Thales Sa · EURONEXT:HO
Thales Sa — FY2005 Earnings Presentation
55 slides from Thales Sa's earnings presentation, Mar 10, 2006
Slide 1: 2005 results
2005 results Denis Ranque, Chairman & CEO Patrice Durand, CFO March 2006 Paris, 10 March 2006
Slide 2: 2005 annual results
2005 annual results March 2006 Patrice Durand 10 March 2006
Slide 3: 2005 key figures
2005 key figures in €m 2004 2005 change Order intake 9,375 12,781 + 36% Order book eat year-end 17 578 20,223 + 15% in months of revenues 20 24 Revenues 10,283 10,263 - 0.2% excl. Sawari 2 hull 9 ,908 10,263 + 3.8% Income from operations 700 722 + 3% margin on revenues 6.8% 7.0% Net income, Group sh
Slide 4: Major trends in 2005
Major trends in 2005 A positive year for Thales Strong increase in order intake Slight growth in income from operations & in net income in spite of the doubling of restructuring costs Strong increase in operating cash flow and in proceeds from disposals Significant reduction in net financial debt &
Slide 5: 2005 results: Order intake, Order book, Revenues
2005 results Order intake Order book March 2006 Revenues 4
Slide 6: Strong increase in order intake
Strong increase in order intake change in €m 2004 2005 totale organic Order intake 9,375 12,781 + 36% + 36% book to bill 0.91 1.25 Order book at year-end 17,578 20,223 + 15% + 13% in months of revenues 20 24 Strengthened base of recurring & diversified orders 70% of orders below €100m 24% growth rat
Slide 7: Growth in order intake
Growth in order intake 12,781 in €m + 36% 3,744 9,375 + 81% 2,072 9,037 + 24% 7,303 March 2006 2004 2005 Unit value > 100 M€ 6 Unit value < 100 M€
Slide 8: Order intake by division
Order intake by division in €m 2004 2005 change book /bill Aerospace 2,356 3,158 + 34% 1.4 Air systems 1,405 1,187 - 15% 0.8 Land & Joint 2,055 2,619 + 27% 1.1 Naval 1,215 3,258 + 168% 2.0 Security 1,097 1,421 + 29% 1.2 Services 1,143 1,101 - 4% 0.9 Others 104 37 - - Total 9,375 12,781 + 36% 1.2 Mar
Slide 9: Major contracts at end 2005
Major contracts at end 2005 15 programmes = 38% of total order book in €m FREMM France/ Italy 1,752 FSAF phase 3 (missile system) France/ Italy 1,018 Watchkeeper United Kingdom 885 Rafale France 884 Scorpene submarines India 582 NH90 Helicopters (avionics & simulation) France/ Germany 303 Horizon Fr
Slide 10: Organic growth in revenues in 2005: +3.8%
Organic growth in revenues in 2005 : +3.8% in €bn 10.3 10.3 exchange disposals +3.8% acquisitions Sawari 2 10.2 hull 9.8 March 2006 2004 2005 9
Slide 11: Change in revenues by division in 2005
Change in revenues by division in 2005 change in €m 2004 2005 total organic Aerospace 2,119 2,307 + 9% + 9% Air systems 1,371 1,472 + 7% + 7% Land & Joint 2,400 2,427 + 1% + 1% Naval 2,029 * 1,636 - 19% - 2% Security 1,113 1,186 + 7% + 7% Services 1,138 1,183 + 4% + 3% Others & disposals 113 52 ns n
Slide 12: Consolidated P&L account
2005 Results Consolidated P&L account March 2006 11
Slide 13: Trends in income from operations
Trends in income from operations In line with objectives in €m 2004 2005 change Revenues 10,283 10,263 - 0.2% Gross margin 2,344 2 412 + 3% % of revenues 22.8% 23.5% Indirect costs (1,644) (1,690) + 3% % of revenues 16.0% 16.5% Income from operations 700 722 + 3% % of revenues 6.8% 7.0% March 2006 1
Slide 14: Other operating costs
Other operating costs in €m 2004 2005 change R & D expenses 368 366 - 0% % of revenues 3.6% 3.6% Marketing & selling expenses 820 868 + 6% % of revenues 8.0% 8.5% G & A expenses 456 456 + 0% % of revenues 4.4% 4.4% Other operating costs 1,644 1,690 +3% % of revenues 16.0% 16.5% March 2006 13
Slide 15: Self-funded R&D: +15% in 2005
Self-funded R & D: + 15 % in 2005 Expense Capitalised Total in €m for the year amount 2005 2004 var. Aerospace 84 73 157 138 +14% Air systems 30 5 35 33 + 6% Land & Joint 103 17 120 104 +15% Naval 31 14 45 44 + 2% Security 65 21 86 70 +23% Services 13 7 20 11 +82% Others 40 1 41 44 - 7% March 2006 T
Slide 16: Income from operations by division
Income from operations by division Income from operations in €m & in % of revenues 2004 2005 change Aerospace 180 8.5% 209 9.1% + 16% Air systems 126 9.2% 126 8.6% - Land & Joint 157 6.5% 140 5.8% - 10% Naval 139 6.8% 147 9.0% + 6% Security 56 5.1% 57 4.8% + 0,4% Services 66 5.8% 80 6.8% + 20% Total
Slide 17: Income of operating activities
Income of operating activities in €m 2004 2005 variation Income from operations 700 722 +22 Restructuring costs (109) (213) -104 Other income from operations (expense) (3) (84) -83 Impairment of goodwill (13) (34) -21 Disposals (4) 158 +162 Income of operating activities 571 549 -22 in % of revenues
Slide 18: Financial results
Financial results in €m 2004 2005 variation Financial Interest / gross debt (125) (126) * -1 Financial income / cash & equiv. 40 43 +3 Cost of net financial debt (85) (83) * +2 Other financial income (expense) (11) (10) +1 Total (96) (93) +3 • Application in 2005 of IAS32 & 39, financial instruments
Slide 19: Pension charge
Pension charge in €m 2004 2005 variation Current service cost (operating charge) (76) (83) -7 Financial component (17) (34) - 17 Total expense for the period (*) (93) (117) - 24 Financial component : Interest cost (178) (185) -7 Expected return on plan assets 160 159 -1 Amort. /actuarial losses & sc
Slide 20: Pension obligations
Pension obligations in the United Kingdom & in the Netherlands in €m 1/01/05 31/12/05 variation Obligations, including 2,884 3,596 + 712 Interest cost +156 Discount rate decrease +242 Update of mortality tables +205 Plan assets, including (2,245) (2,725 ) + 480 Expected return on plan assets +151 Ov
Slide 21: P&L account
P&L account in €m 2004 2005 variation Revenues 10,283 10,263 -20 Income from operations 700 722 +22 Restructuring costs (109) (213) -104 Gain on disposals & others (20) 40 +60 Income of operating activities 571 549 -22 Financial results (96) (93) +3 Financial component of pensions (17) (34) -17 Inco
Slide 22: 2005 cash flow, net debt & equity
2005 results 2005 cash flow Net debt & equity at 31 December 2005 March 2006 21
Slide 23: Net cash flow from operating activities: €610m
Net cash flow from operating activities: €610m in €m 2004 2005 change Operating cash flow before working capital change 888 901 +13 Change in WCR & in reserves for contingencies (440) (134) +306 payment of pension benefits * (106) (111) -5 income tax (paid) received 17 (46) -63 Net cash flow from op
Slide 24: Net cash flow up to €435m
Net cash flow up to €435m in €m 2004 2005 variation Net cash flow from operating activities 359 610 + 251 Net operating investments (273) (352) - 79 incl. capitalised R&D (69) (138) -69 Free cash flow from operating activ. 86 258 + 172 Net disposals 157 311 + 154 Dividends (175) (134) + 41 Net cash
Slide 25: Change in net debt: -€462m
Change in net debt: - €462m in €m - 27 Exchange & other. Net debt 01/01/05 - 311 Net disposals Dividends 134 Net debt 31/12/05 Net operating investments 352 - 901 Operating ‘PFI’ cash flows before limited- working capital 301 254 WC changes & recourse change debt pension pmts 291 860 + 777 - 1,239 3
Slide 26: Equity & Net debt
Equity & Net debt in €m French GAAP IFRS 2,014 2,097 2,062 1,710 906 841 860 398 2003 2004 1/ 01/ 2005 31/ 12/ 2005 31% 29% 33% 16% S & P rating : A- Moody’s rating : A3 A1 on June 2005 March 2006 D Gearing = Equity D+E Net debt 25
Slide 27: Strong reduction in net debt since 2000
Strong reduction in net debt since 2000 in €m 1,856 1,464 1,320 906 860 398 (463) 1999 2000 2001 2002 2003 2004 2005 March 2006 French GAAP from 1999 to 2003 IFRS in 2004 and 2005 26
Slide 28: Shareholding structure (at Dec. 2005)
Shareholding structure (at 31 Dec. 2005) 171.9 million shares GIM Dassault 5.7% French State Alcatel 31.3% 9.5% Thales Public 1.8% 47.1% Employees 4.6% March 2006 Total Float: 53.5% (including employees & Thales) 27
Slide 29: The DCN operation
The DCN operation French 25% stake in DCN (1) THALES State Cash payment Payment of an Preferred 50% Armaris exceptional shares dividend 24% Eurotorp Cash payment • Combat Systems • Services DCN • Prime contracting • 35% MOPA 2 TNF* • Radars & related services • Contracts nearing completion March 200
Slide 30: Reference data on assets disposed of on DCN
Reference data on assets disposed of on DCN TNF 25% DCN + 50% Armaris 2004 2005 2004 2005 Revenues 344 403 Revenues 652 708 IFO 16 34 IFO 47 NA IFO IFO margin 4,6% 8,4% margin 7,2% NA Cash position at end-2005 ~ €220 m March 2006 29
Slide 31: 2005 results in line with objectives
2005 results in line with objectives Set in Achieved March 2005 * in FY 2005 Consolidated revenues slight increase +3.8% * Income from operations +2% to +5% +3% Order intake strong growth +36% Stable or Strongly Net financial debt slightly lower, reduced before disposals at €398m March 2006 * Organi
Slide 32: 2006 Outlook
2006 Outlook Revenues Organic growth rate objective: Same as or slightly higher than 2005 rate Income from operations Further improvement Before full benefits from competitiveness measures launched in 2005’ 2nd half March 2006 31
Slide 33: 2005 annual results
2005 annual results March 2006 Denis Ranque 10 March 2006
Slide 34: 2005: a positive year for Thales
2005: a positive year for Thales Strong increase in order intake: +36 % Book-to-bill at record level of 1.25 Order book at a record high > €20bn Growth in revenues (+3.8%) and income from operations (+3%) In line with targets Operating margin 7% Operating cash flows: +70% Substantial reduction in ne
Slide 35: Major successes in line with our strategy
Major successes in line with our strategy Prime contractor Surveillance capability: Watchkeeper in UK Frigates: FREMM for France and Italy Submarines: Scorpene P75 for India Integrator of critical information systems Syracuse III (phase 2) satcom network in France Secure national ID cards in Morocco
Slide 36: A changing environment
A changing environment Transition between two generations of major export contracts Minor growth in defence budgets Radical transformation of defence/security requirements towards new capacities and services Growing pressure on prices in both civil and defence markets Average dollar exchange rate re
Slide 37: …with a strategy of conquest
…with a strategy of conquest Consolidate and extend deployment of multidomestic operations Increase marketing & sales momentum Implement planned competitiveness measures Constant R&D investment to improve our product lines and our technologies Relaunch external growth March 2006 36
Slide 38: Consolidate and extend deployment of multidomestic operations
Consolidate and extend deployment of multidomestic operations Strengthening of European leadership Gaining momentum in Asia Significant progress in the United States March 2006 37
Slide 39: Strengthening of European leadership (1)
Strengthening of European leadership (1) 2005 successes France FREMM, Syracuse III UK Watchkeeper, FRES Germany F122 – F123 frigate upgrades, PFI for NH90simulation and training Denmark Multimodal transport ticketing solution Russia Avionics and simulation for regional aircraft with Sukhoi Turkey Ma
Slide 40: Strengthening of European leadership (2)
Strengthening of European leadership (2) Avionics Military aerospace equipment Air traffic management €bn €bn €bn 1 2.5 0.8 2.0 0.4 0.6 1.5 0.3 1.0 0.4 0.2 0.5 0.1 0.2 0 0 0 Thales Smiths BAE Sagem Goodrich Thales BAE Finmecan. EADS Thales Finmeccanicca Indra Systems Naval electronics C4ISR (incl. s
Slide 41: Gaining momentum in Asia and Oceania
Gaining momentum in Asia and Oceania 2005 successes Record order intake of 1.8 bn euros Asia Scorpene P75 submarines in India Satellite components for China, Korea, India, Singapore In-flight entertainment, avionics and simulation for airlines in China, Malaysia and India Defence communications in K
Slide 42: Significant progress in the United States (1)
Significant progress in the United States (1) 2005 successes Multidomestic defence activities Growing success of defence communications for US Army: MBITR tactical radios, continuation of JTRS programme (software radio) Growth in ThalesRaytheonSystems (TRS) business Thales is the Pentagon’s leading
Slide 43: Significant progress in the United States (2)
Significant progress in the United States (2) Domestic Order intake $bn Export Import (unconsolidated) 1.5 1 0.5 0 2002 2003 2004 2005 March 2006 External growth opportunities to consolidate a strong base 42
Slide 44: Increase marketing & sales momentum
Increase marketing & sales momentum Marked increase of investment in marketing & sales effort Multidomestic strategy strengthens ties with government customers Unified offering of our multiple capabilities for B2B customers (Key Account Management) Significant improvement of customer ratings (Custom
Slide 45: Implement planned competitiveness measures
Implement planned competitiveness measures Competitive purchasing Example: group purchasing of circuit boards for Europe and United States 150 suppliers fewer than 5 Supply chain efficiency Example: outsourcing of almost all assembly, wring, machining and composites activities (ongoing) Productivity
Slide 46: Constant R&D investment
Constant R&D investment Total R&D: €1.9bn – 20,000 staff Company-funded R&D increased 15% in 2005 3 main areas: avionics, critical information systems, sensors Thales is a major player in industrial innovation through private / public / SME / research partnerships Major player in 7 of France’s 15 co
Slide 47: Relaunch external growth
Relaunch external growth Restored financial flexibility Ongoing operations Acquisition of 25% of DCN in France Expansion of Diehl Avionik joint venture in Germany Plan to acquire 100% of ADI joint venture in Australia Targets Multidomestic Aerospace, security March 2006 Investment capacity: 1 billio
Slide 48: Our ambition for 2008
Our ambition for 2008 Revenue growth of 25% 15 % organic Driven by strong order book and sustained marketing & sales effort 10 % external Enabled by financial flexibility Growth in income from operations of 30% Full impact of Optimum plan In 2006-2007: continue transformation of Group pursue growth
Slide 49: Back-up
2005 Results Back-up March 2006 48
Slide 50: Major order intake by division (1)
Major order intake by division (1) in €m Aerospace Watchkeeper (tactical surveillance) United Kingdom 926 Top- & I-Series (in-fliht entertainment) Various countries 285 RRJ Sukhoï avionics Russia 99 Meltem (maritime patrol) Turkey 81 Skios (surveillance helicopters support) United Kingdom 72 Air sys
Slide 51: Major order intake by division (2)
Major order intake by division (2) in €m Naval Fremm 1st batch (multi-mission frigates) France 1 752 Scorpène (submarines) India 582 Frigates L122/123 retrofit Germany 53 Security Secured identity cards Maroc 124 Travelcard (fare collecting system) Denmark 107 Satellites components China 33 Services
Slide 52: 2005 revenues by division
2005 revenues by division €10.3bn Others Services €1.2bn Aerospace €2,3bn 12% 22% Security 12% €1.2bn 14% Air systems 16% Naval €1.5bn €1.6bn 24% March 2006 Land & Joint €2.4bn 51
Slide 53: 2005 revenues by geographic area
2005 revenues by geographic area by origin €10.3bn by destination 9% 5% Rest of world 8% 9% N & M East 10% North America 15% Asia & Pacific 54% France 29% United Kingdom 12% 15% Other 12% European 19% March 2006 countries 52
Slide 54: Strengthening of European leadership
March 2006 53 H on 0,0 0,5 1,0 1,5 2,0 2,5 3,0 €Md ey w R e . C ll ol lin Th s al e Sm s ith s BA N G E Lo Li tt Avionique ck L3 on he -C 0 1 2 0,5 1,5 2,5 €Md ed om -M El Th . b al Sa i t R e ge ay s th G oo m eo dr n ic h BA N or E * t G hro en p er -G al -D N or th Electronique navale 0 0,5 1 1,5
Slide 55: Result of our strategy implemented since 1998
Result of our strategy implemented since 1998 Acquisitions HTO & TBM + 2bn€ - 1 bn€ + 3 bn€ Divestments Investment rationale: Multidomestic 10,3 bn € + 4 md€ Defense Security 6.2 bn€ Divestment rationale: Activities that are below critical-mass Non-Core Business Exclusively civil components business