Thales S.A. (HO) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Thales H1 2022 Results Conference Call. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today. I would now like to hand the call over to Mr. Patrice Caine, Chairman and CEO. Please go ahead, sir.

Yes. Actually, no, good morning. I'm Bertrand Delcaire, the Head of Investor Relations at Thales. Welcome, and thank you for joining us for the presentation of Thales' H1 2022 results. So with me today are Patrice Caine, Chairman and CEO; and Pascal Bouchiat, our CFO. As usual, the presentation will be in English and followed by a Q&A session. It is webcast live at thalesgroup.com, where the slides, press release and consolidated financial statements are also available for download. A replay of the call will, as usual, be available in a few hours. And with that, I would like to turn over the call to Patrice Caine.

So good morning, everyone. Let's begin with Slide #2. As usual, the highlights of our H1 '22 results, which were undoubtedly strong. First, we achieved a new record order intake driven by our strong commercial dynamics, combined with coming into force of the Rafale order from UAE. Our backlog reached as well a new record, EUR 38 billion, at the end of June, which further increased our long-term visibility. Second, in spite of several operator challenges and especially supply chain tensions and the end of our aerospace sales to Russia. Sales grew organically above 5%. It included, in particular, a strong performance at DIS, which has now recorded 3 quarters in a row of double-digit organic sales growth. Third, both EBIT margin and free operating cash flow were ahead of plan, increasing our confidence over the full year. Considering our year-to-date performance, we have decided to upgrade our full year guidance for both order intake and sales, and I will come back on this at the end of the presentation. Finally, thinking about our priority for H2, we will work on 2 levels. On the one hand, we need to focus on short-term operational issues that are limiting our growth. I'm thinking of supply chain and recruitments. On the other hand, we will continue to execute on the 5 strategic priorities that I outlined back in March. But first, let me comment on our key financial metrics, and I'm now on Slide #3. At EUR 11.2 billion, order intake reached a new record, 46% above last year. Sales grew by 5.4% on an organic basis and 7.7% on a reported basis. Both EBIT and adjusted net income were up 23%. At 10.8%, EBIT margin gained 140 basis points. This progression is clearly ahead of our full year guidance, which corresponds to a 60 to 90 basis point increase compared to 2021. Free operating cash flow now reached EUR 820 million, almost double last year. It benefited from both the record order intake and the team's increased focus on cash management. In consequence, net debt at the end of June was only slightly higher than at the beginning of the year.

Okay. Thank you, Patrice, and good morning to everyone. I'm now on Slide 4. So starting with our order intake dynamics. As Patrice mentioned, we achieved again a very strong order intake in H1 2022 with already EUR 11.2 billion, up 43% organically and a book-to-bill of 1.36. This record performance is clearly boosted by the jumbo Rafale order from the UAE. However, it is important to highlight that the performance was also very strong on top of that one specific contract. Indeed, we booked no less than 10 large orders in Q2. Two contracts related to space: a new tranche of the CO2M project, which will play an important role in the fight against global warming, and one more Space Inspire telecommunication satellites for the Saudi operator, Arabsat. Also 8 large orders in Defence & Security. On top of the UAE jumbo contract I've just mentioned, we booked 2 contracts with the French Armed Forces, 2 with the Greek Armed Forces, 1 with Australia, 1 with the Middle East country MOD and 1 with an undisclosed customer. Interestingly, small orders below EUR 10 million were up by 11%, thanks to the ongoing recovery in the civil aero aftermarket. And also the strong demand for passport in our biometric business also rebounding post sanitary crisis. The smart cards also continued to be up, mostly thanks to pricing effect. Geographically speaking, the dynamics were strong in Australia, France, U.K. and North America for the mature markets. Obviously, emerging countries were exceptionally strong, driven by the jumbo Rafale orders from the UAE. So overall, another very solid performance in 2022 in regards to order intake, pushing up our consolidated backlog to a new record, EUR 38 billion. So moving on now to Slide 6 (sic) [ Slide 5 ], looking at sales. The currency effect was again positive during Q2 at 2.5% of sales. Over the first half, it added 2.1 points of growth or EUR 157 million. There was no significant scope effect during H1 2022. However, it will be a bit more material during H2 after the consolidation of RUAG simulation and training and once we close on the other acquisitions we announced recently. Turning to organic growth. At 7.8%, the second quarter was clearly an acceleration from the 2.7% in Q1 with different dynamics within our 3 segments. First, our DIS sales remained particularly strong, up double digits for the third quarter in a row. Our Defense & Security sales achieved a solid high single-digit organic growth, catching up after a small negative organic growth in Q1. And then our Aerospace sales were up low single digits, driven by a strong double-digit growth in our civil aero aftermarket business. And I will, of course, come back in greater details on the 3 segments in the next slide. So now moving on to the EBIT bridge. I'm now on Slide 6, looking at the drivers of the change in our EBIT between H1 2021 and H1 2022. Before going into the details of this bridge, let me point out that in the period, we booked 2 one-off items that almost entirely balance each other. On the one hand, and this was recorded in the gross margin, a negative impact coming from the economic and trade sanctions imposed in Russia, which represented EUR 52 million of nonrecurring expenses. On the other hand, the EBIT contribution of Naval Group was boosted by the compensation agreements related to the Australian summer wins. This item represents an income of EUR 50 million. On that note, we expect a reversal of around EUR 10 million during H2 on this Naval Group, positive one-off. Hence, the total positive impact is estimated around EUR 40 million for the full year. In the EBIT bridge, we have put aside this 2 one-off all the way to the right. So what were the other drivers behind the EBIT increase? The mechanical impact, scope, currency and pension represented a positive EUR 17 million, mostly thanks to currency. Excluding the one-off, you can see the quite solid progression of our gross margin, up by EUR 174 million or 80 basis points moving organically from 26.8% to 27.5% of sales. You can also see that our indirect costs have increased. However, less than our sales by 150 basis points, 3.9% versus sales up 5.4%. This was partly driven by H1, H2 phasing effects. So don't expect this performance to extend over the full year. Both restructuring and equity affiliates contributed to strengthen our EBIT, as you can see on the right of the chart. And finally, the one-off offset each other in the periods. So all in all, as you understood, the EBIT margin was a bit ahead of full year plan, thanks to the improvements of gross margin and also the phasing of indirect costs. Now looking briefly at each segment one by one. I'm now on Slide 7 for Aerospace. Orders were down by 18% organically, mostly to high comps. You remember how last year we booked the jumbo order relating to the new generation of Galileo satellites. Now the underlying commercial dynamics remain strong for the Space business with 4 contracts above EUR 100 million, 1 with the European Space Agency and 4 relating to new Space Inspire satellites. Avionic orders were also up versus H1 2021 despite IFC or general equipment still weak, but with a strong dynamic coming from civil aero aftermarkets up at double digits. Sales were up by 2.9% organically. Several factors were behind this logo. First, the loss of sales to Russia was mostly recorded in this segment. Second, both space and microwave tubes were facing high comps. And third, Avionic was a bit contrasted. As expected, civil aftermarket continued to rebound strongly at a double-digit growth, but the original equipment activities were still recovering slowly, in particular on the widebody side. While Avionics should accelerate in H2, we expect that some of this issue, and more broadly, supply chain and recruitment challenges will continue to weigh on growth in the Space business at least for a few months without, of course, changing the midterm outlook. EBIT continued to recover over H1 with EBIT margin up from 3.3% to 4.4%. But it was slowed, but down by the one-off I mentioned earlier. Correcting for this one-off, the EBIT margin would have been around 6.5%, i.e. 3 points higher than last year. Turning now to Slide 8, looking at the Defence & Security segment. Order intake was exceptionally high over H1, thanks to the Rafale orders from the UAE coming into force. However, it's important to note that on top of the jumbo contract, the commercial dynamics was also excellent, with a total of 8 contracts over EUR 100 million versus only 4 during H1 2021. This segment's order book reached EUR 29 billion, a new all-time record, representing nearly 3.4 years of sales. As expected, organic sales growth was up at high single digit in Q2 after a soft Q1, confirming the positive trends across most business lines. Let me stress here that we don't expect an immediate significant positive impact on our sales from the recent European announcements. In Q2, discussions with our customers confirm that we are talking about a midterm impact here, not immediate impacts, and Patrice will come back on the subject during his presentation. The 40 basis points EBIT margin increase was mostly due to H1, H2 phasing of expenses, so please don't assume we can carry it over the full year. Turning now to Slide 9, looking at our last segments, Digital Identity and Security. As you can see from now on, we have decided to stop showing order intake on the slide as they are structurally aligned with sales. At EUR 1.6 billion, our sales were up by an impressive 13.1% organically and almost 20% on a reported basis. The strong Q1 performance extended in Q2 in spite of ongoing supply chain challenges. Cybersecurity continued to deliver robust growth at double digits organically in H1. It is also expected to remain strong over the full year. Biometrics has continued to recover with an ongoing growth in passport demands and even bottlenecks, hence, double-digit organic growth over H1. Please remember that the rebound in biometrics started during Q4 2021. Hence, an organic growth expected to be lower at H2 this year due to higher comps. And finally, the smart card businesses are performing strongly, mostly due to a pricing effect on top of some precautionary buying. EBIT margin benefited from the operating leverage on this robust sales growth. It is very encouraging to see that this business is already almost at the low end of the 2023 EBIT margin target we had set back in 2019 before COVID. It illustrates once again the quality of this asset and the hard work of the team. Turning now to Slide 10, looking at items below the EBIT. First, taxes. As you can see, the effective tax rate is up to a normalized rate, 19.7%, as the 14% in June 2021 resulted from 2 one-off items from U.K. and in particular, Italy. We now expect the effective tax rate to be in the 20% tranche over the full year. Second, adjusted net income from discounting operations. This is, of course, the contribution of Transport, which is stable on an adjusted basis. Finally, minorities are strongly down. You find here the negative one-off impact related to Russia and Thales Alenia Space profitability. All in all, this drove an adjusted net income group share of EUR 726 million and an adjusted EPS of EUR 3.41, strongly up by 23% versus adjusted EPS at H1 2021. Finishing up with 2 slides on cash flow. I'm now on Slide 11 first. As you know, our working capital is usually negative in the first half of the year, mostly due to a strong seasonality. However, during the first 6 months of 2022, our operational free cash flow has reached an exceptional EUR 820 million, coming from a higher EBIT, but also clearly from a much stronger working capital performance. And this working capital performance, you will find the very strong commercial activity and the level of orders booked during the first 6 months with, of course, a significant positive impact resulting from the downpayments associated with the Rafale order from the UAE. You'll also find the result from the ongoing efforts the group places on cash management, like the reduction of overdue balances and also proactive negotiations with both customers and suppliers in order to obtain more favorable payment terms whenever possible. Finally, moving on to Slide 12 with a quick look at the evolution of our net debt position. You will notice here how our capital deployment is gaining momentum with EUR 141 million related to acquisitions, the final dividends of EUR 416 million and also the EUR 127 million corresponding to the first few months of the share buyback program. A final comment on an important long-term liability that is not on this slide, pensions. As you will see in Note 8 of our financial statements, the higher discount rate drives a very material reduction, more than EUR 1 billion in our net pension liability over the first half. And that's the end of this financial review. I'm now turning over the call back to Patrice.

Thank you, Pascal. I'm now on Slide 13, turning to our strategy and outlook. This morning, I wanted to briefly share some perspectives on our market positions and provide an update on the 5 strategic priorities that I presented back in March. First of all -- and I'm now on Slide 14. First of all, the invasion of Ukraine by Russia has been driving major political moves in Europe, such as the decision by Finland and Sweden to join NATO or the EUR 100 billion defense fund that was announced by the German Chancellor. Most European countries have committed to substantially increase their defense expenditures in the coming years. As you can see on the right, this is starting to show in independent forecasts. Janes now expects Europe and defense budgets to grow at 5% per year over a quite long period between now and 2030. However, we need to be all aware that this increase in spending will take several years to materialize. Our 2 largest customers in Europe, France and the U.K., have only recently initiated their own discussions on the topic. In June, the U.K. government talked about targeting 2.5% of GDP by the "end of the decade," which would imply a 6% annual growth over the period. However, nobody knows who will be the next Prime Minister, and this target has not yet been made in Toulouse. Last week, in France, President Macron announced that his government would submit to Parliament a new military programming law covering the period from 2024 to 2030. So here as well, it is too early to confirm the exact budget trajectory. While these new budget dynamics has yet to unfold, let me stress that we are convinced it will drive an extension of our mid-single-digit sales growth outlook over a long period of time, not just for the next 3 years, but for another 5 to 10 years, if not more. This is because we are positioned on faster-growing market segments. As we often stress, electronic equipments, sensors and communication systems are essential enablers for modern armed forces. In addition, thanks to our ongoing commercial successes, our backlog is at its highest ever, EUR 29 billion, for the sole Defense & Security segment. This explains why, as you can see on the bottom of the slide, over the coming 3 years, our growth guidance is at the high end of the forecasted growth by large U.S. and European defense companies. Turning now to Slide 15 to our predominantly civil businesses, Aerospace and DIS, Digital Identity and Security. Starting first with Aerospace. After 2 years that were heavily disrupted by COVID-19, the civil aero industry is only at the beginning of a major rebound in air traffic and aircraft deliveries. I have previously showed the chart on the left. Last year, air traffic represented only 40% of the 2019 level. While the range of uncertainty remains large, IATA now expects traffic to double this year and to further recover strongly until the end at least 2025. Aircraft deliveries have been as well very depressed in the past 2 years. This was particularly striking for wide-body aircraft, which were more than 60% lower last year than in 2019, including 90% for the Boeing 787. Here as well, while the ramp-up will require several years, the room for post-COVID-19 recovery is considerable. Turning to the space side. On top of the long-term growth of institutional space budget, Thales Alenia Space can count on the strength of its backlog, which it further increased in the first half. In consequence, our expectation for this business is unchanged. We see it delivering 5% annual growth, at least until 2024. Moving to DIS, Digital Identity and Security. Well, we've showed previously this sort of chart showing the growth of its TAM, its total addressable markets, with its exposure to data protection, identity and access management or biometrics. Its TAM is set to grow at more than 10% per year over the coming 3 years. On top of these growth platforms, DIS will benefit from the cyclical recovery of passport demand following the COVID-19 crisis. As you understand, altogether, the medium-term prospectives are particularly robust across all our markets. Moving now to our strategic priorities. Slide 16 is just a reminder of the 5 strategic priorities that I presented back in March. Slide 17 shows where we stand on each of these initiatives. First priority, portfolio management. During H1, we progressed well on the disposal of our transport business. The formal agreement with Hitachi was signed in February, and we have now obtained more than half of the required regulatory authorizations. The teams are now working full speed on the carve-outs of the business from the rest of Thales, in particular on the IT side. And we are fully on track to grow this transaction according to the initial calendar, i.e. by the end of 2022 or early 2023. In parallel, we keep on developing revenue synergies between DIS and the rest of the group. In H1 2022, we won 64 revenue synergy projects. Their flagship project is [ sense ]. The JV we are setting up with Google Cloud to offer a so-called trusted cloud solution in France. On a stand-alone basis, neither Thales nor Gemalto would have been able to seize this opportunity worth several hundred million euros of sales in a few years. Second priority, technology leadership. To illustrate the impact of our increased investments in technology, here are 2 remarkable commercial successes we booked this year. On the civil aero side, I'm referring to the selection of our new flight management system by Airbus. We have been developing this connected and cyber secure solution over the past 5 years. At its down selection by Airbus on all its commercial platforms is a major demonstration of our leadership in this domain. On the military side, we are very proud of having been selected by the U.S. Navy to supply sonars for the new Constellation class frigate. Captas-4 is our leading variable-depth towed sonar. For these U.S. ships, the sonars will be built by AAC, the joint venture we had with Leonardo DRS, and that we are taking full control of this year. Third strategic priority, taking our sustainability performance to the next level. First, we have completely stopped the production of smoke shales containing white phosphorus. The last batch was delivered to the French Army at the end of June, fully in line with the commitment we took back in 2019. The end of this same production will allow a few investors to invest in our share. Second, and this was another commitment we took, we have submitted our emission reduction targets to the Science Based Targets initiative, SBTi. We expect to hear back from them in Q4. You remember how we have a constant flow of initiatives to improve operational efficiency, and this is the fourth priority I listed at full year results. At that time, I had talked about some of our key projects, such as the transformation of our engineering function or the development of sales and operating planning, S&OP. This morning, let me zoom on one crucial support function in the current period, talent acquisition. To deliver on growth, we are targeting to hire 11,000 employees in 2022, a 25% increase compared to 2021. To address this recruitment need while gaining efficiency, we decided to reorganize and scale up our talent acquisition function. To achieve this, we are implementing a new global model concentrating the teams on 5 geographical platforms and deploying new IT tools to simplify administrative processes. In parallel, we continue to work hard to adapt our fixed cost structure to the new ship of the group after the disposal of the transport business. Finally, as planned, we have stepped up our capital deployment actions. Since January 2022, we have implemented 4 bolt-on acquisitions: 2 in defense, 2 in cybersecurity. In defense, first, the acquisition of RUAG training and simulation, effective since May, will allow us to create the European leader in the niche segment of simulation and training solutions for armed forces. And second, the acquisition of the 50% that we did not own in AAC, the joint venture I've mentioned earlier, which will help us serve better the U.S. defense market. And I said 2 in cybersecurity. First, a pair of companies that are specialized in cybersecurity consulting and managed services. This transaction will give us scale in this area, moving from 6 to 9 cybersecurity operation centers and increasing the number of experts by 25%. And second, OneWelcome. OneWelcome is a European leader in customer identity and access management, CIAM, and this acquisition will allow us to offer the most comprehensive identity platform on the market. Our base scenario is to close on all these acquisitions by the end of the year, which will represent a capital deployment of slightly more than EUR 400 million. In parallel, as announced in March, we have started implementing the share buyback program. Pascal mentioned the figure earlier over H1, we spent EUR 130 million to carry 15% of the program. Moving now to Slide 18 and discussing our H2 2022 outlook. Starting with the business environment assumptions on the left of the slide. As I demonstrated earlier, and you saw in the results that Pascal presented, market demand is robust across the portfolio. At the same time, challenges are mounting. Global supply chains remain under tension, especially on semiconductors. Inflation is soaring in our main markets as well. At least the weakening of the euro is positive for an exporting company like us. This context leads us to focus on 3 key priorities for the coming months. Number one, addressing the operational bottlenecks that are impairing growth, staffing and supply chain. Second, even if we benefit from some protection against inflation, we are far from being fully immune to it. So we will focus on maximizing the pass-through of inflation to our customers. Finally, of course, we will continue to execute on the 5 strategic priorities I've just described, which brings me to our financial objectives of 2022 considering our H1 performance and the business environment and priorities that I just described. So now I'm on Slide 19. As you understood, considering the strength of our order intake and sales year-to-date, we have decided to upgrade our full year guidance on both KPIs. For sales, considering the material currency impact to expect over the full year close to 2 points, we have decided to guide on organic growth. We now expect an organic growth of 3.5% to 5.5%. On the basis of the July 2022 scope and foreign exchange rates, this corresponds to EUR 17.1 billion to EUR 17.5 billion. We keep unchanged the EBIT margin guidance, 10.8% to 11.1%, which will represent a significant improvement over last year. Let me finish with a quick summary, and I'm now on Slide 20. The portfolio is now refocused on 3 leading businesses with strong growth prospects. As you understood, while we focus on addressing short-term growth bottlenecks, we continue to execute full speed on our strategic levers, investing in R&D, reinforcing our performance culture. We continue to implement both disciplined M&A and cash returns to shareholders. So this concludes our presentation. Many thanks for your attention. And now together with Pascal, we are pleased to take your questions.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from George Zhao with Bernstein.

First, on the recent state of the cyber bolt-on acquisitions. You had noted that these businesses are growing pretty strongly. But what about on profitability? How do they compare versus margins for your existing commercial cyber businesses? And second question, just somewhat related. On capital deployment, would you still stick to the commitment of only looking for deals up to EUR 500 million in enterprise value if the landscape of potential available assets in their cybersecurity space changes from when you first provided this commitment back in March?

Maybe I will take the first one about, I mean, your questions relating to cybersecurity. I mean the growth and profitability, quite valid questions, George. What is very important to consider is on those small-sized acquisitions on one side, I mean, the potential for growth and then what it means in terms of profitability, and in particular, in the leverage aspect that we can account on this type of acquisitions. At this time, we are talking about small-sized companies. And probably OneWelcome that we have just announced is a good example. Quite small-sized companies. But really, I mean, fast-growing business, which means that at this point, profitability is not that much the issue, is not that much a priority of this type of very small-sized business. It's more about, I mean, growing, taking market share. And then in the second step, I would say balancing between the level of investment, in particular in terms of sales and marketing, and the level of profitability. So at this point, it's more to consider that the first priority is to keep those small-sized companies to grow, investing the right level of sales and marketing and R&D also. I mean, in order to fuel, I mean, the product policy and making sure that the technology will continue to be ahead of the competition. In the circumspect, probably in a few years, we'll consider probably arbitrating a bit of investments in order then, I mean, probably to balance between a bit less growth and getting really, I mean, the right level of profitability. So this is basically, I mean, the plan, which means that, of course, I mean, those 2 small-sized companies, that today quite a low level of profitability, and of course, have nothing to do with, I mean, the cybersecurity that we already own at Thales, but of course, which are growing much less than those 2 acquisitions. I mean OneWelcome is probably a good example. It is a business with a level of sales, which is slightly above EUR 10 million, but growing 30%, growing 30%, not 13%, but 30% per year. And our top priority is to keep OneWelcome, to keep growing and even faster than that, benefiting from the overall commercial network of Thales. About capital deployment, maybe I will let Patrice to talk about, I mean, the size of acquisitions. I know what it means.

Perhaps I should just recall to all that our main focus, #1 focus, is really organic growth. I do understand that investors are, of course, interesting about capital allocation. But clearly, the day-to-day business for us is really to deliver our projects. And you have understood that we have a few challenges, if I may say, so delivering our projects and customer satisfaction. So having said so, indeed, we do not exclude, of course, to also, I would say, trigger the M&A level to grow even faster or to increase profitability or both. Our, clearly, priority is really to focus on the 3 main pillars that we have now enhanced, Defence & Security, Aerospace and Space and DIS, excluding -- totally excluding any kind of diversification, number two. Number three, and I'm coming to the size of the acquisition. But to make sure that everyone has the right, I would say, parameters in mind, what are we looking for. I would say 2 things, either to reinforce our technological leadership in some domains related to Defence & Security, Aerospace, Space and DIS, or -- and/or our footprint in a given country because localization is really key in the eyes of most of our customers. Now in terms of size of acquisition, we have tried to answer to the best we could when we were asked this question a while ago. So we gave a figure. It's not a magic figure, but it's clear to give you kind of, I would say, feeling of our main focus. And clearly, our main focus is bolt-on acquisitions. So we said no more EUR 500 million EV. That's a range, that's to give you a figure. And clearly, that's our main focus. Now we remain pragmatic. Of course, if something bigger, I would say, becomes clearly available and which would really make sense for us in terms of price, valuation, synergies and so on and so forth, how could we exclude it by principle? So it's not contradictory with what I said on bolt-on. But at the same time, we are pragmatic guys. Hope it helps, George.

Next question is from Ben Heelan with Bank of America.

So the first question I had was on the comments you made, Patrice, around the midterm outlook. You highlighted kind of that mid-single digit is the right level of growth that we should be thinking about, but the time period has been extended, the visibility has been extended. Is there a chance we could go through a period where that mid-single digit is actually going to be higher than mid-single digit for a couple of years as these budgets start coming through, I'm thinking '24, '25? So obviously, you've given us some color around the extension of visibility. How do we think about the potential for that mid-single digit to be higher for a period of time? That would be the first one. And then the second one, you mentioned you're not totally immune from inflation. You're focused on passing through as much as you can. Could you give us maybe a bit more color around that, how should we think about the businesses that are exposed to inflation and more at risk than others? And then, obviously, from an energy cost perspective, huge amount of inflation. Could you talk about your ability to pass that on and also your exposure to gas, right, and whether you have significant gas exposure and whether you see any risks there?

Thank you, Ben. Perhaps I will take the first one, and we'll let the second one for Pascal, so we share the answer. In terms of growth, and I think that your question is related to defense when I said that the new geopolitical context gives us much better visibility or much longer visibility, it's a strong conviction that clearly, defense has enter or reenter, in particular for Europe, into a long period of steady growth in defense investment. Honestly, I think mid-single digit is the best or good, best proxy that we can take in terms of growth looking forward. Now if we can do better -- or if the market, sorry, does better, I would be very pleased to observe that the market will grow faster than that. But for the moment, I think this mid-single digit is probably the best proxy for everybody. Now our growth is, of course, the combination of the market growth and our own performance, and I'm referring to the quality of our portfolio. I am convinced that we are in the right sweet spot, if I may say, in terms of solutions, products or services really to grab the full potential of this growth in the past, and it's not contradictory to what I said. But in the past, we have regularly overperformed the market, the growth of the defense market. Clearly, that's our ambition to continue to overperform, thanks to the quality of our portfolio. Now we will see, of course. But globally speaking, putting all these factors together, which is very positive for the Defense & Security business of Thales. Pascal, on the second.

Yes. I mean, Ben, your second question was about, I mean, first, inflation and what does it mean for us to be able to transfer higher input costs to our clients. I probably need to go a bit more in detail in our 3 segments. Of course, as you can imagine, I mean, we have a number of contracts with different type of contracts. So I will make it as simple as possible for you. So let's start with the overall, I mean, defense, as you know, our largest business. So in defense, in most cases, I mean, we benefit from a specific variation of price escalation mechanism in our contract, which takes into account, I mean, inflation in salaries or inflation in materials. So this is how it works. And here, I mean, the majority of our contract and they take the benefit from this type of probably something like 75%, 80% of our contract benefit from this variation of price close. Second is if I take now more civil businesses. Here, it might vary across our 2 segments. Starting with DIS -- in DIS, and I guess, what happened in H1 is probably the best demonstration of what it means to be able to transfer high input costs to our clients even though we don't benefit from contractual clauses on this matter. I mean, the balance between offer and demand is such that basically, I mean, we can really exercise pricing power on this matter. And even when you look at the DIS figures in H1, probably some kind of expansion of margin as, of course, I mean, we don't increase below gross margin costs at the same rate as we increase our level of sales. So we benefit from some kind of leverage effect in terms of EBIT margin, in terms of percentage. So here, I mean, well, a very good level of protections. Where, I mean, we are more exposed is in our Aerospace business, starting with our Space business. Here, I mean, in most cases, not in all cases, but in most cases, we don't benefit from this type of mechanism. So this is where we need to come back to our clients and to negotiate with them and in some kind of increase in prices to reflect higher input cost. Avionics is a bit different with some kind of protections. It's more about, however, I mean, the enforceability of this clause, which will go through in some kind of negotiations with some of our clients. So this is the overall, I mean, picture. As you see on our H1 figures, I mean, an overall, our level of EBIT margin shows that we are able to manage this type of situations. Your question about energy and gas. Probably gas, your question was more about what does it mean if we wouldn't get the right level of supply in particular in Europe. So first, I mean, what we consume in term of gas is quite minimal. There are only one site where, I mean, we use quite a large amount of gas. It is located in Australia. So I don't expect that the -- and it's not supplied from Russia. So I mean no specific issue on this matter. Overall, I mean, by the way, on top of getting the right level of supply, your question was probably also about inflation. It's true that we have seen, I mean, the cost of energy is going through the roof. Now what is good at Thales is that overall, out of the overall EUR 8 billion of materials that we buy from material services, whatever we buy from our supply chain, overall, we buy EUR 100 million of energy. So you see EUR 100 million of energy as compared to overall EUR 8 billion of supply. It is unsignificant. So even though, of course, we had to face with price of energies going through the roof overall because we consume just a small amount of overall energy, which basically is used, I mean, to heat our buildings, I mean, the impact on the bottom line overall for Thales is insignificant.

The next question comes from the line of Andrew Humphrey with Morgan Stanley.

I've got just a couple. Clearly, there was a very strong cash performance in the quarter. We obviously knew about the UAE order. But even allowing for the prepayment associated with that, it seems like a much stronger cash performance. Can you talk about the level of prepayments associated with orders that maybe kind of weren't in expectations until fairly late in the quarter and whether there were significant prepayments attached to those? And my second question is I wanted to ask if you have a perspective on the current state of FCAS in the light of developments in future fighter jet programs over the last week or so. Clearly, FCAS remains somewhat stalled. There's a discussion about project leads. I'd be very interested in your perspective on it.

Okay. So I will take maybe the first question and let Patrice to answer the second one about cash flow. Sorry for that, but I will not detail, I mean, the level of down payment that we got from our UAE Rafale contract. This is, of course, sensitive information. Of course, I mean, this level is quite significant. I mean, it's also important to consider that we got down payment not just on this specific large-sized jumbo export contract. But as you have seen, our overall level of order intake in H1 was quite strong. And of course, in general, the more we get order intake, the more in general we can get downpayment. So overall, I mean, all of that was pretty positive. Maybe probably a good opportunity for me to discuss probably a bit more about what does it mean for, I mean, the full year 2022 level of cash flow generation. First, I guess it's important for you guys to realize that we have worked in such a way that as opposed to what was the case at Thales in the past, getting a more balanced level of cash flow between H1. And actually, it's something that we are looking for, and this is basically what we got in the last 2 years. And we'll strive to make sure that this will continue in the next few years. So a bit more balance between the 2 semesters. Second point, I mean, our run rate in H1 for me gives confidence about our full year guidance, which is 100% conversions ratio from net income, net adjusted income to free cash flow generation. And I can really confirm that, I mean, this is what we'll get in 2022. Overall, I mean, if I look at the overall level of consensus and net adjusted income, something around EUR 1.5 billion. So confirming a level of cash flow generation at this level, I'm quite confident with that. I've seen that, I mean, the cash flow generation consensus is slightly above this level. I think it's around EUR 1.6 billion and I'm also quite confident with this level, of course. More importantly, also, I mean, probably a good opportunity to confirm that when it comes to 2023, where we have also mentioned a few months ago as we released our 2021 figures, that we are contemplating also a level of conversions ratio in 2023, 100%. I can also confirm that this is still our view today for 2023. So really, I mean, to make a long story short, H1, a good level of cash flow, good balance between H1 and H2. Happy and in line with the overall guidance, comfortable with current level of consensus and confirming that 2023 should continue to show that Thales will continue to generate a very strong level of cash flow, which, in my view, also probably a good illustration of the quality of our earnings. Patrice, maybe on second point.

Yes. So on FCAS, as you know, there are several pillars involved in this system of project. We are involved as main partners in 2 of them, Combat Cloud with Airbus being the leader, in the leading seat or in the leading position. And the pillar named sensors, where Indra is in the leading seat and we are as well a main partner, so-called main partner for this second pillar. Now the -- and we have an agreement among us on those 2 pillars. As you know, the one which is still under discussion is the pillar named NGF. And clearly, I'm not going to comment because I'm not the better place to comment it. So you should raise the question to Dassault and Airbus, the 2, we say, the 2 guys, I would say, involved in this pillar, and let them give their view on this one.

The next question comes from the line of Chloe Lemarie with Jefferies.

I have first one on DIS, actually, on the midterm potential. You mentioned the total addressable market would grow at least 10% by 2025. And also, you would benefit from revenue synergies. So what should we take as the right target for DIS in terms of growth by that time frame? And within that, what would be the revenue synergy potential that you expect? And then I have actually a clarification on the free cash flow. If I recall well, at the end of 2021, you had EUR 400 million of timing benefits within your free cash flow. Could you tell us how much of these have reversed in H1 and what we could expect for H2?

Chloe, maybe I will start with the first question. Yes. I mean, of course, we've got the reversal of this EUR 400 million in H1. Now what would I think to H2 it's, at this point, quite a bit difficult. Of course, to anticipate, I mean, a bit difficult. I mean, first, to assess today, I mean, the cutoff between the very end of December and what might be paid in January 2023. So cutoff is always a bit difficult to anticipate. Second point, it's true that -- and we were quite clear that we took advantage in December last year of advanced payments from some of our clients, including some large prime contractors. At this point, of course, a bit difficult for me to anticipate in what might come in on some customers deciding not to pay in advance in the very last days of December this year. About DIS...

Yes. Chloe, you are referring to Slide 15, yes, where we showed, in fact, the potential of the market. So take it as an illustration of the potential of the market, this so-called 10%. By the way, it's a mix of different, I would say, market segments. So it's an aggregate of, I would say, several underlying growth depending on do we speak of EMV card, do we speak of data protection, data management or whatsoever. Clearly, our commitment, if you remember well, on DIS is to grow at mid-single digit and mid-single digit in the medium term. This is still the best assumption that you can take. Probably it's too early to upgrade it or to modify it. So we will see. Now the fact that in 2022, for instance, we are able to or confident to be in the range of high single digits, showed that this potential is not, I would say, theoretical. So still, if we keep the guidance for the midterm, it gives you -- should give you confidence looking at the potential of the market and looking also at what we can achieve in a given year such as 2022. Now in terms of synergies, we said a while ago that we would reach between EUR 300 million to EUR 500 million of synergies by 2023, if I remember well. So it's coming soon. Now we are on track, looking at 2022 and what we should achieve by the end of the year, fully on track to post this level of synergies by next year.

Maybe 2 points as additional comments, if you allow, Patrice. I mean, first, Chloe, you've seen it. I mean, on the first part of the question about, I mean, the mid-single-digit top line growth that we expect in the overall DIS business, we need also to consider, I mean, the balance between more mature businesses like the smart card businesses and the most fast-growing businesses, and in particular, I mean, our cybersecurity business and also our biometric business will be, of course, I mean, booster in terms of growth as compared to more mature smart card businesses, and which, of course, I mean, the growth will be much more limited. Maybe a second point on the synergies. You probably have in mind that we mentioned that a significant part of the synergies goes in other businesses, in particular, on Defence & Security business, in particular, in our secure and communication systems businesses. So which means that when looking at the overall synergies, I mean, we need to consider on one side the growth of DIS, plus also the growth in other businesses, in particular at our Defence & Security business.

The next question comes from the line of Milene Kerner with Barclays.

I have one on indirect cost. Can you help us understand the sequential bridge for the R&D, the marketing expense and the restructuring cost that is implied by your guidance? What kind of scale of those costs will be in the second half of the year compared to H1?

Good to hear you again, Milene. So yes, it's true that we had some phasing effects in terms of below gross margin costs. And it is a case in particular on self-funded R&D, but also on sales and marketing. So here, we're talking about a few tens of million euro. I'm not talking about figures that are quite large with maybe, I mean, 2 underlying point that you need to have in mind. First, and this is in particular the case in R&D. I mean, it's true that the challenge that we face in terms of equipment has also an impact on the overall level of R&D. And you have understood overall that we are scaling up our talent acquisitions of all organizations. So this, of course, will have a positive impact in our ability to get more people and more engineers that will support our overall self-funded R&D program. A second point, this time, probably more on G&A and sales marketing. I guess it's quite obvious for everybody that we are also operating in a global context, which is a bit shaky. And of course, I mean here and there, I mean, we have put in place some kind of savings as compared to our initial trajectory. And we'll see, of course, in H2, as we release, I mean, some constraints in terms of committing resources on those 2 matters. So overall, I mean, it's not that last a few tens of million euros within particular in R&D recruitment challenges and also a bit some kind of precautions of overall, yes, being a bit cautious considering, I mean, some challenges and uncertainties that we keep facing today, in particular, when it comes to our supply chain challenges and also inflation.

The next question is from Christophe Menard with Deutsche Bank.

I had actually 3 left. The first one was on -- coming back on the working cap. The cash program was actually very -- also very efficient in H1. You mentioned that you were negotiating proactive -- I mean, proactively negotiating payment terms with, I mean, with your, I would say, probably clients and suppliers. Do you think it's still possible to do further improvements on that cash program considering inflation and the cost pressure? So it's just more about the potential of cash, that cash program going on. The second question is around the economy of war, as depicted by President Macron. I just -- I was wondering, it's another question, but what does it mean for you? I mean you talked about also making things more -- probably more cost effective. I mean does it mean there is a trade-off between sales growth and margin? And the final question is on microwave. It's I think -- correct me if I'm wrong, but it's the second quarter where we have microwave a bit weak, apparently. Is there a plan? Or is it a transitory period? Because usually, that has always been seen as a very stable, solid business. So just wondering what's happening.

Okay, Christophe. So I will start on cash. Of course, there's always ways to do better. Now I mean, my view is that when it comes to accounts receivable and accounts payable, it's probably a bit difficult now to consider that still -- there's still a significant additional improvement and obvious additional improvement that we could get in the next few quarters. Where I think that we've got still today, I mean, opportunities to do better is overall -- in the overall management of our stocks. And maybe I've commented on previous calls that we have launched, I mean, last year, across the board, I mean, initiative on S&OP, sales and operations planning, where we intend to have a much better integrated way of working from, I mean, sales forecasts, management of demand, our production planning and supply chains are orders and commitments and working in a more integrated way, which by the way we see in other sectors is probably, I mean, where we can do better overall at Thales. And I think that it is very important that we keep working on this matter because at the same time, it's true that we feel the need, I mean, to be here and there, some, I would say, safety stocks, I mean, to handle what we see in terms of challenges on supply chain with what we commented about shortage and specific components, in particular electronic components. So we know that probably in the next few quarters, we'll need to invest probably a bit of working capital in additional stocks on some critical components in order, I mean, to build probably a bit more safety stocks. And to compensate for that, we need to keep working on this overall S&OP program, where we see, I mean, quite significant opportunities for us to keep doing better. Economy of war?

I can say a few words on this economy of war. First of all, President Macron confirmed the plus EUR 3 billion of additional investments for next year for 2023. So this is the first, I would say, positive announcement for the industry, and of course, for Thales, number one. Number two, he also announced this LPM, a programming law, on a period of time which were under debate, by the way, before its announcement. So clearly, it shows a long period of time, 2024-2023 -- 2030, sorry. He could have chosen another, I would say, time frame, a shorter time frame, but he did choose the longest one, 2024 to 2030. So this is a second, I would say, very positive and tangible, I would say, sign or message that was conveyed during his speech on the day before the 14th of July. So this is, I would say, clear signs of robust upward continuous trajectory in terms of defense investment in France. So for me, all of this is very positive. Now it is quite, I would say, classical as a customer, by the way, that we ask for a competitive solutions product. So it's not a surprise. I'm not expecting any customer to say that we are not, I would say -- that we are too -- that we should be more extensive. And when I look, I would say, at all the competition on the internal market,where Thales clearly, with all these orders, it's real competition, thanks to the quality of our portfolio, as I said, and thanks to the competitiveness as well of our portfolio. All of this makes us very confident to largely benefit from this very positive trend on the long run. The third one, [indiscernible], Pascal?

Yes. Your third question is about microwave. No specific concern. I mean, maybe, I mean, for everybody, you need to have in mind that this is a EUR 500 million sales business on various -- serving various industries, in particular, in the Space business. It's true that last year, I mean, we benefit from quite large space order, which generated in 2021 quite large level of revenues and -- which is less the case in 2022. So no specific concern. Now having said that, it's not a strong growing business. It's more, I mean, some kind of pretty stable type of business overall. So no specific concern. And it's more, I mean, the -- I mean the 2021 high comps that shows this apparent level of [indiscernible] that was reported in H1 2022.

The next question is from Tristan Sanson with BNP.

Just 3 quick ones, a bit technical also for that. But the first one is on FX. So I saw you already mark-to-market your guidance for the current spot. So probably 2% to 3% of currency tailwind to revenues. At the EBIT level, can you remind us a few elements on your currency sensitivity, especially if we focus on the euro dollar, what is today your net transaction exposure, what is your hedge rate for 2022? And what is the shape of your hedge book for the years to come? So basically, when we -- are we going to start to really see the benefit from the recent appreciation of the dollar versus the euro? The second question is a quick follow-up on the inflationary pressures. I guess for you, the topic is more a topic of labor cost than anything given your specific cost structure compared to peers more exposed to labor, also that's your business model. What is today -- what are today the terms of the debate that you have with unions on cost inflation? Do you have reached a good level of consensus about what we are for 2022, '23? Or are there significant requests for further salary increases as we can see at some of your competitors? Some color here would be interesting. And the last one is a quick one. I just wanted to know where we stand today on the Telesat jumbo constellation program.

Okay. So maybe I will start with the technical question about ForEx. I guess your question was more about the transactional exposure overall of Thales. Overall, I mean, a level of transactional exposure, net transactional exposure between EUR 600 million and EUR 650 million, which is almost equally split between our Aerospace, and in particular, Avionic business and our DIS business. Of course, as you know, I mean, our policy is to hedge our positions a few years in advance. So overall, of course, I mean, the bulk of our exposure is covered in 2022. Overall, the weight in which we hedge our exposure for 2022 is 1.13. Also, I mean, the bulk of our 2023 exposure is already hedged at around 1.08. Now when it comes to 2024, at this point, I mean, we are a bit less than half of our exposure, which is hedged today at a level which is also in line with our 2023 average weight and 2025 with just a very small proportion of our 2025 exposure, which is hedged today. Which means that, of course, I mean, we will continue, I mean, to progressively hedge, in particular, in 2024. And of course, I mean, in the next few months, we'll keep increasing our 2025 exposure. On inflation?

I can start. Inflation perhaps first -- by the way, first, it's a good question because, clearly, our -- the proportion of the -- of our internal salary in our internal cost is significant, which is very legitimate and valid question. One additional remark is the fact that half of our staff is in France. And as France for the moment, has chosen to compensate on a nationwide basis, I mean, part of the inflation related to energy. Structurally, the inflation in France is, let's say, 2 -- a bit more, 2 to 3 points below other -- compared to other countries, other European countries. So it gives -- in a way, it gives France a kind of a competitive advantage, if I may say, compared to other countries. And this is important for us as we have 50% of our staff in France. Now of course, we will have this, as usual, your early discussions on, I would say, salary increase with this, I would say, inflation, I would say, environment or landscape. Now I -- what I observed, by the way, it's -- we have always had, and it is the case currently, I would say, mature and good quality discussions with our unions everywhere in France, but not only in France. Good discussion, good quality discussion and quite responsible discussions. We all understand that there is a balance to be found between how we say recognizing efforts or inflation or the economic, I would say, macro environment. And the fact that on the long run, there is also the question of the competitiveness of the group. So altogether, I'm sure we'll find the right balance with our unions in all the countries in which we operate. It will be probably a mix between, of course, salary increase, but as well bonus in France, [Foreign Language] extra hours untaxed or free of tax. This is under discussion in the House of Parliament in France and so on and so forth. Now at the end of the day, and that was the point of Pascal earlier, the ultimate, I would say, goal is clearly to pass through this -- all this cost increase into our price or in terms of price increase. And this is, I would say, the remedy or the solution to this, I would say, new situation. That was the case, by the way, 15 or 20 years ago, or even before, where we are used to operate under an inflationary economic environment. So we need to adapt our own, I would say, software to this new environment. But we used to run 20 years ago. And on this last point, I think Pascal has been very clear how can we pass through this cost increase depending on the type of customer, depending on the business model and so on and so forth. Telesat, Pascal?

Yes. Maybe before talking about Telesat, Tristan, just to complement my answer about, I mean, ForEx. I mean, what I share with you is, I mean, this overall mechanical transactional exposure. Now of course, this is good for Thales overall, I mean, to operate in a global environment where, I mean, the U.S. dollar is stronger. Overall, this is positive because, of course, on top of this mechanical transactional exposure, it is also the question about the overall level of competitiveness. And it's true that when we face, in particular, U.S. competitors in some of our markets, in particular, abroad in some countries like, I don't know, Asia, the Middle East. Of course, I mean, we take advantage from, I would say, a better overall cost competitiveness even though, of course, I mean, cost is not the only part of the equation when it comes to selling in this type of countries. But overall, this is quite positive. On Telesat, I mean, of course, I mean, it's, of course, a bit difficult for us, I mean, to discuss about this opportunity as -- I mean -- it's, of course, I mean, the responsibility of Telesat to indicate where they stand in this matter. What I can share with you, however, is that we keep working very hard with Telesat on this constellation project. We think that was made quite good progress. Of course, as you can imagine, an inflationary environment, I mean, requires a bit of adjustments, of course, in particular, in the way we as a supplier need to be protected on this type of exposure. So of course, we had discussions with our clients about how to protect Thales in this inflationary environment, also making sure that the component, the electronic components is also well under control. This is what we have done in the last few months, and now it's more about Telesat coming back to the market and explaining where they stand in terms of putting together the overall, I would say, funding package, which, of course, will be absolutely critical, I mean, to strike a project on which we keep being quite excited. So a bit difficult for me, I mean, to tell you, Tristan, when this could materialize in terms of order intake. At this point, on our side, I tend to believe that we have done everything that we had to do from a supplier standpoint, and in particular, on the 2 aspects that I've just mentioned. Now it's really up to Telesat, I mean, to finalize the overall funding so that we can launch the project.

And you remember, Tristan, this is not factored in our 5% yearly growth rate until 2024. So this is a pure opportunity, which would come on top or in addition to what we have already shared with you.

Telesat seems to be quite optimistic about Vietnam closing. So hopefully, we'll talk about it again on Q3 sales growth. We'll see.

The next question comes from the line of Yan Derocles with ODDO BHF.

So just 2 left. The first one on IFEC. Orders are still quite weak. So how are you thinking about the outlook there? When does IFEC will return to growth? And as the COVID crises change, I would say, the strategic vision or ambition you had for this activity. And the last one is on, I would say, on strategy. A few days ago, Alessandro Profumo, the Leonardo CEO, said in an interview that he wanted to create a kind of European competence center for electronics and the [indiscernible] added that he was not close to new partners and that an alliance may also include the stake in that also. What's your take on this comment?

Should I start with the first one or the second one?

I can take the second one.

Honestly, I was not aware of Alessandro's, I would say, interview or statement. If any type of initiative, I would say, materialize, so far, we have had no discussion with Leonardo on this particular topic. By the way, I'm not sure I clearly understand what it means. So sorry not to be more precise. We'll investigate. But looking at Thales, honestly, and it's not, I will say, a sign of being, I would say, too confident, but I'm not sure we need any kind of European electronic competence center to be stronger in Europe or elsewhere. I mean we have everything on hand to, I would say, develop our own product solution or whatsoever and to win many, many competitions on the internal market, as I said earlier, when we discussed the defense growth and defense markets. So sorry, Yan, we will investigate what Alessandro has in mind, I would say, more clearly. I expect nothing specific.

No, I mean, maybe, Yan, we have seen, I mean, some questions on IFE about, I mean, single-aisle new aircraft, in particular, this famous A321, in particular, the A321 XLR taking a stake in the overall long-haul type of flights. And whether or not, I mean, this type of aircraft will be equipped with IFE, and the answer is yes. I mean, today, it's true that our IFE business is essentially widebody, I mean, type of business. Because today, widebody means a long-haul flight. If tomorrow, we see more single aisle taking market share on long-haul flights, of course, I mean, those aircraft will be equipped with IFEC. By the way, this is the case on large SaaS contracts that we booked with American Airlines, which orders, I mean, A321 XLR. So it's probably a good demonstration that this potential move in the market about single aisle taking market share on the long-haul flights. This will not impact our IFE. Now it's also to recognize that at this point today, IFE is still quite soft. We start seeing probably more request for proposal today. By the way, we signed a few days ago a large-sized project with Middle East Airlines. So this is positive. But of course, it is taking time as we see airlines starting to emerge considering now, I mean, new [indiscernible] as they are emerging from the crisis. Of course, all of that will have to be confirmed in the next few months. Maybe last question from David Perry, if I understand well.

Yes. The next question is from David Perry with JPMorgan.

Yes. So 2. The first one is the pension. You mentioned the deficits dropped because of the higher discount rates. I just wonder how you thought about that in your capital allocation. I mean there may be a great window of opportunity here to remove the overhang of the pension deficit, the EUR 100 million a year you have to put in to fund the U.K. So I just wondered whether you had any plans to capitalize on that. The second question is something I wouldn't normally ask about, but I'm a bit confused by Naval Group. Is if I take out -- if I ignore the EUR 50 million, the exceptional, the sales are very, very strong, but there doesn't look like any progress on the margin. Can you just tell us how we think about the underlying Naval Group performance and maybe how that's going to evolve going forward?

Okay. On pension, the first one that I get the questions on the call about pension, which is good. So what does it mean? I mean, how we should be thinking about capital allocation. By the way, I would be pleased, I mean, to get input from investors on this front. Now I mean, one thing is capital allocation. Another thing is also, I mean, to consider hedging a part of our exposure and to go maybe a bit further in terms of hedging. For instance, I mean, interest rates are potentially also, I mean, long-term inflation, which remains quite low today. So I think that what is happening today in the market with, at this point, increase in interest rates, at the same time, still long-term inflation. Where we're thinking about is increasing overall our level of hedges based on the current situations. The second question?

Naval Group.

Oh, yes, Naval Group. So no, I mean, overall, Naval Group is doing pretty well. One thing is this, I mean, overall one-off element coming from the signature of this deed of settlement with the Australian government. And now if you put this aside, I mean, the level of margin at Naval Group overall in terms of EBIT, if I take 2022, should be around 7%. This is overall, I mean, what I have in mind. So I don't have the exact figures end of June. But overall, a level of EBIT margin for Naval Group at [ one 7% ] or 7%-plus is what we can expect for the full year 2022.

So just to clarify, the 7% margin without the August payment?

Without the -- I mean, the net effect of the August, I mean, settlement agreement. No, maybe there's a bit of confusion between the amount of cash that Naval Group got from the Australian government and the net bottom line effect this represents in terms of EBIT as, of course, against what they've got in terms of cash, you've got, of course, I mean, cost and you need to consider, I mean, the net effect.

Okay. I think this was the last question, Bertrand. Indeed, okay. So just thank you. Thank you all of you. Just a few words of conclusion. So our H1 2022 financial performance was really strong, as you can -- as you have seen. And we've made good progress on all our strategic priorities and the 5 ones that we have shared with you. It's also for me always an occasion to reiterate my thanks to the team, to the 80,000, say, people of Thales for their mobilization to serve our customers. And lastly, of course, you can count on us to remain focused on the execution of our profitable growth strategy going forward. And with Pascal, we are looking forward to see you or meeting you soon in the upcoming investor road shows or conferences. So have a good summer, and looking forward to meeting you very soon. Goodbye.

Thank you very much. Bye-bye.

Ladies and gentlemen, if you didn't have a chance to ask your question on today's call, please don't hesitate to send your question to Thales Group Investor Relations at [email protected], and we will get back to you as soon as possible. Thank you for your participation. You may now disconnect.