Thales Sa · EURONEXT:HO
Thales Sa — Investor Day (June 2018)
138 slides from Thales Sa's investor day presentation, Jun 6, 2018
Slide 1: 2018 Capital Markets Day
2018 Capital Markets Day 6 June 2018 www.thalesgroup.com
Slide 2: Agenda
Agenda 8:30 am Introduction and medium-term 1:00 pm Lunch strategic priorities Patrice Caine 2:00 pm Financial framework Pascal Bouchiat 9:10 am Group-wide drivers Innovation and digital leadership Philippe Keryer 2:30 pm CEO and CFO Q&A session Competitiveness Patrice Caine and Pascal Bouchiat Pier
Slide 3: Introduction and medium-term strategic priorities
2018 Capital Markets Day Introduction and medium-term strategic priorities Patrice Caine Chairman and CEO www.thalesgroup.com
Slide 4: 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 profitably in a sustainable way more profitable Thales Grow faster than the market 2018 Capital Markets Day - 4
Slide 5: 2014-17: a solid foundation to deliver growth and margin improvement
Agenda 2014-17: a solid foundation to deliver growth and margin improvement 2018 Capital Markets Day - 5
Slide 6: 2014-17: first phase of Ambition 10
2014-17: first phase of Ambition 10 Situation before 2014 Building a growing, more global and more profitable Thales Flat sales for many years Underleveraged global presence Growth Profitability lagging peers No global “buy-in” from staff Competitiveness Management too short-term focused People 2018
Slide 7: 2014-17: Ambition 10 delivered on all key targets
2014-17: Ambition 10 delivered on all key targets Organic sales growth Emerging market sales EBIT margin Annual growth €bn and % of sales +4.3% +180 pts +70% 9.8% 4.9 8.0% 2.9 +0.4% 24% 31% 2010-13 2014-17 2013 2017 2013 2017 The right organization to A strong commitment to sustainably capture growt
Slide 8: Unique positioning of Thales
Agenda Unique positioning of Thales 2018 Capital Markets Day - 8
Slide 9: Thales today: a set of focused, technology-driven businesses
Thales today: a set of focused, technology-driven businesses 26% 11% Sensors and 8% Transport weapon systems Other civil 11% Ground 31% 51% transport Rest of world 16% Defence Space Sales by & security Sales by 50% Sales by 14% 54% solutions Civil space end markets Defence region Europe 38% 6% Aeros
Slide 10: 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 transmission and decision unique portfolio data gathering and storag
Slide 11: Thales builds on 4 key strengths
Thales builds on 4 key strengths 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 Europe
Slide 12: Resilience embedded in business model
Resilience embedded in business model High geographical diversification Geographical sales breakdown Sales >€100m in 23 markets Mature Platform-agnostic positioning markets: 69% 35 countries, of which 10 On-board all major aircraft, train with sales above €100m and metro platforms Serving 55+ armed
Slide 13: 2018-21 market context
Agenda 2018-21 market context 2018 Capital Markets Day - 13
Slide 14: 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 15: 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 16: 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 17: 2018-21 priorities: sustaining value creation through technology leadership
Agenda 2018-21 priorities: sustaining value creation through technology leadership and operational outperformance 2018 Capital Markets Day - 17
Slide 18: 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 2018 Capit
Slide 19: 1. Reinforce customer-centric organization and culture
1. Reinforce customer-centric organization and culture Three 2018-21 priorities… …capitalizing on marketing and sales excellence Deepen Value-based marketing approach customer intimacy Positioning as partner in digital transformation Consistently optimize Reinforcement of value-selling sales pipelin
Slide 20: 2. Relentlessly optimize operational performance
2. Relentlessly optimize operational performance Group cost structure Focus on 4 high impact initiatives 10% Other Procurement performance 17% Project delivery (bids, project management, Engineering competitiveness production, €14.3bn customer service) total costs Support function efficiency 9% Supp
Slide 21: 3. Accelerate R&D investments to drive technological excellence
3. Accelerate R&D investments to drive technological excellence Technological innovation vital Self-funded R&D in Thales markets €m and Differentiation in usage features to bring as % of sales +25% to +30% more performance to clients Source of competitiveness for solutions ~€1bn R&D investments: a k
Slide 22: 4. Lead digital transformation of markets
4. Lead digital transformation of markets Digital breakthroughs and new digital services 2018-21 2022 and beyond Overall opportunity >€100m Overall opportunity >€1bn Airline digital services Single pilot operation High altitude platform stations Unmanned Traffic Management Aerospace In-orbit operati
Slide 23: 5. Thales + Gemalto: powering and securing the critical digital decision chain
5. Thales + Gemalto: powering and securing the complete 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 app
Slide 24: 5. Thales and Gemalto: selected use cases
5. Thales and Gemalto: selected use cases Ground transportation Battlefield cloud Silent authentication 1 2 SMS 3 2018 Capital Markets Day - 24
Slide 25: 5. Progress on Gemalto acquisition fully in line with plan
5. Progress on Gemalto acquisition fully in line with plan Execution of transaction Integration planning Offer formally launched in March, Common ‘DNA’ and culture: a strong now extended to 15 August foundation for successful integration €4.6bn offer price fully financed, with Straightforward organi
Slide 26: Medium-term financial targets
Medium-term financial targets Organic sales growth target EBIT(a) margin target 11% to 11.5% by 2021 9.8% +4.3% +3% to +5% growth on average over 2018-21 8.6% 9.1% 7.6% 2014-17 2018 2019 2020 2021 2014 2015 2016 2017 2018 2019 2020 2021 NB: all targets exclude Gemalto (a) Non-GAAP measure: see defin
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 Grow profitably in organization a
Slide 28: Today's speakers
Today’s speakers Innovation and digital Competitiveness Aerospace leadership Philippe Keryer Pierre Eric Pommellet Roque Carmona Gil Michielin Jean-Loïc Galle EVP, strategy, research Senior EVP, operations SVP, Chief EVP, avionics EVP, space and technology and performance Procurement Officer Transpo
Slide 29: Group-wide drivers: Innovation and digital leadership
2018 Capital Markets Day Group-wide drivers Innovation and digital leadership Philippe Keryer EVP, strategy, research and technology www.thalesgroup.com
Slide 30: Thales: innovation and technology for intelligent systems
Thales: innovation and technology for intelligent systems Thales’s core competitive advantage: market-driven innovation and technology leadership R&D investment supports profitable growth, higher gross margin and faster time-to-market with reduced execution risk 2018 Capital Markets Day - 30
Slide 31: Thales: a Research and Development powerhouse
Thales: a Research and Development powerhouse 20% of sales, ~€3bn spent in 2017 75% customer-funded and 25% self-funded 40% of group headcount 5 times winner 2012, 2013, 2015, 2016, 2017 A unique talent pool of 25,000 people 3,000 people in research and early-stage R&D, including 600+ world experts
Slide 32: Leveraging innovation ecosystems where it matters
Leveraging innovation ecosystems where it matters 5 Thales corporate research centers 50+ academic partnerships 13 joint research labs 28 Thales innovation hubs Innovation ecosystems 3 Thales Digital Factories 2018 Capital Markets Day - 32
Slide 33: Leveraging core technologies across all Thales end markets
Leveraging core technologies across all Thales end markets Critical decision chain Sensing and data Data transmission Data processing and gathering and storage decision making 4 core transverse Competitive technical domains product policy Hardware Systems and networks Building Products Solutions blo
Slide 34: Acceleration of R&D investments to fund future innovation and digital
Acceleration of R&D investments to fund future innovation and digital Self-funded R&D €m and Self-funded R&D leveraged by as % of sales +25% to +30% significant customer and institutional funding ~€1bn #1 recipient of advanced defence research programs (PEA) in France #1 beneficiary of Horizon 2020,
Slide 35: Half of self-funded R&D focused on dream products
Half of self-funded R&D focused on “dream products” Competitive product policy Dream products 2021 revenue target €bn ~6.0 Building 3.8 Products Solutions blocks 2017 2021 Dream products Market-driven AND User/usage-driven 20 dream + products High growth AND accretive margins First family of fully d
Slide 36: The Digital opportunity for Thales and Thales customers
The Digital opportunity for Thales and Thales customers Digital will transform and disrupt 4 key digital technologies Thales customers’ businesses to enable critical digital over the next 5 to 10 years decision chains Airlines and aircraft manufacturers: drones, Big data single pilot operation Conne
Slide 37: Thales digital transformation framework
Thales digital transformation framework Digital inside : more customer-centric, more agile, more efficient 2018 Capital Markets Day - 37
Slide 38: Critical decision chains require highly differentiated digital technologies
Critical decision chains require highly differentiated digital technologies Volume How much data in one hour? Variety Thales world GAFA world The “GAFA & Internet world” C4I data Instant Text Tweets messages Emails All data Structured data 106 109 1012 1015 Sonars Voice Mega Giga Tera Peta Unstructu
Slide 39: Executing on Thales digital strategy
Executing on Thales digital strategy Partnering with our customers through their digital transformation “Digital-inside” dream products Breakthrough innovations and autonomy New digital services Harnessing key digital technologies Capitalizing on Thales digital assets and recent acquisitions: Thales
Slide 40: Digital Factory: a €150m investment over 3 years
: a €150m investment over 3 years Mission statement: “Accelerate the digital transformation of Thales and its customers” Bring together critical mass of experts to accelerate Digital center of excellence key initiatives and co-innovate with customers (Minimum Viable Products) Build common digital pl
Slide 41: Digital: facilitating growth acceleration now and beyond 2021
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 s
Slide 42: Examples: digital driving growth acceleration
Examples: digital driving growth acceleration Digital-inside Breakthrough digital New digital services dream products innovations and autonomy Software-defined Services for airlines: products Aviovision, Inflyt360 Unmanned Air Traffic Management Cybersecurity as a Service Health and Usage Monitoring
Slide 43: Digital innovation as driver of sustained growth: radar solutions
Digital innovation as driver of sustained growth and margin: radar and radar-enabled solutions New digital services and breakthrough Digital-inside innovations dream products Unmanned Traffic Management Fully digital AESA RBE2 product range Examples of dream products GM400 SF500 GF300 TLP 2017 2021
Slide 44: Innovation and digital leadership: summary
Innovation and digital leadership: summary Thales innovation is global, market-driven, and open to customers and to leading Thales, strategic partner ecosystems for the digital transformation of its customers Thales digital by nature, powering critical Aeronautics Space Ground transportation Defence
Slide 45: Group-wide drivers: Competitiveness
2018 Capital Markets Day Group-wide drivers Competitiveness Pierre Eric Pommellet Senior EVP, operations and performance Roque Carmona SVP, Chief Procurement Officer www.thalesgroup.com
Slide 46: Ambition 10 competitiveness initiatives: focused on 4 key levers
Ambition 10 competitiveness initiatives: focused on 4 key levers Building a growing, more global and more profitable Thales Procurement performance Growth Engineering competitiveness Competitiveness Support function efficiency People Excellence in delivery 2018 Capital Markets Day - 46
Slide 47: 90% of cost base in scope of competitiveness initiatives
90% of cost base in scope of competitiveness initiatives Total cost by nature, 2017 10% Other 17% Project delivery (bids, project management, production, customer service) €14.3bn 48% External total costs purchases 9% Support functions 17% Engineering 2018 Capital Markets Day - 47
Slide 48: 4 key initiatives to sustainably optimize operational performance
4 key initiatives to sustainably optimize operational 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 throu
Slide 49: Procurement: Thales 2017 key figures
Procurement: Thales 2017 key figures Engineering General expenses 11% €6.9bn 17,350 & IS/IT solutions Mechanical External group Active suppliers 33% 11% spend Purchases by categories 14% Electronics 1,300 80% 31% Procurement Share of spend Systems & headcount addressable by equipment global and regi
Slide 50: Procurement: a 3-fold approach to the transformation
Procurement: a 3-fold approach to the transformation Product Cross-functional conventions approach to optimize the cost of a given product An empowered procurement New organization operating with clear model accountability to enable value Optimize the Total Cost capture of Ownership (TCO) of goods a
Slide 51: Procurement: new worldwide integrated organization
Procurement: new worldwide integrated organization, fully accountable for performance Group Chief Procurement Officer Business procurement Global buyers Regional buyers Supplier performance management Bids Mechanical 1 Products Electronics Supplier performance (industry, engineering, Projects Engine
Slide 52: Procurement: a truly global distribution of category decision centers
Procurement: a truly global distribution of category decision centers General expenses & IS/IT €2,300m France covered PARIS Electronics €1,000m Mechanical MADRID covered €700m Singapore covered Spain BENGALURU €2,200m Systems & equipment covered France SINGAPORE Engineering €700m India covered 2018
Slide 53: Two new powerful methods: category waves
Two new powerful methods: category waves “Process aiming to optimize the cost of a given procurement category” Printed circuit boards IT Hardware -15% -10% Identified Identified savings savings Supplier massification Supplier massification Global sourcing Standardization Centralized category managem
Slide 54: Two new powerful methods: product conventions
Two new powerful methods: product conventions “Streamlined process to optimize the cost of a given product” Trailer-based satellite terminal In-Flight Entertainment hardware Significant Significant savings savings secured secured Leverage full supplier market / De-specification / rapid redesign supp
Slide 55: Engineering: a key driver of Thales competitiveness
Engineering: a key driver of Thales competitiveness Develop and deploy digital and connected Deployment of Orchestra tool suite engineering workbenches: Orchestra Number of 16,000 users 14,000 10,500 Move extensively to secured cloud 6,000 infrastructures 4,000 Facilitate co-engineering Save costs 2
Slide 56: Support function efficiency: global transformation under-way
Support function efficiency: global transformation under-way driven by new operating models, processes and tools Effectiveness, efficiency, quality and focus Support function cost(a) as on value add for Thales customers at the a percentage of sales core of support function transformation Further rol
Slide 57: Finance example: a holistic transformation journey
Finance example: an holistic transformation journey to drive increased performance Transformation levers Major ERP convergence program: number of Finance function cost Modernization ERPs divided by 4 between 2015 and 2021 as a percentage of of IT tools sales Implementation of agile tools Process sta
Slide 58: Competitiveness initiatives: summary
Competitiveness initiatives: summary Whole Group fully mobilized on competitiveness initiatives Clear momentum in place, delivering results on a sustainable Delivering basis a 200 to 240 bps EBIT margin Acceleration of initiatives, especially improvement(a) procurement performance and by 2021 suppor
Slide 59: Group-wide drivers: Question and answer
2018 Capital Markets Day Group-wide drivers Question and answer Philippe Keryer EVP, strategy, research and technology Pierre Eric Pommellet Senior EVP, operations and performance Roque Carmona SVP, Chief Procurement Officer www.thalesgroup.com
Slide 60: Break
Mettre à jour par la Dir Com 2018 CAPITAL MARKETS DAY BREAK NEXT SESSION STARTS AT 11:00 AM 2018 Capital Markets Day - 60
Slide 61: Business reviews: Aerospace
2018 Capital Markets Day Business reviews Aerospace Gil Michielin EVP, avionics Jean-Loïc Galle EVP, space www.thalesgroup.com
Slide 62: Aerospace business overview
Aerospace business overview €6.0bn 2017 sales +6.2% 2014-17 sales CAGR (reported) 2 Global Business Units 19,000 Main industrial footprint +3.6% 2014-17 sales CAGR (organic) Avionics Space employees in 32 countries France, Italy, USA, UK 10.0% 2017 EBIT margin 8% Other 29% 14% Military and 25% 43% M
Slide 63: Business reviews Aerospace: avionics
2018 Capital Markets Day Business reviews Aerospace: avionics Gil Michielin EVP, avionics www.thalesgroup.com
Slide 64: Global leader in flight avionics and connected in-flight entertainment
Global leader in flight avionics and connected in-flight entertainment (IFE) Global €3.3bn sales in 2017 footprint 11,600 headcount 32 countries 27% 63% 23% Airlines 28% Connected (connected Sales by Military Sales by 45% Flight IFE) avionics and Sales by in-flight end markets aeronautics activity t
Slide 65: An attractive commercial transport market with strong, sustained growth
An attractive commercial transport market with strong, sustained growth - slower growth in other market segments Air transport and regional Commercial helicopters Large OEM backlog Slow market recovery Increased production Rise of Super Medium 4-5% rates until 2020 0-1% segment; fall of Heavy one AI
Slide 66: Thales well positioned on air transport, regional and military platforms
Thales well positioned on air transport, regional and military platforms Air transport and regional Military aircraft and helicopters Business jets Main platforms Solutions Bombardier Avionics Cessna Full Fly-by-Wire systems Dassault Communications Gulfstream Satcom Main platforms Solutions Main pla
Slide 67: Investing in innovative solutions for connected and autonomous platforms
Investing in innovative solutions for connected and autonomous future platforms Avionics supplier #3 worldwide COMMERCIAL MILITARY Solid linefit positions that Solid, sustained, Rafale generate a strong backlog production activities Avionics 2020: future Next-generation versatile, connected, cyber-
Slide 68: Strong aftermarket growth potential
Strong aftermarket growth potential, leveraging on installed base with innovative retrofit and digital services solutions Airbus avionics supplier #1 for support(a) COMMERCIAL MILITARY Growth via connected Helicopter installed base and digital-based retrofits retrofit opportunities to capture opport
Slide 69: Solid growth forecasted in connected in-flight entertainment market
Solid growth forecasted in connected in-flight entertainment market In-flight entertainment (IFE) Connectivity +3% to +4% +12% to +15% IFE SYSTEMS & SUPPORT MARKET CONNECTIVITY MARKET (deliveries) (value) Dynamic systems Faster adoption of Ka installations-driven vs. Ku band technology market Region
Slide 70: Investing in new business solutions that create value for airlines
Investing in new business solutions that create value for airlines through well differentiated, connected IFE solutions Worldwide for #2 connected IFE IFE systems and support Connectivity Extending product offer to Global coverage with address all market Inmarsat GX partnership segments: Deployment
Slide 71: Innovating in new digital service solutions
Innovating in new digital service solutions to address evolving needs of civil and military customers Solutions Ancillary revenue Connected IFE platforms and services market opportunity generation €1bn by 2025 for passengers Operations optimization services market opportunity (airlines, aircraft ope
Slide 72: Investing in digital processes, tools and competencies
Investing in digital processes, tools and competencies to further enhance our competitiveness Procurement Product conventions performance Extension of global supply chains Engineering Agile and lean processes fully deployed competitiveness High talent attractiveness (best employer rankings) Support
Slide 73: Flat growth expected in microwave tube market
Flat growth expected in microwave tube market Worldwide for space-qualified #1 travelling wave tubes Space Market trends Thales strategy Flat demand for space and Investing in new, generic, route- Defence defence markets to-market means and offers for medical domain - “White Label” Strong price pres
Slide 74: Avionics: key takeaways
Avionics: key takeaways Leadership positions on key air transport platforms and IFE Growing recurring business through retrofit, support and services Growing organically by 3%+ over 2018-21 Significant digital innovation opportunities Maintaining solid double-digit EBIT margin Flat growth in microwa
Slide 75: Business reviews Aerospace: space
2018 Capital Markets Day Business reviews Aerospace: space Jean-Loïc Galle EVP, space www.thalesgroup.com
Slide 76: A global leader in space solutions
A global leader in space solutions #4 largest player worldwide, #2 for civil satellites €2.6bn in sales in 2017 Space Alliance with Leonardo, involving 2 joint-ventures Thales Alenia Space (manufacturing): 67% owned by Thales, fully consolidated Telespazio (services): 33% owned by Thales, consolidat
Slide 77: Space remains an attractive market, in which Thales is well positioned
Space remains an attractive market, in which Thales is well positioned 4 main types of solutions… …serving 3 end markets Average 2014-17 Thales sales Commercial customers: 38% 29% Primary applications: telecom, earth observation Observation 43% 15% Telecom Science and exploration Military 9% custome
Slide 78: Thales well positioned to capture growth from institutional segment
Thales well positioned to capture growth from institutional segment EU space budget(a) Solid growth expected from European €bn CAGR institutional budgets ~+3% 16 13 Follow-up of Copernicus program, with 6 new earth observation missions Next phase of Galileo navigation program Ambitious exploration p
Slide 79: Space: a growing priority for military customers
Space: a growing priority for military customers FRANCE 2019-25 “LPM” EUROPE Global military satellite Estimated ~€4bn spending on New European market forecast military space applications defence budget of Total # of satellites (MUSIS, CERES, Syracuse IV), up €13.6bn#launched of satellites (EDIDP, l
Slide 80: Clear roadmap to address accelerating commercial earth-observation market
Clear roadmap to address accelerating commercial earth-observation market Commercial earth observation Thales earth observation roadmap satellite market forecast EOS 20 - INFRASTRUCTURE EOS 20 - SERVICES # of satellites 285 OPTIC RADAR High revisit Data Access in orbit Virtual constellation EOS HP c
Slide 81: 2017 a low-point for commercial geostationary telecom satellite market
2017 is considered a low-point for the commercial geostationary telecom satellite market Space remains uniquely placed Hesitant market did not anticipate to address certain telecom segments replacement of aging assets Telecom satellite market Geostationary telecom satellite demand forecast order mar
Slide 82: Constellations and ground segments as additional growth levers
Constellations and ground segments as additional growth levers Non-geostationary constellation Strong growth forecasted projects will emerge in ground segment market €bn CAGR 4.1 ~+10% 2.5 and/or others… 2017 2022 Source: NSR, Bain 2018 Capital Markets Day - 82
Slide 83: Commercial telecom: leveraging key assets to outcompete peers
Commercial telecom: leveraging 3 key assets to outcompete peers 1 2 Diversified geostationary Leadership position telecom satellite client base in constellations 2013-17 Thales order intake 46% Globalstar 2 24 satellites in orbit O3b networks 20 satellites in orbit Iridium NEXT 81 satellites ordered
Slide 84: Commercial telecom: state-of-the-art solutions
Commercial telecom: leveraging 3 key assets to outcompete peers 3 State-of-the-art solutions supported by €300m+ self-funded R&D since 2010 - as demonstrated recently by KONNECT VHTS win Satellite platforms that cover the full … boosted by fully digitalized range of needs… 5G and 6G payloads SPACEBU
Slide 85: Multiple additional medium to long-term growth opportunities
Multiple additional medium to long-term growth opportunities Internet of Things by satellite High altitude platform stations In-orbit operations & servicing Important need expressed Vessel Tracking Multimodal Autonomous Rail & Logistics by satellite operators Aircrafts Tracking and Monitoring Fisher
Slide 86: Space: key takeaways
Space: key takeaways Solid growth in institutional and military segments Growing organically Clear roadmap to address by ~2% over 2018-21, accelerating commercial earth outperforming market observation market growth by ~1%, accelerating after 2020 Thales well-placed to manage ongoing transition in c
Slide 87: Business reviews: Transport
2018 Capital Markets Day Business reviews Transport Millar Crawford EVP, ground transportation systems www.thalesgroup.com
Slide 88: Transport business overview
Transport business overview €1.7bn 2017 sales +5.0% 2014-17 sales CAGR (reported) 1 Global Business Unit 7,000 Main industrial footprint +4.9% 2014-17 sales CAGR (organic) Ground transportation systems employees in 42 countries Germany, Canada, UK 3.5% 2017 EBIT margin 10% Fare collection 37% Rest o
Slide 89: Well positioned in the value chain to deliver higher margins
Well positioned in the value chain to deliver higher margins Train(sub)systems Train Train providers design and build Train services Metros Communications Fare Signalling & Supervision collection(a) Leasing/finance Main line rail Civil engineering Services Digitalisation Cybersecurity Tracks Project
Slide 90: Rail control: a €15bn market growing ~3% annually
Rail control: a €15bn market growing ~3% annually Market volume by geography Global rail control market by geography (2016-18 – 2019-21, 3-year average, in €bn) UNIFE world rail market study +3.6% 5.7 +8.2% 5.1 0% 0.4 0.5 1.1 1.1 +4.4% 0% 2016-18 2019-21 5.9 1.5 1.5 2016-18 2019-21 2016-18 2019-21 C
Slide 91: Industry consolidation: Thales maintains its #2 position
Industry consolidation: Thales maintains its #2 position Global rail control players €bn >4 Thales strategy Maintain pure signalling focus Deliver digital products, 1.7 1.7 1.6 leveraging unique group capabilities 0.7 <0.5 <0.5 <0.5 <0.5 Siemens Thales CRSC Hitachi+ Bombar- Kyosan Nippon Wabtec Holl
Slide 92: Thales serves market leading customers
Thales serves market leading customers Main line signalling Urban signalling Communication & supervision 17,000 km of tracks in 85 metro lines in 40 cities - 100 metro lines in 30 cities - 38 countries - signalling signalling systems for urban operation control, integrated systems for main line rail
Slide 93: Transport strategy: 3 pillars
Transport strategy: 3 pillars Recovery and transformation Investing in the future Global growth Deliver current and near term Increase investment in future product Focus for growth on long-term markets commitments policy, leveraging Group digital and large contracts and cybersecurity portfolio Gover
Slide 94: Transport recovery and transformation initiative
Transport recovery and transformation initiative Operational Product Governance performance policy Continue to enforce strong Complete engineering Develop competitive offers governance and increased transformation, agile process, anticipating market needs empowerment continuous integration, test Pre
Slide 95: Autonomous train: a major transformation
Autonomous train: a major transformation What is involved? Strategy LIDAR SATELLITE Deploy train-centric solutions to increase POSITIONING capacity and reduce costs Retain #1 position in driverless metro ARTIFICIAL INTELLIGENCE Lead development of autonomy in main line, GEO-MAP e.g. ETCS level 3 RAD
Slide 96: Smart infrastructure – rail IoT
Smart infrastructure – rail IoT Strategy A unique opportunity to make operations Building the Big Data analytics & AI-based more effective decision systems Incorporate smart capabilities in existing Internet of and new products Securely connect any critical infrastructure asset Provide “intelligence
Slide 97: Global growth opportunities
Global growth opportunities Urban rail Multiple opportunities: New Chinese urban rail JV with York, Paris, London, Oslo, Shanghai Electric Singapore… ~20% market share Positioned to address new trend toward Fully Automated Operation lines Mainline Capitalizing on Thales global leader leadership in O
Slide 98: Transport: key takeaways
Transport: key takeaways Delivering transformation initiatives Well positioned in faster growing markets Growing organically by 4-5% over 2018-21, Harnessing innovation to meet outperforming market customers’ evolving needs growth by ~1 to 2% Investing in the future, with EBIT margin to reach autono
Slide 99: Business reviews: Defence & security
2018 Capital Markets Day Business reviews Defence & security Alex Cresswell EVP, land and air systems Marc Darmon EVP, secure communications and information systems www.thalesgroup.com
Slide 100: Defence & security business overview
Defence & security business overview €8.0bn 2017 sales +5.5% 2014-17 sales CAGR (reported) 3 Global Business Units 34,000 Main industrial footprint Land & Air Systems employees France, UK, +4.7% 2014-17 sales CAGR (organic) Defence Mission Systems Secure Communications & in 33 countries Netherlands,
Slide 101: The world has changed since 2014
The world has changed since 2014 Continued asymmetric warfare Peacekeeping in remote theatres of operations Renewed conventional warfare Protection of interests and resources Opposition to power projection by rival countries Areas of potential tension 2018 Capital Markets Day - 101
Slide 102: Defence budgets rising in Thales core markets
Defence budgets rising in Thales core markets +2.5% +2.7% +4.6% +2.3% +3% Middle East +7% Asia Pacific +6% 2018-22 defence budget annual growth, at current prices 0 < 2% > 4% 2 to 4% Source: Jane’s, budget planning for key countries – numbers exclude Russia and China Global defence budget growth ~+3
Slide 103: Thales portfolio well suited to demands arising from new threats
Thales portfolio well suited to demands arising from new threats More symmetric warfare Air superiority Collaborative combat Detection and tracking Precision strike < Countering a greater variety of threats Counter-UAV, ballistic missile defence Cyber-defence, counter-terrorism Increasing intelligen
Slide 104: Product offering supported by successful international expansion
Product offering supported by successful international expansion Demonstrated by a high share of sales outside USA and Europe Capitalizing on 7 home countries: France, United Kingdom, Rest of World 13% 22% Asia: 14% Netherlands, Germany, Canada, 29% 36% Middle-East: 13% Australia, USA 44% Australia:
Slide 105: Supporting customers in their decisive moments
Supporting customers in their decisive moments through a unique combination of solutions LONG RANGE CONNECTIVITY Assessment Sensing ONBOARD SAFETY INTEGRATION Data Action gathering CRITICAL REAL TIME ENVIRONMENT Decision Data making transmission SOFTWARE INTEROPERABILITY INTENSIVE Data processing 20
Slide 106: New trends: platform interconnection, sensor data fusion
New trends: platform interconnection, sensor data fusion, real-time transmission enabling collaborative combat Advanced armies are looking at collaborative combat solutions built on digital architectures, highly connected networks, artificial intelligence-aided decision-support to improve combat eff
Slide 107: Investments in key digital technologies in breakthrough solutions
Investments in key digital technologies directly embedded in breakthrough defence and security solutions Examples of solutions embedding key digital technologies Pods 10 Giga square-meters scanned by reconnaissance pod Real-time analyses display in a few seconds what used to take weeks High data rat
Slide 108: Long-term growth of intelligent systems content in defence platforms
Long-term growth of intelligent systems content in defence platforms Illustrative value of intelligent systems in platform Future Extended New Mine hunter Mirage Rafale Combat Mine Command Scorpion Scorpion mine systems 2000 F4 Air hunter vehicles program to all land hunter + drones System vehicles
Slide 109: State-of-the-art products drive commercial success
State-of-the-art products drive commercial success Robust home country support Most R&D advanced funding products Wins in Efficient international product competitions policy Strong commercial performance and 40+ year presence 2018 Capital Markets Day - 109
Slide 110: Major wins against competition – 3 recent illustrations
Our products are state-of-the-art as demonstrated by major wins against competition – 3 recent illustrations Air Traffic Management Frigate combat system Military satellite communication Australia – 2018 Mexico – 2017 Egypt – 2017 OneSKY: latest generation Combat systems, radars, sonar Sovereign mil
Slide 111: Development of services opens new opportunities for recurring revenue
Development of services opens new opportunities for recurring revenue growth Through-life support Operation of outsourced Digital transformation on installed base services of defence services Business model innovation on top Increasing customer demand Data-driven business models (logistics, of maint
Slide 112: Defence & security: key takeaways
Defence & security: key takeaways Defence budgets increasing in Thales core markets Strong international presence Growing organically by 4-6% over 2018-21, Advanced solutions well suited to outperforming market address growing customer needs growth by ~1 to ~3% Leveraging key Group digital technolog
Slide 113: Business reviews: Question and answer
2018 Capital Markets Day Business reviews Question and answer Jean-Loïc Galle Alex Cresswell EVP, space EVP, land and air systems Gil Michielin Marc Darmon EVP, avionics EVP, secure communications and information systems Millar Crawford EVP, ground transportation systems www.thalesgroup.com
Slide 114: Lunch
2018 CAPITAL MARKETS DAY LUNCH NEXT SESSION STARTS AT 2:00 PM 2018 Capital Markets Day - 114
Slide 115: Financial framework
2018 Capital Markets Day Financial framework Pascal Bouchiat Senior EVP, finance and information systems www.thalesgroup.com
Slide 116: What we have done, what we will do
What we have done, what we will do 2014 2018 2017 2021 Building solid foundations Leadership in all segments Put in place a true performance culture Keep focus on growth Restore growth dynamics: make Relentlessly deliver on operational top-line growth happen performance Focus on competitiveness and
Slide 117: 2013-17: a successful journey
Agenda 2013-17: a successful journey 2018 Capital Markets Day - 117
Slide 118: Growth – profitability – cash flow: all performance indicators on the rise
Growth – profitability – cash flow: all performance indicators on the rise Sales EBIT and EBIT margin(b) Adjusted EPS(b) €m +4.3%(a) €m +11% €m +10% per year per year 4.64 15,795 per year 1,543 12,698 3.20 1,011 9.8% 8.0% 2013 2017 2013 2017 2013 2017 Dividend Free operating cash flow(b) Net cash po
Slide 119: Ambition 10 delivered even more than expected
Ambition 10 delivered even more than expected Operational Additional performance R&D Additional EBIT in €m and Lower EBIT margin marketing Naval restructuring & sales group 1,543 expenses -126 +8 -79 +45 9.8% Moving from Scope, 4.8% to 5.0% currency of sales and 1,011 pensions +17 +667 8.0% 2013 EBI
Slide 120: Solid growth and improved margins for all segments, but Transport
Solid growth and improved margins for all segments, but Transport Aerospace Transport Defence & security +4.9% +4.7% +3.6% Organic sales growth 2014-17 2014-17 2014-17 10.9% 10.0% 8.9% 7.7% 6.7% EBIT margin 4.1% 2013 2017 2013 2017 2013 2017 % R&D 5.3% 6.1% 4.4% 4.0% 3.9% 3.9% 2014: 4.0% Strong incr
Slide 121: 2018-21: multiple performance levers to drive growth and higher margins
Agenda 2018-21: multiple performance levers to drive growth and higher margins 2018 Capital Markets Day - 121
Slide 122: Organic sales growth sustainably above market
Organic sales growth sustainably above market Market Organic sales Group organic sales growth target trend growth target ~+2% +2-3% Aerospace +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 & Security 2018 Capital Markets Day - 122
Slide 123: Sustainable new round of margin increase
Sustainable new round of margin increase 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 bps +200 to 8.0% +240 bps +200 bps 2013 2017 2021 EBIT
Slide 124: All operating segments to contribute to EBIT margin improvement
All operating segments to contribute to EBIT margin improvement 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 2018 Capital Markets Day - 124
Slide 125: EBIT growth boosted by multiple performance levers
EBIT growth boosted by multiple performance levers EBIT in €m and EBIT margin Further margin Reinvestment increase in R&D Organic sales growth ~200 Competitiveness 11% to 11.5% EBIT 1,543 initiatives margin Marketing and sales Relentlessly +3% to +5% organic optimize operational performance - perfor
Slide 126: 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 cost <1% revenue synergies Immediate
Slide 127: Financial discipline: a key driver to maximize value creation
Agenda Financial discipline: a key driver to maximize value creation 2018 Capital Markets Day - 127
Slide 128: Maintaining strong focus on cash flow generation
Maintaining strong focus on cash flow generation Cash conversion 2014-17: turning Thales into a ~90% 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 P&L expense 642 477 2018-21: fur
Slide 129: Large increase in ROCE since 2013
Large increase in ROCE since 2013 Strong rise in ROCE since 2013 ROCE and asset turn(a) Increase in operating profitability 3.6 Push to improve asset turn Asset turn Stringent R&D capitalization policy 3.1 3.0 Favorable funding from export contracts 25% ROCE significantly above WACC 18% 16% Search f
Slide 130: 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 131: 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 2017 pro forma 2017 reported after Gemalto acquisition 3.0 1.9 2.3 Dividend growth in line 0.0 0.04 with adjusted EPS Net cas
Slide 132: Financial framework: summary
Financial framework: summary Well positioned to deliver above market growth in all businesses Multiple levers to keep delivering operational outperformance Margins to improve substantially, while further increasing R&D Sustainable shareholder value Efficiency demonstrated by strong cash creation con
Slide 133: CEO and CFO Q&A session
2018 Capital Markets Day CEO and CFO Q&A session Patrice Caine Chairman and CEO Pascal Bouchiat Senior EVP, finance and information systems www.thalesgroup.com
Slide 134: Technology demonstrations
Technology demonstrations 4 groups – 4 15-minute demonstrations – starting at 3.30 pm Connectivity, mobility, IoT Big data analytics Inflyt 360: optimizing passenger Incorporating big data analytics and airline experience through and deep learning solutions in connected in-flight entertainment milit
Slide 135: Appendix
2018 Capital Markets Day Appendix www.thalesgroup.com
Slide 136: ROCE and asset turn computation
ROCE and asset turn computation 2013(a) 2015 2017 EBIT 1,011 1,216 1,543 - Amortization of acquisition-related intangible assets (PPA) -89 -139 -132 Share in net income of equity affiliates (incl. PPA) 106 113 135 Adjusted P&L tax rate (excluding non-cash tax one-offs) 29.3% 26.4% 25.9% - Income tax
Slide 137: 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 138: Thales contact details and disclaimer
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