Defence, aerospace, security: Thales foresees strong all-round growth

Like its shareholder Dassault, Thales benefits from the incredible order for 80 Rafale fighter jets confirmed this year by the United Arab Emirates. Its order intake thus increased by 46% to 11.2 billion euros in the first half of 2022 compared to the equivalent half of the previous year.

The equipment supplier for aerospace, defense and security is on the rise not only in defense, but in all its businesses. It has also revised its turnover forecasts for 2022 upwards to a range of 17.1 to 17.5 billion euros against 16.6 and 17.2 billion euros. Thales confirms that its gross margin (EBIT) will indeed be 10.8% to 11.1% in 2022, after an Ebit of 891 million euros in the first half of 2022 against 722 million a year earlier for a turnover half-yearly of 8.26 billion euros.

Rising military budgets

The visibility gained by the group is such that Patrice Caine, the president of Thales, has somewhat departed from his usual great caution to predict several years of continuous growth in its three areas of activity: defence, aerospace and security. The defense sector will benefit from a potential growth in European defense budgets of 5% per year until 2030 according to forecasts by the Janes Institute. Patrice Caine, however, warned against impatience, emphasizing that immediate and massive additional orders should not be expected.

“The increase in defense budgets will take time to materialize in our main markets, France and the United Kingdom. The two countries are discussing their goals. The United Kingdom was planning in June to increase its defense spending to 2.5% of its GDP in 2030, but there is a change of Prime Minister in the meantime, while in France President Macron announced a new Law of military programming for 2024-2030. All of this is good in the medium, long term,” explained Patrick Caine. The group already has the highest order book (29 billion euros) in its history in this branch.

Low impact of the war in Ukraine

The war in Ukraine has had a fairly low impact on Thales, a group that is not very dependent on energy and therefore on variations in its price, while the European trade sanctions on Russian companies are weighing around 70 million euros on its unit aerospace. However, in this area, the time has come for the resumption of air traffic and the resumption of orders. “This branch will deliver 5% growth over the next three years,” predicts Patrice Caine.

It is in the “digital identity and security” branch that growth is the strongest, in double digits. Financial Director Patrice Bouchiat believes that it has achieved the profitability objectives set more than a year in advance. Cybersecurity is still growing and the digital identity branch is also benefiting from a rebound in activity in secure documents and in particular passports. Sure of himself, Patrice Caine announces an organic growth rate of more than 10% for 5 years.

With the horizon clear, the financial center therefore expects new consolidation operations. For the time being, Patrice Caine reiterated that the group did not wish to diversify and remained focused on internal growth and medium-sized acquisitions in technological or geographic complements to Thales’s activities. The file of a possible takeover of Atos remains on a hypothesis, but it is still unsaid. “We will be pragmatic”, just declared Patrice Caine.