I took part in the Thales conference call ($HO (+0,61%) ) for the full year 2024 and would like to share the key points and insights with you.
CEO Patrice Caine started with the highlights of 2024 and emphasized the strong commercial momentum of the company in all areas. Thales signed six contracts worth over 500 million euros in 2024, resulting in a new record for order intake and order backlog. At 8.3%, organic sales growth exceeded expectations. The growth in the defense sector is particularly noteworthy. Adjusted EBIT increased by 13% compared to the previous year, and the cash flow was again excellent.
Thales is implementing its strategic roadmap to extend its global technology leadership in defense, aerospace and cyber & digital. In the space business, an adjustment plan was launched to adapt the cost structure to the new market conditions in the civil telecommunications market and to restore profitability.
Order intake increased organically by 6% to EUR 25.3 billion, which corresponds to a book-to-bill ratio of book-to-bill ratio of 1.23 corresponds to a book-to-bill ratio of 1.23. Sales increased by 8.3% to 20.6 billion euros. Adjusted EBIT increased by more than 13% and the EBIT margin improved to 11.8%. Adjusted net profit rose by 7% to 1.9 billion euros, despite higher financial expenses due to increased debt costs in connection with the acquisitions. Free operating cash flow from continuing operations increased by 9% and exceeded EUR 2 billion. The Executive Board proposes a dividend increase of 9% to 3.70 euros .
Pascal Bouchiat, CFO of Thales, explained that the order intake of more than 25 billion euros resulted in a book-to-bill ratio of 1.23. Excluding Cyber & Digital, the book-to-bill ratio even reached 1.28. 35 orders with a value of over 100 million euros were booked in 2024, including six with a value of over 500 million euros. The defense sector accounted for 27 major orders. There was also good momentum in the space sector, particularly in the fourth quarter.
The scope effect amounted to EUR 649 million, mainly due to the acquisitions of Cobham, Imperva and Tesserent. Organic sales growth amounted to 8.3%, with the Defense division recording significant double-digit growth. Avionics recorded mid single-digit growth, while Cyber & Digital achieved low single-digit organic growth.
Gross margin increased by EUR 329 million, mainly due to sales growth in Defense. R&D spending continued to increase and reached 6.2% of total sales. Indirect costs grew organically at half the rate of sales. The Aerospace division recorded a 14% increase in orders. Avionics benefited from strong momentum in the aircraft and aftermarket business, while the aerospace business reported a negative adjusted EBIT due to R&D expenses and restructuring costs. Order intake in the defense business reached a new high of 14.7 billion euros.
Patrice Caine named four strategic priorities for the near future:
- Increasing capacity: Increasing production capacity and securing the right talent.
- Restoring profitability in the space sector: Leveraging Thales Alenia Space's adaptation plan.
- Maintain innovation and R&D leadership: Differentiation through breakthrough products.
- Value creation from acquisitions: Strong operational performance of Imperva and Cobham AeroComms.
Thales targets organic growth of 5% to 6% and an adjusted EBIT margin of 12.2% to 12.4% in 2025.
Following the presentation, analysts had the opportunity to ask questions.
Chloe Lemarie from Jefferies asked about the drivers of the strong defense performance in the fourth quarter Pascal Bouchiat explained that the delivery of equipment that was already on the balance sheet and the resolution of supply chain bottlenecks in radar production had contributed to the strong growth. Patrice Caine added that the recovery in the space sector and the contribution from Cobham AeroComms should improve margins. A further margin increase is expected in the Cyber & Digital segment, while stable profitability is targeted in the Defense segment.
Christophe Menard from Deutsche Bank asked about the sensitivity of the sensitivity of the forecasts in view of increasing defense spending and the time-to-market of various defense products. Pascal Bouchiat emphasized that the forecasts are based on the information known at the time of the Capital Market Days and that a further increase in defence spending has not yet been taken into account. Patrice Caine explained that Thales is able to adapt quickly to demand, but needs additional contracts to further expand capacity.
Ben Heelan from Bank of America asked about the capital allocationpotential acquisitions in the defense sector, the status of talks with Leonardo and Airbus in the space sector and the situation in the supply chain. Patrice Caine emphasized that the priority remains on deleveraging the Group, but did not rule out acquisitions in the defence sector. Talks in the space sector are still at an early stage. Pascal Bouchiat conceded that the situation in the supply chain, particularly for printed circuit boards, has not yet been fully resolved and requires further efforts.
David Perry from JPMorgan asked for an assessment of the political situation in France regarding defense spending and asked about the organic growth of cyber in 2024. Patrice Caine compared the situation in the UK, Germany and France and emphasized that it is important to wait for the concrete measures and budget changes. Pascal Bouchiat explained that Cyber showed good growth, while Digital was impacted by the inventory reduction in the banking sector.
Herve Drouet from CIC Market Solutions asked about the the speed of implementation of capacity increases and the potential impact of an increase in defense spending to 3.5% of GDP. Patrice Caine emphasized that the capacity increases presented have already been achieved and that Thales is able to adapt to market developments but needs concrete contracts. Pascal Bouchiat added that a further increase in production capacity would require investments but should have a positive impact on cash flow.
Ross Law from Morgan Stanley asked about the drivers for the sales forecast of 5 % to 6 % and the absolute and the absolute EBIT level in Space in 2024. Pascal Bouchiat explained that the forecast is based on mid single-digit growth in Avionics and Cyber & Digital and flat to low single-digit growth in Space. The negative EBIT in the Space division amounted to minus EUR 65 million in 2024.
In summary, Thales had a successful year in 2024 and is optimistic about the future. The company's strategic priorities are clearly defined and its financial performance is solid. Increasing defense spending in Europe offers additional growth opportunities, but it is important to wait for concrete actions and contract wins.
