Thales Sa · EURONEXT:HO
Thales Sa — Investor Presentation (November 2018)
68 slides from Thales Sa's investor presentation, November 2018
Slide 1: Investor meeting
Investor meeting November 2018 www.thalesgroup.com
Slide 2: Introduction to Thales
Introduction to Thales 2018-21: targeting industry leadership Five key priorities for 2018-21 H1 and 9m 2018 results Outlook
Slide 3: Thales today: a set of focused, technology-driven businesses
Thales today: a set of focused, technology-driven businesses 26% 11% Sensors and 8% Transport mission 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 end markets Defence region Europe Civil space 38% 6% Aero
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 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 6: 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 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: Introduction to Thales 2018-21: targeting industry leadership
Introduction to Thales 2018-21: targeting industry leadership Five key priorities for 2018-21 H1 and 9m 2018 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 H1 2018 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 Deepen Value-based marketing approach customer intimacy Positioning as partner in digital transformation Consistently optimize Reinforcement of value-selling sales pipeline
Slide 16: 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% Suppo
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: Procurement: a 3-fold approach to the transformation
2 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
Slide 19: Support function efficiency: global transformation under-way
Support function efficiency: global transformation under-way 2 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 r
Slide 20: 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 ke
Slide 21: Lead digital transformation of markets
4 Lead digital transformation of markets 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: Th
Slide 22: 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 23: Examples: digital driving growth acceleration
4 Examples: digital driving growth acceleration 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 o
Slide 24: 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 25: 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 26: 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 - 26
Slide 27: 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 28: 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 - €1.5bn financing completed at very Straightforward organizational pl
Slide 29: 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 30: H1 and 9m 2018 results
Introduction to Thales 2018-21: targeting industry leadership Five key priorities for 2018-21 H1 and 9m 2018 results Outlook
Slide 31: H1 and 9m 2018 key figures
H1 and 9m 2018 key figures (all prior year figures restated for IFRS 15) 9m order intake 9m sales H1 EBIT and EBIT margin(b) €m €m +6.9%(a) €m +33%(a) 762 +9%(a) 10,236 10,873 587 8,849 9,468 10.2% +2.0 pts(a) 8.3% 9m 2017 9m 2018 9m 2017 9m 2018 H1 2017 H1 2018 H1 adjusted net income(b) H1 free ope
Slide 32: 9m 2018 order intake
9m 2018 order intake Solid order intake momentum, Order intake by contract unit value up 7% (+9% organically) €m +7% 9,468 4 large(a) orders booked in Q3 2018, 8,849 for a total of 10 in 9m 2018 Unit value 2,427 1,745 > €100m Rider to MTG meteorological satellites project (EUMETSAT) €10m < 2,284 Uni
Slide 33: Aerospace: 9m 2018 key figures
Aerospace: 9m 2018 key figures €m 9m 2017 Change 9m 2018 (IFRS15) total organic Order intake 3,044 3,082 -1% +1% Sales 4,010 3,930 +2.0% +3.4% Stable order intake Space orders recovering from a low base 9m sales growth affected by slowdown of commercial telecom satellite market and high comps in IFE
Slide 34: Transport: 9m 2018 key figures
Transport: 9m 2018 key figures €m 9m 2018 change 9m 2017 (IFRS15) total organic Order intake 1,267 976 +30% +32% Sales 1,373 1,156 +18.7% +21.1% Solid order intake momentum 2 significant metro signaling orders booked in Q3 Strong sales growth, driven by both urban rail and main line signaling High b
Slide 35: Defence & Security: 9m 2018 key figures
Defence & Security: 9m 2018 key figures €m 9m 2018 9m 2017 change (IFRS15) total organic Order intake 5,132 4,750 +8% +10% Sales 5,450 5,106 +6.7% +8.4% Good order intake momentum, notably in naval systems, tactical radios, Air Traffic Management, and cybersecurity Broad-based sales growth: radars,
Slide 36: H1 EBIT improvement driven by solid operational performance
H1 EBIT improvement driven by solid operational performance €m Operational Restructuring Marketing Reinvestment performance expenses & sales in R&D Naval Group 762 +1 -22 Scope, -49 +11 currency and H1 2017: +26 587 pensions H1 2018: +38 -17 +250 Scope: -5 Currency: -9 Pensions: -3 H1 2017 H1 2018 E
Slide 37: Outlook
Introduction to Thales 2018-21: targeting industry leadership Five key priorities for 2018-21 H1 and 9m 2018 results Outlook
Slide 38: 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 +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 I
Slide 39: 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 40: 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 41: 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 42: 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 43: 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 44: 2018 financial objectives
2018 financial objectives NB: targets excluding Gemalto Order intake Around €15.5bn Sales(a) Organic growth between 4% and 5% Now targeting high end of range EBIT(b) €1,620-1,660m(c) on both KPIs (a) Compared to pro forma IFRS 15 sales of €15,228m (b) Under IFRS 15 standard - non-GAAP measure: see d
Slide 45: Appendix
Appendix www.thalesgroup.com
Slide 46: A strong set of focused businesses
A strong set of focused businesses 2017 sales(€m) Segment Sub-segment Civil Military (restated IFRS15) Market position Aerospace Flight avionics #3 worldwide including cockpit avionics, communications, electrical ~2,050 (flight avionics) 38% of 2017 sales systems, training and simulation Connected i
Slide 47: 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 48: Commercial telecom satellites: leveraging key assets to outcompete peers
Commercial telecom satellites: 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 satelli
Slide 49: Commercial telecom satellites: state-of-the-art solutions
Commercial telecom satellites: 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 paylo
Slide 50: 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% Passenger payment collecti
Slide 51: 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 52: 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 53: Defence & security: successful international expansion
Defence & security: successful international expansion Sales by region Capitalizing on 7 home countries: Rest of 13% World 22% France, United Kingdom, 29% 36% Asia: 14% Middle-East: 13% Netherlands, Germany, Canada, 44% Australia: 10% Australia, USA 26% Rest of World: 7% 19% 6% 43% 40-year+ presence
Slide 54: New trends: platform interconnection, sensor data fusion, collaborative combat
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 55: 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 56: 9m 2018 order intake by destination
9m 2018 order intake by destination change 9m 2017 €m 9m 2018 RoW (IFRS15) total organic 3% France 2,614 2,823 -7% -7% Middle East United Kingdom 568 545 +4% +5% Asia 6% France Other European countries 2,112 1,737 +22% +22% 10% 28% Europe 5,294 5,105 +4% +4% North America 1,004 900 +12% +17% Austral
Slide 57: 9m 2018 sales by destination
9m 2018 sales by destination change 9m 2017 €m 9m 2018 total organic (IFRS15) RoW France 2,843 2,578 +10.3% +10.7% 6% United Kingdom 916 918 -0.3% +0.9% Middle Other European countries 2,266 2,155 +5.1% +5.6% East France 10% 26% Europe 6,024 5,652 +6.6% +7.2% North America 998 923 +8.2% +11.2% Asia
Slide 58: H1 2018 EBIT by operating segment
H1 2018 EBIT by operating segment Change H1 2018 H1 2017 (IFRS15) total organic €m / % of sales Aerospace 291 10.5% 260 9.3% +12% +13% Transport 27 2.9% 8 1.1% +220% +231% Defence & Security 444 11.8% 325 9.2% +37% +40% EBIT – operating segments 761 10.3% 594 8.4% +28% +31% Other (37) (33) EBIT – ex
Slide 59: Evolution of net pension provision
Evolution of net pension provision €bn 2.8 2.7 2.6 2.5 2.3 0.4 0.4 0.5 0.4 Other countries 0.4 1.4 1.2 1.1 1.0 United Kingdom 1.0 0.9 0.9 1.0 1.1 1.0 France 31 Dec 14 31 Dec 15 31 Dec 16 31 Dec 17 30 Jun 18 Liability discount rate France 1.5% 2.0% 1.5% 1.2% 1.5% UK 3.7% 4.0% 2.8% 2.6% 2.8% Investor
Slide 60: Summary adjusted P&L: from sales to EBIT
Summary adjusted P&L: from sales to EBIT 2017 2017 Difference (restated for IFRS 15) (as reported) €m % of sales €m % of sales €m Margin Sales 15,228 15,795 (568) Gross margin 3,711 24.4% 3,845 24.3% (133) +0 .0 pt Indirect costs (2,404) -15.8% (2,375) -15.0% (29) -0.8 pt o/w R&D expenses (797) -5.2
Slide 61: Summary adjusted P&L: from EBIT to adjusted net income
Summary adjusted P&L: from EBIT to adjusted net income €m 2017 2016 EBIT 1,543 1,354 Cost of net financial debt and other financial results (24) (4) Finance costs on pensions and other employee benefits (63) (66) Income tax (403) (314) Effective tax rate 31.0% 27.2% Effective tax rate excluding one-
Slide 62: 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 +13% +15% +16% +9% +3% +6% +1% +7% +1% +1% +2% Aerospace -4% -1% -2% -0% +40% +28% +29% +15% +14% +15% +7% +8% +17% +19% +3% -3% -7% -13% -4% Transport +19% +22% +7% +13% +14% +
Slide 63: 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 +11% +9% +9% +8% +6% +7% +6.8% +7.2% +5% +4.5% +4% +4% +2% +2.4% +1% +1% -2% -1.1% -2% -4% 2013 2014 2015 2016 2017
Slide 64: Adjusted EPS and dividend
Adjusted EPS and dividend Adjusted EPS and dividend per share 4.64 Adjusted EPS up 10% per year € 4.25 since 2012 3.89 3.32(b) 3.20 2.93 2017 dividend : €1.75 per share(a) 1.75(a) 1.60 Pay-out ratio : 37.7% 1.36 1.12 1.12 0.88 Dividend up 15% per year since 2012 2012 2013 2014 2015 2016 2017 Doublin
Slide 65: 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% Six-year average: 113% 139% Six-year average: 72% 70% €m €m 91% 1,543 137% 1,365 47% 51% 1,354 1,365 106% 72% 1,216 74% 1,110 1,110 114% 982 1,011 985 89
Slide 66: Reference table
Reference table Growth drivers page Capital allocation and cash page Sales breakdown by segment and conversion sub-segment 3, 46, 47, 50, 52 ROCE benchmark 7 Positioning and key strengths 4-6, 53 Cash conversion target, balance sheet 42-43 Market dynamics 10-12, 47, 54-55 Historical EPS and dividend
Slide 67: 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 68: 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