Thales S.A. (HO) Earnings Call Transcript
October 22, 2026
Earnings Call Speaker Segments
Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Thales Q3 2026 Order Intake and Sales Conference Call. The presentation will be held by Mr. Jeremie Papin, Thales CFO. It will be followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded. I would now like to hand the conference over to Mr. Louis Igonet, VP, Head of Investor Relations. Please go ahead, sir.
Thank you. Good morning. Welcome, and thank you, everyone, for joining us for the presentation of Thales' 9 months 2026 Order Intake and Sales. I'm Louis Igonet, Head of IR at Thales. With me today is Jeremie Papin, CFO of Thales. As usual, this presentation is audio broadcasted live on our website, thalesgroup.com, where the slides and the press release are also available for download. A replay will be available soon after the end of the event. With that, I'd like to turn over the call to Jeremie Papin.
Thank you, Louis, and good morning to everyone. Let me start with the Q3 2026 highlights on Slide 2. First, Thales recorded continued strong commercial momentum over the third quarter, which translated into a solid level of order intake over the first 9 months of the year driven by [indiscernible] and defense. Demand for our solutions remains high in the context of increased defense spending from many countries in Europe, but not only. Sales also recorded a robust growth in the third quarter, driven notably by strong project execution across business, continued efforts in capacity ramp-up in Defense and confirmed growth trajectory in our Cyber business. From a strategic standpoint, Thales keeps driving innovation in its markets with the launch of several premium high-tech solutions this quarter. In September, we unveiled HexaForce, our next-generation AI-powered multi-domain command and control system designed for NATO and allied nations. It builds on the capabilities of Cortex, our AI accelerator where 800 engineers and data scientists collaborate. Our ambition on the next gen C2 market are strong and HexaForce, which is available from now, will be a key asset. In Cybersecurity products, we launched Luna 8, our next-generation hardware security module designed to protect critical data and applications against ever-increasing cyber threats and prepare our customers for the post-quantum era. In Space, during Q3, [indiscernible] Square program took another important step forward. Thales Alenia Space signed in September, a letter of agreement with Telesat to provide the governmental payloads for the 330 [indiscernible] telecommunications satellite in low Earth orbit. This major contract confirms our role as a key industrial partner of this flagship European sovereign program with a total of EUR 3 billion awarded to Thales Alenia space, including some orders already booked over the last 12 months. Moving on to the order intake year-to-date on Page 3. I would like you to remember three key highlights. Our order intake is growing granular and well spread graphically. So first, in terms of growth, our strong commercial momentum has allowed us to book EUR 19.1 billion of new orders over the first 9 months of the year. This is a 15% organic growth over the same period last year. Second, granularity. As you can see on the chart, our order intake remains highly granular with orders below [ 100 million ] representing over 60% of total intake. On top of those orders, the momentum in large orders has been a key driver of the order intake growth in 2026. 29 large orders have been booked over the first 9 months of the year, 11 of which in Q3 alone. This compares to a total of 28 larger orders booked over the same period FY '25. Out of those 11 orders booked in Q3, Defense accounted for 9 large orders with several contracts for air surveillance and defense effectors, naval solutions and a new contract related to the development of the Rafale for France. Space contributed two large orders, including the contract related to IRIS2 mentioned earlier, underscoring our strength in the strategic and sovereign domain. One data point to note, 80% of our order intake since the beginning of the year came from outside France, a further proof of the strength of our multi-local platform. French, which accounts for 20% of the order intake grew by a strong 47% year-on-year, which includes, in particular, three contracts related to the development of the F5 standard for the Rafale. Looking now at the 80% of order intake coming from outside of France over the first 9 months of the 2026, the momentum remains driven by Europe, but also by the near and Middle East, where new orders grew more than 200% year-on-year. Moving on to Slide 4. Fueled by continued momentum in Q3, sales organic growth reached 8.1% over the first 9 months of 2026. This performance was, in particular, driven by Defense which delivered double-digit growth in Q3, supported by the continued ramp-up across the whole portfolio. Aerospace showed good momentum as well with growth in Space with solid growth in Space. Finally, Cyber & Digital was slightly up over the first 9 months. As expected, Cyber showed a confirmation of the growth trajectory in Q3. Geographically, we maintained a balanced performance reflecting Thales strong positions worldwide. Importantly, our mature market showed 8% organic growth over 9 months, fueled notably by Europe and emerging markets, which account for 40% of the organic growth over the first 9 months, sales increased by 15.8% including contribution from Near and Middle East, where sales are now growing by 49% year-on-year. A quick comment on currency and scope. While scope impact is not material over 9 months, ForEx remained negative year-to-date despite a positive contribution in Q3. Now moving on to performance by segment, starting with Aerospace on Slide 5. Order intake in Aerospace reached EUR 5 billion, up 29% organically over the 9 months of 2026. This performance was driven by Space where strong institutional demand is fueling the business momentum. 7 large orders were booked at the beginning of the year, including nearly EUR 500 million order for IRIS2 and several contracts, notably in Qatar, Spain or Western European Space Agency. Sales in this segment amounted to EUR 4.2 billion, up 4% organically. This includes a 7.8% organic sales increase in Q3 following an H1 that was impacted by one-off items in space. Excluding these H1 items, Space has been delivering strong underlying organic sales growth over the first 9 months and a particularly strong Q3. Avionics we were up over the 9 months period, showing ongoing growth on high comps. Importantly, the impact from lower aircraft notably in the Middle East region remained limited on our aftermarket business in Q3. Overall, Aerospace continues to demonstrate strong momentum with both order intake and sales showing good growth. Now moving to Defense on Slide 6. Order intake in Defense reached EUR 11.3 billion, up 14% in total and organic terms over the first 9 months of 2026. This performance reflects sustained commercial momentum supported by increasing budgets for military equipment for our customers, both in mature emerging markets. 22 large orders were booked over the period, of which 9 in Q3 alone. Demand remained strong, in particular, in the Naval domain, in effector and in Air Surveyance and Defense. Thanks to our premium multi-domain multi-year offering and its best-in-class products in Air Defense, Thales is ideally positioned to address customers' most critical needs. Defense recorded double-digit sales growth in the third quarter, leading sales over the first 9 months to reach EUR 9.4 billion, up 13% organically. The main drivers behind this performance were the continued ramp-up in production capacity, helping Thales to meet increasing customer demand and strong project execution. Overall, Defense delivery momentum with both order intake and sales efficiency significantly up year-on-year. Moving on to Cyber & Digital on Slide 7. Sales in the Cyber & Digital segment reached EUR 2.7 billion over the first 9 months of 2026, slightly up organically. First, Cyber, where sales were up 2.5% over the first 9 months. In Q3, sales were up 4.3% organically, confirming the growth that we published in Q2, in a growing market where the relevance of Thales products and solutions, a stronger quarter third quarter, the group is firmly committed to pursuing this growth path going forward. Those growth perspectives are supported by our innovation capacity with the launch of new products such as the new HSM Luna 8 and the strengthening of our data security posture management offer to address ever-growing risks linked to widespread absorption of AI. In digital identity, where sales were slightly down in organic terms, remember the comparison basis given last year one-off in secured connectivity. Digital solutions in both payment and secured connectivity recorded strong momentum over the first 9 months of 2026. However, not fully offsetting the current impact of lower volumes for physical products. I will conclude with our financial objectives on the current year on Slide 8. The momentum in Q3 for both order intake and sales and strong perspectives make us fully confident to achieve the financial targets set for the year, a book-to-bill ratio above 1.1 and sales that are now firmly expected at the upper end of the plus 6% to plus 7% guided range for organic growth and potentially beyond. The adjusted EBIT margin is expected between 12.6% and 12.8%. Many thanks for your attention. I will now be pleased to answer your questions.
[Operator Instructions] First question comes from the line of Chloe Lemarie, from Jefferies.
I have two, if I may. The first one is on the tweak in the guide comment that you could go above 7% organic growth. Could you maybe explain some of the moving parts and where you see each division for organic growth? And within that, if the 13.5% margin that you've indicated for Defense for the year, is it still the right level given the strong performance in 9 months? And my second question is, we've just heard that there is an agreement that's been signed between France and the UAE and Rafale F5, I wanted to know if you had any thoughts to share on what this could mean for you in terms of potential development work or if this would actually be more a question of further order down the line?
Thank you. So on the growth outlook, I'm just reacting to the momentum we've had in Q3 and pointing to the fact with sales up 8.1% year-to-date. The guidance is at between 6% and 7%. And obviously, now we're saying we will be at the top end of that range, maybe a little bit above. But I just want to indicate that we enjoy a strong momentum, and we have no reason to be worried about Q4. And on margins, I will confirm what I've said in the past, which is that we were -- Defense margins were at 13.8% in H1. We think the full year will remain above 13%, possibly around 13.5%. So that remains unchanged. On the UAE comment about an agreement with France, I will let [indiscernible] comment on what that indicates what that means.
We will now take the next question from the line of Alessandro Pozzi from Mediobanca.
I have two on the guidance. As we're trying to, of course, quantify the beyond 7%, and I guess it depends on very much also on the Cyber & Digital, which probably is the weakest performance in terms of divisional performance. Of course, Cyber has been recovering but Digital not as much. But also, we have the one-off of last year. So can you give us a bit more color of what is the underlying trends in Cyber & Digital ex one-off compared to Q3 of last year? And then the second question on Defense, of course, this is very strong growth. It's been very strong for the last few quarters, double-digit growth. As we look forward in the next few quarters, is there any reason for not assuming again a double-digit growth in revenues given the strong order intake that you're experiencing?
On the growth, again, we are confirming the top end of the guidance for Cyber & Digital. I will stick to the fact that it will be a low single-digit growth that we should see in the full year with this ongoing recovery in Cyber confirmed in Q3 after Q2 and a Digital that could be more flattish year-on-year. And obviously, some effect of acceleration between H1 and H2 or an acceleration in H2 for this segment compared to what it was in H1. On Defense, we confirm a low double-digit growth. And we think that we will be -- it will help support the the top end of the range for group growth that I mentioned.
And for Defense, of course, without giving guidance, for next year, but it's probably fair to assume a similar rate of growth for the next few quarters?
Well, I don't want to speak now beyond Q4. We are continuously investing in ramping up our capacity, our own but also securing quality timing of the ramp-up of the supply base. So this is, I would say, ongoing effort and there are still growth in capacity expected to be delivered into next year.
Okay. And going back on Digital, when do you think we could see growth in the Digital part of the business as well?
Well, I will stick to the comment. Again, altogether, we will be seeing low single digit at the segment Cyber & Digital level. the ongoing recovery in Cyber. And then in Digital, I say, flattish for the full year. And -- so excluding the one-off that I mentioned that we had in 2025, were actually year-to-date positive. So as that impact does not exist in Q4, we will see.
We will now take the next question from the line of Christophe Menard from Deutsche Bank.
I have two bouncing on the guidance question. I mean, the question was more on the midterm guidance. When would you think it's appropriate to take a second look at this midterm guidance? I'm aware you've just joined. But when do you think it would be a good time? And the second question is, you mentioned in your presentation the very strong growth in the near and Middle East Defense sales. Can you describe the order intake momentum in that region? And more broadly, how do you see this continuing into -- well, in the coming quarters, actually?
Thank you, Christophe. So on the first question, which is about...
When you will revisit the guidance.
The guidance. So I think, obviously, when we publish our FY '26 results in early March, we will definitely be talking about '27. And we also obviously have yardsticks into '28. So that is when we need to talk again. We will be, as I said, halfway through the midterm plan. And so that's when we meet next. Regarding Middle East growth, I would -- sorry, growth potential, I would point towards Page 7 of the press release, which has the usual order intake and sales by destination. And here, you will see that for order intake, the order intake is now standing over 9 months at EUR 1.9 billion, which is roughly what we did record last year over the first 9 months of the year. And it's also 10% of the year-to-date order intake, while in sales, we are coming close to EUR 1.3 billion, up 49% organically, and it is still only 8% of the revenue. So I would say it continues to -- it should continue to pull and to outperform in sales. In the order intake, we obviously have defense and space that are orders that are contributing in -- from that region today.
We will now take the next question from the line of Herve Drouet from CIC CIB.
Two as well on my side. The first one, if we can come back to Digital and volume in Digital. I mean you have pointed that the mix is okay, but the volume side of Digital is still under pressure. I was wondering, is there a particular segment within Digital, which are more under pressure in terms of volume? And how do you see that trend evolving in the near term over time? And the second question is on Avionics. I mean it looks like there is some resilience despite lower traffic, passenger air traffic. I was wondering, are you starting to experience a slowdown in aftersales services on your side? And I try to get a bit of if the current situation is holding up, should we expect a bit of a slowdown of avionics looking forward?
So thank you for the questions, Herve. On Digital, I would point again to the fact that in -- excluding the one-offs, we are up nearly 1% year-to-date. However, indeed, the volume has been negative year-to-date. It is partly offset by the growth in our Digital Solutions for each of the market, dematerialization, obviously, moving to e-SIMs and e-wallet digital cards as well as an effort on products in Pay, for example, to really gain share in premium cards. And -- but yes, there is some pressure on the volume side. I would qualify it for this year, looking at quarters as being kind of a very current situation. On aftersales in aeronautics, I would point to the fact that we absolutely believe and remain very confident about the long-term prospect of air traffic growth, both the fleet and the number of passengers. Regarding the very near-term outlook, I would say that we have not really seen an impact in yet, but we are -- we see the level of the fuel price as everyone does. We also see that the underlying traffic from airlines is bouncing around 1% or 2% every month over last year. And so we think we just need to take that into account when setting an outlook for the near term. There may be some cutoff packs or very momentary slowdown in the business. But so far, it's been proven to be resilient compared to what we could have imagined.
We will now take the next question from the line of Ian Douglas-Pennant from UBS.
Sorry to go back on the short-term situation in Defense. Are you still getting strong indicators of demand into Q4 as well, at this moment? And yes, maybe you can just talk about it in the very short term where that continues. And secondly, again, going back to the medium-term guidance specifically for Cyber & Digital, your guidance is for 6% to 7% to 2028. Given what you've seen this year and the run rate where you're tracking at the moment, is that realistic that we would achieve that run rate or you would achieve that run rate by by 2028?
So on the short-term momentum in Defense, it remains strong as we just published. And I would urge you always to be careful, especially in Defense of looking at one single quarter performance because these contracts often take a long time to be discussed, but there are ongoing discussions obviously with numerous partners throughout the business lines of the group. So the momentum is -- in terms of order intake is very solid. And then we need to obviously be strong at execution and continuous ramp-up in the production capacity. On Digital, you're right to point out to the long-term guidance that we had provided. And so obviously, we are seeing Cyber, I would say, turn back to growth and recover and confirming this trend and the Digital side. Again, less growth year-to-date, I would say, normalized. But clearly, digital trends in those segments that should support further growth acceleration into the midterm.
We will now take the next question from the line of David Perry from JPMorgan.
Jeremie, two questions just on Cyber. I was expecting an acceleration in growth. It was Q3 was the same as Q2, that you launched the new HSM module. Can you just talk about what other bits of the business going back? Or was HSM not making a big contribution? And then secondly, a difficult question for you to ask. But just high level, given the political and economic situation in France, do you think there's any risk at all to the Defense spending in France in the next year?
Thank you, David. So on Cyber, there is an acceleration in H2 compared to H1. And that is what we have pointed to. So we are delivering on our expectations and specifically on the HSM product and the launch of the Luna 8, I think we had mentioned that we are launching now and there's a ramp-up, and we're getting it tested through, I would say, our closest customers in the banking industry. And so we're just on that ramp-up curve, and it was always expected to have an impact in -- after 1 or 2 quarters, not the quarter of the launch. So no, nothing to report or nothing that would be a disappointment or difference to the plan in here so far. And again, the HSM product is more of a story of -- within 2027 than immediate. On the Defense budget, thank you for the question because really it's going to be down to anyone's opinion. What I can just point to, maybe two points. And again, those reflect my personal opinion that, again, there is a political consensus that was reiterated before the summer towards increasing the spend in [indiscernible] military, that historically, over the past 10 years, roughly, there's always been a situation where the country met its commitment in terms of Defense spending. And ultimately, with the elections, it will be easier to -- it should be easier to amend the budget that exists rather than having to build the budget after the election. So all of these points, again, this is my personal opinion, towards a situation where we will -- we should have a budget and we should see -- and clearly, for 2026, the spend being at the level that was expected.
We will now take the next question from the line of Olivier Brochet, from Rothschild & Co.
One very simple one. You mentioned at the beginning of the call that IRIS2 is about EUR 3 billion of potential orders for Thales. How much of that EUR 3 billion is still to come for you in aggregate? The second question is also on Space. The European Space Agency has an interim council in December. Is there anything in there that you can already point to for us to pay attention to, please?
On the IRIS2 question, Olivier, the total contract has a value of roughly EUR 3 billion. For now, we've booked about EUR 1 billion, some of it in '25 and some of it year-to-date. And so there's still EUR 2 billion that should come, I would say, spread over the next few quarters. So the time line -- exact time line of this, especially because there is a year-end is -- I wouldn't go to tell you when. But obviously, we will have further news on this coming through. Regarding the European Space Agency. Obviously, I don't want to comment on the announcements that they will make. But there is a clear strength in institutional demand and for sovereign solutions and technology. And so we think any announcement by the European Space Agency will be reflective of those priorities.
And there is no particular program in there that you're very much counting on at this stage?
I don't think we should speculate on contracts before anything. So again, the most important is a confirmation of the future growth in their multiyear budgets.
We will now take the next question from the line of Benjamin Heelan from Bank of America.
The first was on Defense. Could you give us a little bit of color in terms of where you are more broadly in your capacity plans? And you've typically kind of broken the business down into different parts such as sensors and mission systems and effectors. Can you give a bit of color in terms of where you're seeing the strongest growth at a kind of subdivision level within Defense? Secondly, on Space, is there any update that you can provide on Project Bromo, and where you are in that process, that would be great. And then finally, just to come back on David's question on Cyber. I similarly was expecting a bit of an acceleration. And when you look at peers in the U.S. in the Cyber space, they are clearly seeing an inflection in demand and it just feels that your seeing an improvement in growth, but on easy comps and not necessarily the same sort of inflection? And so just a question, is there any particular reason that you may not be? And are you still having issues around things like sales and integration? And how should we see that trending into '27?
So Benjamin. On your second question is about what topic?
Space Project Bromo. It was just -- is there an update on the process there?
Thank you, sorry. I had -- I just wanted to confirm. So regarding the first question on production capacity, look, what I can share is we've multiplied our capacity for radar production in France by roughly 4, since 2021. We've multiplied -- we are in the process of multiplying the radar production in Germany by 5, we will have reached that time 5 level by the end of 2026. In Effectors, there had been a growth by 5x between '24 and '26. And we are investing to further grow by 3x between '26 and '28. That is for a 70-millimeter laser-guided rocket, in our amination production capacity, we have timed four by the end of this year. And so this is material, I would say, in terms of obviously production capacity by the end of the year in LMM missile production in the U.K., we've multiplied by 4 at the end of '25. And overall, within 4 years from, I would say, end of '22, '23 into 4 years later, we should multiply the production capacity of 7. So, there's a lot. There's growth again over 2x, nearly 3x growth in sonar since '24 and in some of our military communication, jamming equipment we have multiplied by 4. So the description is just that across many, many business lines, obviously, we've made investments for our production capacity, and we've been pulling our supply base to support that with on-time delivery and quality. And obviously, the cost that come with production increases. As regards Bromo, I would just say that the project is ongoing. And I would say, fully as expected. Again, the closing is expected to come during the course of 2027 or the end of 2027 and we're having the discussion with the DG Comp as we -- as an ongoing basis. And I will not comment beyond that. Regarding acceleration that you mentioned for Cyber. Again, in Cyber, we are confirming what we had said. And H2 will be stronger than H1. Q3 confirms Q2. And again, the profitability in our business is good. From an organization point of view, we are now done in terms of sales force integration. There have been a few other management changes. But -- and we're launching the new products or software solutions. So again, we're building up our capacity to continue the growth.
We will now take the next question from the line of Aymeric Poulain from Kepler Cheuvreux.
I'd like to continue on Cyber. Maybe you could give us a split between the product and the service -- understand service you are discontinuing or you're reducing some of the activity there. So just understanding the drag that comes from that segment. And in terms of the launches, HSM computing proof encryption technology. I wondered, are you the only player offering this? And do you expect an additional stimulus from the regulator because I suppose this is something that is quite fast and some banks will be forced at some point to have these technologies. And I was wondering how big the opportunity was for this. And similarly, on the AI agent deal that you signed with Gemini. Just wondered how significant this deal might be? And what would be the size of the opportunity for you in this segment?
So I will not dive into further details on Cyber. Again, I will stick to what I said and what you heard in terms of the growth that obviously was resumed and clearly will continue. Then on the HSM, what I would say is that what we launched in terms of technology with Luna 8 and functionalities, capabilities is leading in the market, is being fully certified by the most stringent regulators and the certification companies in the segment. And therefore, this should give Thales a technology-led functional advantage. And so we're going to build on that, to build up the sales. I don't want to speak to the TAM and any other thing. I know what the regulator may do or not. So -- but obviously, it's good to have a capability that answers the growing needs that everyone has to face today in terms of cyber threat and the solutions that Thales provides are strong. On the AI deal with Gemini. What I will say is it just reinforces the capability of the company alongside the Cortex expertise and AI that we have built and the hundreds of very highly competent an agile team member that we have. It illustrates the capability for Thales to collaborate with best-in-class payers in the segment and to show that we are capable of continuously innovating as required and that's the main message with this agreement. No need to, again, go into what potential figures could be for the moment.
We will now take the next question from the line of Gabriele Gambarova from Intesa Sanpaolo.
The first one was on the contract that Naval Group got with Sweden for Frigates. I didn't see any mention in your documents. So I was wondering if this could -- I mean, could be something we could expect for Q4? And if it is something meaningful in some way, something to monitor? And the second question regards the SAMP/T, if you could elaborate a little bit on this topic on the perspectives on what you see on these systems.
Gabriel. On the frigates for Sweden, I would -- I don't want to comment on on contracts. So obviously, and it will be down to Naval Group and the customer to decide when to communicate if they want to communicate. On the SAMP/T, we are having, obviously, a lot of discussions with many interested customers. And I think France last night confirmed orders that we had booked in Q3. So there is ongoing momentum -- export momentum discussions. And again, we will be reporting those. If customers agree or want to communicate, and we all need to be conscious about the fact decisions on these systems are a long process in any country. And therefore, I would say, we are fully in line with the discussion momentum that we expected so far.
There are no further questions at this time. I would like to hand back over to Jeremie Papin for closing remarks.
Yes. Maybe one just point of clarification in terms of large orders, we had achieved 28 in FY '25, and 14 at the end of '25, 9 months and 14 in Q4 and so far in 2026, after 9 months, we have recorded 29 large orders at group level. So obviously, this is a very strong momentum. And at least on a 9-month basis, we are -- thanks to last year level in that category of orders. And beyond that, I obviously thank you for participating in the call, your questions and your interest in Thales, and I wish you a good day.
Thank you, ladies and gentlemen. If you didn't have a chance to ask your question on today's call, please do not hesitate to send your question to Thales Group Investor Relations at ir@thalesgroup.com, and we will get back to you as soon as possible. Thank you all for your participation. You may now disconnect.
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