operational performance Reinforcement of customer-centric organization and culture Grow fas
Slide 28: 2018 Full-Year results
Introduction to Thales 2018-21: targeting industry leadership Five key priorities for 2018-21 2018 Full-Year results Outlook
Slide 29: Full-Year 2018 highlights
Full-Year 2018 highlights Order intake above expectations Strong sales growth, driven by Transport and Defence & Security segments Significant increase in profitability, while accelerating R&D investments New medium-term ambition, priorities and financial targets announced in June Extensive preparat
Slide 30: 2018: a solid first step towards our 2021 leadership ambition
2018: a solid first step towards our 2021 leadership ambition Leadership in all segments Growth Profitability R&D investments Organic sales, % EBIT margin Self-funded R&D, €m base 100 in 2013 3 to 5% +0.8 pt 11 to +5% 18-21 average +10% ~€1bn CAGR annual growth +0.45 pt 11.5% CAGR +4% per year +7% 1
Slide 31: 2018 key figures
2018 key figures (all prior year figures restated for IFRS 15) Order intake Sales EBIT and EBIT margin(b) €m €m €m and % +25%(a) +9%(a) 16,034 +5.3%(a) 1,685 14,931 15,228 15,855 1,365 10.6% 9.0% +1.7 pt(a) 2017 2018 2017 2018 2017 2018 Adjusted net income(b) Free operating cash-flow(b) Dividend(c)
Slide 32: 2018 order intake
2018 order intake Solid order intake momentum, Order intake by contract unit value up 7% (+9% organically) €m 9 large(a) orders booked in Q4 2018, +7% 16,034 for a total of 19 in 2018 14,931 Unit value 4,593 2,915 Record high order intake in mature > €100m markets 4,793 €10m < Unit value 4,231 Fully
Slide 33: Aerospace: 2018 key figures
Aerospace: 2018 key figures 2018 2017 change €m total organic Order intake 5,346 5,237 +2% +3% Sales 5,780 5,747 +0.6% +1.4% EBIT 580 567 +2% +3% in % of sales 10.0% 9.9% +0.2 pt +0.2 pt Limited growth in order intake in spite of recovery in Space Space orders strongly up on low 2017 level High comp
Slide 34: Transport: 2018 key figures
Transport: 2018 key figures 2018 2017 change €m total organic Order intake 1,858 1,781 +4% +6% Sales 2,001 1,723 +16.1% +17.9% EBIT 88 57 +56% +57% in % of sales 4.4% 3.3% +1.1 pt +1.1 pt Solid order intake, especially in main line signalling Record sales growth, driven by both urban rail and main l
Slide 35: Defence & Security: 2018 key figures
Defence & Security: 2018 key figures 2018 2017 change €m total organic Order intake 8,775 7,857 +12% +13% Sales 8,020 7,690 +4.3% +5.6% EBIT 1,007 757 +33% +35% in % of sales 12.6% 9.8% +2.7 pts +2.8 pts Broad-based order intake momentum Order book above €20bn for the first time ever Diversified sal
Slide 36: EBIT improvement driven by solid operational performance
EBIT improvement driven by solid operational performance €m Operational Restructuring Marketing Reinvestment performance expenses & sales in R&D Naval Group 1,685 +32 -37 Scope, -83 +30 currency and 1,365 pensions 2017: 33(a) 2018: 63 -24 +402 Scope: -5 Currency: -15 Pensions: -4 2017 2018 EBIT EBIT
Slide 37: Cash conversion in line with expectations
Cash conversion in line with expectations Reported cash conversion Cash conversion before one-offs(a) €m €m 86% 69% 121% 86% 1,178 1,178 982 1,011 813 811 863 745 2014-17 2018 2014-17 2018 average average Adjusted net income Cash conversion ratio: Free operating cash flow / xx% adjusted net income F
Slide 38: Adjusted EPS and dividend
Adjusted EPS and dividend Adjusted EPS and dividend per share € 5.55 Adjusted EPS up 12% 4.25 4.64 per year since 2013 3.89 3.32(b) 3.20 Proposed 2018 dividend : 2.08(a) €2.08 per share(a) 1.60 1.75 Pay-out ratio: 38% 1.36 1.12 1.12 Dividend up 13% per year since 2013 2013 2014 2015 2016 2017 2018 Q
Slide 39: Outlook
Introduction to Thales 2018-21: targeting industry leadership Five key priorities for 2018-21 2018 Full-Year results Outlook
Slide 40: Organic sales growth sustainably above market
Organic sales growth sustainably above market NB: targets excluding Gemalto Market Organic sales trend growth target Group organic sales growth target ~+2% +2-3% Aerospace +5.3% +4.3% 3% to 5% growth on average ~+3% +4-5% over Transport 2018-21 ~+3.5% +4-6% 2014-17 2018 2019 2020 2021 Defence & Secu
Slide 41: Sustainable new round of margin increase
Sustainable new round of margin increase NB: targets excluding Gemalto Investing for the future, notably digital Targeting high returns on R&D investments Increase in Additional profitability R&D 11% to 11.5% Increase in Additional -50 to profitability R&D 9.8% -100 bps -20 +200 to 8.0% bps +240 bps
Slide 42: All operating segments to contribute to EBIT margin improvement
All operating segments to contribute to EBIT margin improvement NB: targets excluding Gemalto EBIT margin targets Aerospace Transport Defence & Security +50 to +60 to +100 +160 bps bps +400 to +450 11.5% 10.5% bps to 12.5% to 11.0% 10.9% 10.0% 8.0% to 8.5% 4.1% 2017 2021 2017 2021 2017 2021 Investor
Slide 43: Strategic initiatives deliver significant EPS accretion
Strategic initiatives deliver significant EPS accretion, with further upside from Gemalto integration Gemalto Gemalto 2018-21 synergies margin More efficient increase balance sheet €100 to €150m Lower recurring pre-tax tax rate cost synergies, meaningful Interest rate <1% revenue synergies Immediate
Slide 44: Maintaining strong focus on cash flow generation
Maintaining strong focus on cash flow generation NB: targets excluding Gemalto Cash conversion 2014-17: turning Thales into a ~90% €m cash-flow minded company 121% Incentives at all levels 86% No compromise on payment terms 74% 982 Higher hurdle rate on capex 813 863 745 Limited tax cash out vs. tax
Slide 45: A more efficient capital structure to support dividend growth
A more efficient capital structure to support significant dividend growth whilst maintaining financial flexibility Improved balance sheet efficiency after Gemalto acquisition €bn 2017 pro forma 2017 reported after Gemalto acquisition 3.0 1.9 2.3 0.0 Dividend growth in line 0.04 with adjusted EPS Net
Slide 46: Business environment
Business environment Unchanged solid underlying trends Markets underpinned by major Civil markets benefiting from long-term societal aspirations growth trends: global air traffic, Security, safety, environmental urbanization, mobility, data efficiency… protection… Confirmed uptrend of defence Highly
Slide 47: 2019 financial objectives
2019 financial objectives Reminder: targets excluding Gemalto and impact of disposal of GP HSM business Order intake Around €16bn Sales Organic growth between 3% and 4% EBIT(a) €1,780-1,800m(b) (a) Non-GAAP measure: see definition in appendix (b) Based on February 2019 scope and foreign exchange rat
Slide 48: Appendix
Appendix www.thalesgroup.com
Slide 49: A strong set of focused businesses
A strong set of focused businesses Segment Sub-segment Civil Military 2018 sales (€m) Market position Aerospace Flight avionics #3 worldwide including cockpit avionics, communications, electrical ~2,100 (flight avionics) 36% of 2018 sales systems, training and simulation Connected in-flight entertai
Slide 50: Highly diversified Defence & security customer base
Highly diversified Defence & security customer base Defence & security sales by region, 2018 7% Rest of world 13% 32% Middle East France 49% 14% outside Asia Europe 7% 10% United Kingdom Australia/NZ 7% 11% North America Rest of Europe Investor meeting - 50
Slide 51: 2018 order intake by destination
2018 order intake by destination change €m 2018 2017 total organic France 5,183 4,443 +17% +17% Middle RoW East 3% United Kingdom 746 1,153 -35% -35% 6% Other European Asia 3,872 2,919 +33% +33% France countries 11% 32% Europe 9,802 8,515 +15% +16% Australia/ North America 1,501 1,536 -2% +1% NZ Aus
Slide 52: 2018 sales by destination
2018 sales by destination change €m 2018 2017 total organic France 3,985 3,700 +7.7% +7.9% RoW United Kingdom 1,253 1,327 -5.5% -4.6% Middle 6% East France Other European 3,498 3,313 +5.6% +5.9% 10% 25% countries Europe 8,736 8,340 +4.7% +5.1% Asia North America 1,367 1,392 -1.8% -0.1% 15% Australia
Slide 53: EBIT by operating segment
EBIT by operating segment change 2018 2017 €m / % of sales total organic Aerospace 580 10.0% 567 9.9% +2% +3% Transport 88 4.4% 57 3.3% +56% +57% Defence & Security 1,007 12.6% 757 9.8% +33% +35% EBIT - operating segments 1,675 10.6% 1,380 9.1% +22% +23% Other (53) (48) - - EBIT - excluding Naval Gr
Slide 54: Summary adjusted P&L: from sales to EBIT
Summary adjusted P&L: from sales to EBIT 2018 2017 Change €m % of sales €m % of sales total organic Sales 15,855 15,228 +4.1% +5.3% Gross margin 4,088 25.8% 3,712 24.4% +10% +11% Indirect costs (2,526) -15.9% (2,404) -15.8% +5% +6% o/w R&D expenses (879) -5.5% (797) -5.2% +10% +11% o/w Marketing & S
Slide 55: Summary adjusted P&L: from EBIT to adjusted net income
Summary adjusted P&L: from EBIT to adjusted net income 2018 2017 €m EBIT 1,685 1,365 Cost of net financial debt and other financial results (15) (24) Finance costs on pensions and other employee benefits (52) (63) Income tax (387) (375) Effective tax rate 26.7% 33.0%* Adjusted net income 1,232 903 M
Slide 56: Organic sales growth per quarter
Organic sales growth per quarter Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 +13% +15% +16% +9% +3% +6% +1% +7% +1% +1% +2% Aerospace -4% -1% -2% -0% -3% +40% +28% +29% +17% +19% +3% +15% +14% +15% +7% +8% +11% -3% -7% -13% -4% Transport +19% +22%
Slide 57: Historical sales and EBIT performance by segment
Historical sales and EBIT performance by segment Aerospace Transport Defence & Security Total Group Organic sales growth Organic sales growth Organic sales growth Organic sales growth +18% +11% +9% +8% +9% +7% +6.8% +7.2% +5% +6% +4.5% +5.3% +4% +4% +1% +2% +1% -2% -1.1% -4% 2014 2015 2016 2017 2018
Slide 58: Historical trend in cash conversion
Historical trend in cash conversion Adjusted net income conversion EBIT conversion into into Free operating cash flow Free operating cash flow 88% 48% Six-year average: 102% 139% Six-year average: 67% €m 69% €m 70% 137% 91% 1,685 106% 1,365 1,543 47% 51% 1,178 1,354 1,365 74% 1,110 1,216 89% 954 982
Slide 59: Reference table
Reference table Growth drivers page Capital allocation and cash page Sales breakdown by segment and conversion sub-segment 3, 49 ROCE benchmark 7 Positioning and key strengths 3-6 2018 cash conversion 37 Market dynamics 10-12, 46 Cash conversion target, balance sheet 44-45 Key Ambition 10 growth ini
Slide 60: Definition of non-GAAP measures and other remarks
Definition of non-GAAP measures and other remarks Rounding of amounts in euros In the context of this presentation, the amounts expressed in millions of euros are rounded to the nearest million. As a result, the sums of the rounded amounts may differ very slightly from the reported totals. All ratio
Slide 61: Tour Carpe Diem, Paris La Défense
Tour Carpe Diem - 31 Place des Corolles 92098 Paris La Défense - France www.thalesgroup.com This presentation may contain forward-looking statements. Such forward-looking statements are trends or objectives, as the case may be, and shall not be construed as constituting forecasts regarding the Compa