THALES (EPA:HO) - Thales 2019 Capital Markets Day - Press release - 3 October 2019

Transparency directive : regulatory news

03/10/2019 07:00

PRESS RELEASE
3 October 2019
Paris La Défense, France

   2019 Capital Markets Day: Thales sets out its action plan following the
   integration of Gemalto and updates its medium-term financial objectives

* Gemalto integration

- Thales becomes the global leader in digital identity and security
- Unique strengthening of the Group's digital positioning
- Average organic sales growth(1) in the "Digital Identity and Security" (DIS)
  operating segment: 4% to 6% over 2020-2023
- DIS EBIT margin(2) to reach 12.5% to 13.5% by 2023
- Significant additional group synergies across other operating segments

* Solid progress made on Ambition 10 strategic priorities
- Powerful operational performance levers implemented delivering significant
  increase in margins
- Further R&D step-up, reinforcing the Group's technological leadership and
  long-term growth profile

* 2019-2023 Group financial targets
- Average organic sales growth: 3% to 5%
- EBIT margin to reach 11.5% to 12% by 2023

Thales (Euronext Paris: HO) is today hosting its 2019 Capital Markets Day with
investors and financial analysts.

Six months after Gemalto's integration into Thales, this meeting will mainly
focus on the new "Digital Identity and Security" (DIS) global business unit,
consisting of Gemalto and a number of digital businesses previously assigned to
the "Defence & Security" operating segment.

Patrice Caine, Chairman and Chief Executive Officer, and members of the
management team  will also give a progress update on the Group's key strategic
priorities defined at the June 2018 Capital Markets Day, and will update the
Group's medium-term financial objectives.

"Together with the other members of Thales's management team, I am delighted to
update the financial community on the progress we have made with the strategic
priorities unveiled in June 2018, and on the numerous development opportunities
arising from the acquisition of Gemalto, which was finalised just six months
ago.

(1) In this press release, "organic" means "at constant scope and currency".
See the definition on page 27 of the 2018 registration document.
(2) Non-GAAP financial indicator, see definition in the 2018 registration
document, page 27.

The Ambition 10 plan is running in line with our expectations. We are
continuing to implement operational performance initiatives and are
accelerating our R&D investments. The results for both 2018 and the first half
of 2019 were ahead of the dynamics needed to deliver on our 2021 targets.

Our new 'DIS' global business unit is already the world leader in the
fast-growing digital identity and security markets, addressing key challenges
in the digital transformation of our customers' intelligent systems.

Across the whole Group, our teams have identified many business synergy
opportunities that will generate several hundred million euros in revenues by
2023.

In a more uncertain economic and geopolitical environment, we are initiating
this new growth phase for Thales with a robust balance sheet and enhanced
resilience thanks to a broader customer base and a technology portfolio that
has been strengthened with regard to critical capabilities.

Our unique position combining a world-class technology portfolio and deep
domain knowledge of our five key markets will allow us to sustain our
profitable growth ambition."

Patrice Caine, Chairman and Chief Executive Officer

Unique strengthening of the Group's digital positioning

The integration of Gemalto delivers a major acceleration of Thales's digital
strategy.

It enhances the differentiation of the Group's business portfolio by adding
market-leading expertise in three key technological domains relating to digital
security: digital identity and biometrics, IoT(3) secure connectivity, and data
protection and encryption.

These capabilities are essential to ensure the end-to-end security of critical
decision chains as they become digital. They address growing needs in an ever
more connected world and have applications in all Group markets.

The teams have already identified application opportunities in many of the
Group's businesses, including, amongst others, the pooling of cybersecurity
capabilities, the design of security solutions for airports, large cities and
critical sites, UAV management and surveillance, and the implementation of the
Internet of Things in the military domain and in rail signalling.

The Group is fully mobilized to capture these synergies, supported by a
rigorous organisation. Just six months after Gemalto's integration, several
hundred specific customer opportunities have been identified, notably
leveraging Thales's global commercial footprint. The Group considers that, by
2023, the incremental revenues induced by Gemalto's acquisition (revenue
synergies) will amount to between EUR300m and EUR500m, with a significantly
higher potential thereafter.

(3) Internet of Things

Expansion in fast-growing digital identity and security markets

Thanks to the acquisition of Gemalto, Thales has become the global leader in
the digital identity and security markets. These markets, at the junction of
secure object and people identification and cybersecurity, offer high growth
prospects, in the region of 10% per annum until 2023, driven by the development
of digital services and solutions.

In these markets, the Group will implement a differentiated growth strategy:

* targeting high-value opportunities in the fast-growing segments: embedded SIM
(eSIM) software and services, data protection in the cloud, public and
commercial biometrics, secure IoT connectivity for the most critical industrial
applications

* strict cost control and value maximization in the mature smart card
businesses

This strategy will benefit from robust synergies with the rest of Thales,
whether in terms of creating an undisputed global leader in data protection or
the Group's privileged relationships with its customers in its five major
markets.

Based on detailed action plans, the implementation of cost synergies is fully
in line with expectations. They should reach EUR120m on a run-rate basis
(2022), of which EUR20m in 2019 and around EUR60m in 2020.

As a result, the Group anticipates organic sales growth for the DIS operating
segment in the range of 4%  to 6% per annum over the 2020-2023 period(4) and an
EBIT margin of 12.5% to 13.5% by 2023. These objectives include only a portion
of the synergies expected at Group level(5).

2023 financial objectives focused on shareholder value creation

Thanks to the smooth roll-out of the Ambition 10 plan, the long-term robust
momentum in most of its markets, and the integration of Gemalto, Thales updates
its medium-term objectives(6):

* organic sales growth of +3% to +5% on average over the 2019-2023 period, with
the strengthening of the Group's growth potential relating to digital
investments and to the integration of Gemalto largely offsetting a more
uncertain outlook in the commercial space market and no growth in transport
over 2019-2023 after strong performance in 2018 (+18%). The phasing of these
different factors is expected to translate into lower growth in the first part
of the period, and progressive acceleration thereafter.

* an EBIT margin of 11.5% to 12% by 2023, benefiting from the competitiveness
initiatives and Gemalto synergies (200 to 240 basis points improvement compared
to a pro forma 2018 EBIT margin of 10%), partly offset by the reinvestment in
self-funded R&D (30 to 50 basis points).

(4) Compared to pro forma 2019 revenues over 12 months in the DIS segment,
expected to be between EUR3.1 and
EUR3.2 billion.
(5) The Group considers that approximately 1/3 of run-rate cost synergies and
around 2/3 of run-rate revenue synergies will be booked in the other operating
segments.
(6) Financial objectives based on September 2019 exchange rates.

In addition to the two levers outlined above, adjusted EPS will rise thanks to
the anticipated reduction in the effective income tax rate, expected to fall
from 27% in 2018 to 23-24% by 2023, and thanks to the more efficient use of the
balance sheet following Gemalto's acquisition.

Furthermore, the Group will pursue its efforts to maximise cash generation, and
thus aims to maintain a high cash conversion ratio(7). It should thus stand at
around 95% before one-offs(8) on average over the 2019-2023 period, in spite of
a less favourable cash/expense tax gap, of the Group's development in service
activities, which have longer cash generation profiles than project activities,
and of the additional working capital required by the growth of the DIS global
business unit.

This press release may contain forward-looking statements. Such forward-looking
statements represent trends or objectives, and cannot be construed as
constituting forecasts regarding the Company's results or any other performance
indicator. Actual results may differ significantly from the forward-looking
statements due to various risks and uncertainties, as described in the
Company's Registration Document, which has been filed with the French financial
markets authority (Autorité des marchés financiers - AMF).

About Thales

Thales (Euronext Paris: HO) is a global technology leader shaping the world of
tomorrow today.
The Group provides solutions, services and products to customers in the
aeronautics, space, transport, digital identity and security, and defence
markets. With 80,000 employees in 68 countries, Thales generated revenues of
EUR19 billion in 2018 (on a pro forma basis including Gemalto).

Thales is investing in particular in digital innovations - connectivity, big
data, artificial intelligence and cybersecurity - technologies that support
businesses, organisations and governments in their decisive moments.

CONTACTS

Thales, Media Relations
Cédric Leurquin
+33 (0)1 57 77 90 93
cedric.leurquin@thalesgroup.com

Thales, Analysts/Investors
Bertrand Delcaire
+33 (0)1 57 77 89 02
ir@thalesgroup.com

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(7) Division of free operating cash flow by adjusted net income, Group share.
(8) The mechanical impact on the cash conversion ratio of IFRS 16, the
application of which has been mandatory since 1 January 2019, is estimated at
around 9 points.

COMMUNICATIONS DEPARTMENT - Thales - Tour Carpe Diem - 31 place des Corolles -
92098 Paris La Défense Cedex - France - Tel.: +33(0)1 57 77 86 26 -
www.thalesgroup.com

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THALES (EPA:HO) - Thales 2019 Capital Markets Day - Press release - 3 October 2019

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