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

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Thales Q3 2025 Results Call. The presentation will be held by Pascal Bouchiat, Thales' CFO. It will be followed by a question-and-answer session. [Operator Instructions]. I must advise you that today's conference is being recorded. I would now like to hand the conference over to Ms. Alexandra Boucheron, VP, Head of Investor Relations. Please go ahead, Madam.

Good morning. Welcome and thank you for joining us for the presentation of Thales' 9 months 2025 order intake and sales. I am Alexandra Boucheron, Head of Investor Relations at Thales. And with me today is Pascal Bouchiat, Thales' Chief Financial Officer. 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 would like to turn over the call to Pascal Bouchiat.

Thank you, Alexandra. Good morning, everyone. So let me start with Q3 2025 highlights. I'm now on Slide 2. Thales continued to record over the third quarter a strong commercial momentum in most of its businesses. The level of demand for our solutions continues to be high, notably in Defence, where our backlog benefits from stronger European collaboration, in particular in the framework of the Readiness 2030 strategic defence initiative. Thales indeed booked in the third quarter, several large contracts with European countries, notably in air defence. I will come back to those later in the presentation. Air defence, as you know, is a critical need today in a number of countries. In that context, Thales is proud to have recorded a first export success for the SAMP/T NG that was selected by Denmark in September. This comes as a major turning point for the SAMP/T NG and paves the way for further successes. Space also saw some good news this quarter. Thales indeed signed a first contract with SpaceRISE, the consortium of satellite operators. This contract relates to a first sizable engineering development phase for the IRIS Square Constellation. Although discussions are still ongoing with the open commissions and SpaceRISE, this is an encouraging sign that the project is progressively taking shape. Finally, Thales keeps being at the forefront of innovation in its businesses. This is particularly true on the quantum revolution in which Thales researchers are playing a central role. To that end, we launched in September, the very first quantum-resistant smart card in Europe to receive high-level security certification from French Cybersecurity Agency, ANSSI, on industrial standards. This underscores Thales' commitments to staying ahead of emerging cyber risks in the quantum era. Moving on to 9 months and Q3 2025 key figures on Slide 3. Order intake amounted to EUR 16.8 billion at end September '25, up 9% organically year-on-year. This performance was driven by continued strong commercial momentum in the third quarter, which saw a 30% -- 37% organic growth, and the booking of several large contracts that I will comment on the next slide. Sales came to EUR 15.3 billion over 9 months, up 9.1% in organic terms. Q3 alone recorded a sharp 11.2% organic growth. This puts us right on track to deliver our 2025 annual targets. Moving on to Slide 4, commenting order intake. As mentioned earlier, commercial momentum keeps being strong for Thales, driven by the continued success of our product and solutions with our clients. As you can see on the graph on the right-hand side, all types of orders contributed to this robust performance. A few comments on large orders first, which continue to fuel the backlog. 14 large orders have been booked so far this year, of which 4 new orders came in Q3. Nine large orders were booked in Defence over 9 months, including two with a unit value in excess of EUR 1 billion, namely the order of 26 Rafale by Indian Navy and the contract with the U.K. MOD for the delivery of 5,000 LMM missiles. Also five large orders were booked in Aerospace, of which four in Space and one in Avionics. It's worth mentioning that orders between EUR 10 million and EUR 100 million recorded a remarkable 18% growth, while orders below EUR 10 million were continuously solid as well. Moving on to sales on Slide 5. A few words first on scope and currency impacts. Over 9 months, the scope impact amounted to EUR 90 million, mainly coming from Cobham AeroComms acquisitions closed in April 2024. Currency impact was negative at minus EUR 164 million over the period, including minus EUR 91 million in Q3 alone. All in all, this negative impact led to a 1 point headwind on sales reported growth. Sales organic growth reached a solid 9.1% over 9 months. This performance is a result of strong sales momentum in Aerospace, mostly driven by Avionics and continued double-digit growth in Defence. In Cyber & Digital, sales were slightly down organically over the period, reflecting different trends I will comment later. Both mature and emerging markets contributed to this robust sales growth with a noticeable 14.5% organic growth in emerging markets. Now moving on to performance by segment, starting with Aerospace on Slide 6. Orders in the Aerospace segment amounted to EUR 3.9 billion, up 7% in organic terms. This performance reflects solid underlying demand in Avionics, fueled by the continued success of Thales solutions. In Space, order intake was up with four large orders booked since the beginning of the year, of which three in telco, including the contract related to IRIS Square and also one in exploration. Sales reached EUR 4.1 billion over the first 9 months of 2025, representing an increase of 6.9% organically year-on-year. This sustained growth momentum was notably driven by Avionics, which recorded continuous robust organic growth over the period in both civil and military domains. All sub activities were supportive of this performance. In Space, sales were up year-on-year, in line with our annual expectation for this business. Now commenting Defence performance, I'm on Slide 7. Order intake in the segment amounted to EUR 9.9 billion over 9 months, a 12% increase in organic terms. Q3 was especially strong. However, we know that quarterly order intake can be bumpy. In the current supportive context, nine large orders have been booked since the beginning of the year. Three were booked in Q3, including two air defence contracts with the U.K. and Germany for a combined amount of EUR 1.9 billion. These significant commercial successes illustrate that Thales, leveraging its comprehensive portfolio of innovative products and solutions, is ideally positioned to benefit from the ongoing stronger European collaborations in defence. The perspectives remain solid in the coming quarters and years as countries are progressively increasing their defence spending and benefiting from further support from Europe as part of the Readiness 2030 initiative. Sales were up sharply year-on-year, up 14% organically to EUR 8.2 billion. All our defence activities contributed to this robust performance with continued strong growth. This puts us right on track to deliver high single-digit organic growth for the full year 2025 in defence. As a reminder, we expect a lower Q4 on the back of the high comparison basis from last year, which saw Q4 '24 record 24% organic growth. Now looking at the Cyber & Digital, I'm now on Slide 8. Sales in the Cyber & Digital segment amounted to EUR 2.8 billion over 9 months, slightly down organically at minus 1.3%. In Cyber, sales were down year-on-year over 9 months. In Cyber Products, the business was not yet back to normal in the third quarter. The first half of this year saw the final step of Imperva's integrations with the merger of Thales and Imperva sales force. This, as you know, created some disturbances on the business. Those disturbances continue to weigh on the performance in the third quarter. We are continuously focusing all our efforts to get back to growth in an overall supportive cyber market. Cyber Premium Services sales were down year-on-year. The business kept being soft in Australia, where it has a significant footprint. The ongoing execution of our premiumization strategy aimed notably at focusing our sales strategy on selective profitable growth segments. And this is, however, showing encouraging signs. Moving to Digital Identity, [ gross ] sales were up slightly over 9 months. In Payment Services, digital banking solution showed outstanding growth over 9 months, which was, however, muted by still low volumes on physical cards. We indeed see some areas of the business still impacted by customers' destocking. Secure Connectivity solutions sales recorded sustained growth over the period, mostly driven by the strong momentum of digital solutions, included eSIM and on-demand connectivity platforms. So concluding with our financial objective for 2025, I'm now on Slide 9. The continued strong momentum for both order intake and sales in Q3 2025 and the strong perspective ahead of us make us fully confident to achieve the target set for the year. Accordingly, we fully confirm our 2025 objectives. Book-to-bill ratio will be above 1. Sales are expected to grow organically between 6% and 7%, corresponding to a range of EUR 21.8 billion to EUR 22 billion. And the adjusted EBIT margin is expected between 12.2% and 12.4%. Many thanks for your attention, and I will now be pleased to answer your questions.

[Operator Instructions] And the first question come from the line of Olivier Brochet from Rothschild & Co.

Pascal, I would have three quick ones, if I may, please. The first one is on Defence and a small part of the business for you, I suppose, which are drones. Could you give us a sense of how large a business it is for you today? The second question is related to that one. You announced the joint venture with Destinus a few weeks ago. Can you share a bit more on what you will be doing in this area? And the third one is on the F126 in Germany. If they change the prime contractor for that contract, what are the consequences for Thales, please?

Okay. Olivier, so starting with your first question about drones. I mean it's at this point, quite a small business overall for Thales, but clearly, an opportunity for us to get growth. Maybe it's worth that I remind how we are positioned and what we want to do on this market. By the way, I guess that when you discuss about drones, I understand that it might be more unmanned air vehicles, what we call UAV. Knowing that we also see the emergence of drones, for example, undersea -- underwater system, where we also work on drones, by the way, with Naval Group. But at this point, the market is probably more driven by unmanned air vehicles. When we discuss about drones or UAV, we can discuss about platforms that are used for different purposes, but we can also discuss about what we call loitering munition, which, as you know, is these type of ammunitions can fly over potential targets and then detect and be directed to the target. So I mean, the concept of drones covers a spectrum of different type of solutions. Now how are we positioned on this matter? As you know, our play is not to develop platforms. What we do is more to provide the equipment, the solutions, but also the system integration. So what does it mean? It means that in terms of specific solutions, we provide, of course, a set of different sensors. That's the first, the type of business we develop in this drone business. Second is what we call C2, command and control. So providing the intelligence to the systems. And third is military capabilities and in particular, through the development and the sales of what we call warhead in particular, to equipped drones or loitering ammunitions. So this is where we are positioned. So as you understand, it's more either positioning Thales as a supplier of different equipment. By the way, I also forget another type of equipment, which is secured communications line of sight, for instance. So what we do is to provide this type of equipment together with, in some cases, also providing system integration capabilities. So this is basically what we do. Now overall, at this point, it's a business which is probably yes -- a triple-digit million euros of revenue. But at this point, relative to the size of our Defence, it's not that a large segment, but clearly a growing one. Your second question was about the JV that we announced this morning. But your question was a bit broad, Olivier, when you say what we will be doing with this JV. So can you elaborate a bit more because otherwise, my answer will be quite generic?

I don't know if I'm still on the line.

Yes, yes.

I am, perfect. No, the question was on the JV with Destinus in drones.

No, I thought that you were asking a question about the space JV that we announced this morning. So no, Destinus is probably a good example where, I mean -- and probably you have seen the number of potential drones that this could reflect. And basically, it's probably a good demonstration of what we want to do. And very clearly, we don't make platforms, but we can platform -- we can partner with platform makers. And in particular, when it comes to high volumes type of platform production, this is not the type of business we want to be in at Thales. Once again, with the intent at Thales to focus on providing sophisticated equipment. I mentioned sensors, C2, line of sight, warheads. So this is basically how we want to position ourselves, and Destinus is probably a good example of what we want to do. Your last question was about F126. And it's true that the German MOD is considering changing the responsibility from Damen to another prime contractor. This is what we have understood. Now of course, we are in close relationship with the German MOD. And I mean, all news that we got from them are pretty reassuring about our positioning in this program, where you understand that we provide in particular, two large type of equipment. First is SAMP/T, in particular, radar capability for this class of frigates, plus the combat management system, which is also, of course, a critical equipment for this class of frigates.

Our next questions come from the line of Alessandro Pozzi from Mediobanca.

Congratulations for the new JV in Space, and I do have some questions about that. I'm not sure how much you can say at this point, but I will try anyway. The first will be in terms of strategy, how the new company or the new JV is positioning versus what the three different companies are doing at the moment in terms of positioning in different subsegments of Space? And you talked about synergies. I'm not sure how you can tell us how you arrived to the triple-digit numbers. And also, we've been reading about on the press that there potentially could be a compensation to Airbus for having a lower share of 35%. Any color on that would be appreciated.

Alessandro, so on your first question, it's really about putting together the strength of the three companies and working more and more on more integrated offers, but it will be also bring together all the R&D capabilities, which are pretty significant in each of the three companies. I mean, to build up here again as much as we can and avoiding duplications of efforts when it comes to development. But because of that, freeing resources to invest in order to pursue new opportunities. You discussed and I could elaborate just a bit on the synergies. We mentioned mid-triple-digit level of bottom line synergies 5 years after the closing. And as you can imagine, in this type of situation, it's going to be a combination of top line revenues. And of course, more synergies reflecting better competitiveness and better operational performance. When it comes to, in particular, better operational performance, as I mentioned, avoiding duplications of investments. But it means also combining as much as possible engineering capabilities. Of course, working on program management where we believe that we can make substantial savings. Of course, SG&A is also a matter we can expect also synergies. Not to mention, of course, procurement will be also an area where we can envisage synergies. So quite a wide spectrum of synergies. All of that in a context where we believe that the level of growth in this market should start picking up or should grow. And it's also true that the recent news in terms of announcements in [ PetChem ] Europe in terms of the need to invest more in space capabilities is making the overall framework probably a positive in order to develop this type of synergies. It's always, of course, much easier to get synergies in a growing market than in a shrinking market. Your last question was about compensations. And yes, to reflect -- I mean, to make sure that overall, there will be a balance between the economic contribution of each partner and its level of shareholding. And yes, there will be a mechanism with regard to balancing payments. Now at this point, it's really too early to make any more comments. And this type of balancing payments will be made public probably at closing and not before.

Okay. If I can, just maybe last one on Cyber. I think the overall division, Cyber & Digital, I think we've seen an improvement versus H1, but Cyber is still a little bit weak. Should we expect maybe an improvement in Q4? Or you see an improvement in Cyber sales something for 2026?

No. Of course, we are expecting 2026 to be stronger than 2025. Now Q4, we should see a sequential improvement as compared to Q3. Now it's true that, as I mentioned, in my press is true that we still see those disturbances still weighing in terms of overall efficiency and in terms of level of revenue. So we expect Q4 to be better than Q3, but it's true that where we're expecting more growth is probably from 2026.

And the next question comes from the line of Benjamin Heelan from Bank of America.

I had a few. So firstly, just wanted to ask a little bit more on the Space JV. Are there going to be any onetime charges, cap gains, et cetera, that we need to think about? And should we assume going forward, it will be consolidated from January '27 as a rough time line? Secondly, I wanted to ask on Aerospace. It seems as though the supply chain is in a much better position than it was. Can you talk through a little bit how are you seeing the aftermarket performance there? What are you seeing in terms of your OE and your IFE business and the trends you're seeing there? A quick question on Cyber, just to follow on from that last question. I mean the 3Q performance to me feels disappointing relative to the comments you guys had made on the Q2 call. And it doesn't seem from your comments that it will return to growth in Q4. It sounds as though Cyber will improve sequentially, but it's still not going to grow. And I feel as though at half year, the commentary was we're largely through a lot of these integration challenges, so we should start to see an improvement. So what has lagged in Q3, that's meant it's continued to be quite weak? Just to understand a little bit what's going on there. And then final one, France in your geographic tables. It does look quite weak in terms of both orders, but also revenues. I was just wondering if there's anything to read into that with the government changes that we've had.

Ben, so a number of questions, so I'll try to be quick. So on the Space JV, you asked about onetime charge. Before closing, overall at Thales, we don't expect any significant onetime charge as the carve-out of our own business is mostly done because, as you know, we already today operate through a JV. Thales Alenia Space is already some kind of stand-alone company. So we don't expect on our side significant carve-out cost, first point. Now once the JV is launched, you mentioned about 2027 January 1. I mean, we believe that the closing should be done in 2027. At this point, we cannot be more precise, but I wouldn't bet on January 1 in terms of date of closing. I think it will be probably later than that. And the reason, as you understood, of course -- by the way, there's, of course, a bit of uncertainty on this matter. And in particular, as you have understood, we have ahead of us, some significant discussions with regulatory bodies in various jurisdictions, in particular in Europe, but not only in Europe. And we know that by experience that all of that can take time. Now once the JV is up and running, we mentioned the level of synergies that we plan to get. Of course, there will be cost to implement those synergies. Probably at this point, it's probably a bit too early to be more precise on this matter. But of course, to get synergies, we need to consider cost to implement those synergies. That's, of course, something which is quite obvious. Aerospace, overall in Q3, above our expectations in terms of level of growth in this business. By the way, not that much driven by aftermarket, where there was growth. But where we had most of the growth in our Avionics business is more on IFE. But also the line fit was also pretty strong in Q3. And overall, Avionics in terms of top line growth in Q3 above our expectations. Which was not the case for Cyber and it's true that in Q3 overall -- and you're absolutely right. I mean, Ben, the level of revenue in Cyber in Q3 was a bit below our expectations. At this point, we say that Q4 should be better than Q3, yes. It has stabilized in Q3, but we are expecting more in terms of level of revenue. So we believe that we'll see Q4 being better than Q3. But of course, I'm a bit cautious considering the fact that Q3 was a bit below our expectations. And France. So France overall, no specific concern. It's true that Q3 last year, we had pretty large orders in France, by the way, in particular, on the SAMP/T for France. So as I mentioned, it can be a bit bumpy, but no specific concern on this matter.

And the questions come from the line of Ian Douglas-Pennant from UBS.

Sorry, can you still hear me? I was going to blame the UBS IT for not let me find the mute button. Could we talk about the Defence business just to start with. So what are your expectations for growth for the full year for that business? And if it's still high single-digit, could you talk about what the offsets are in Q4 in excess of, of course, the high comp that you've got? Secondly, on the Space JV, a couple of questions. Could you just educate us quickly the Thales SESO business? Could you just help us understand roughly how big that business is? And apologies if that's been said before? And if the JV comes into force in 2027, what are the major risks to timing around that? Should we be thinking about antitrust? Should we be thinking about negotiations with the partners? Should we be thinking about something else?

Okay. Ian, so on your first question about growth in Defence for the full year. So I stick to the high single-digit organic growth for revenue for the full year 2025. It's true that end of September, it's above this level because it's 14%. Now as I said, Q4 last year was very strong with a 24% growth as compared to Q4 2023. So hence, the fact that we said because the reference base is so high in Q4, we are, of course, a bit cautious. And this is why we stick to the level of growth that I mentioned earlier, so high single-digit. Now probably from my tone, you can get that overall Q3 was, in Defence, a bit above expectations. And by the way, a level of growth, which is not coming from a single segment or a few segments, it's really across the board in Defence that we see, pretty strong level of growth. Your question about our Space business, your question was about the size of this business today at Thales, was it?

Exactly, sir. Yes.

So overall, as you know, we operate our Space business through two JVs. One is Thales Alenia Space, where we own 67%, which is consolidated -- fully consolidated at Thales. And the 2024 level of revenue for this business was EUR 2.2 billion. And second, we've got in this, what we call, the space alliance with Leonardo. We also have a minority stake in Telespazio, 33%. But Telespazio is consolidated just through the equity method, which means that we don't consolidate the Telespazio revenue in our own P&L. We just reflect our share in the net income of Telespazio. Your last question was about what would be the risk to close the -- this new JV. As you have understood, we've got -- if I summarize, we've got ahead of us three challenges, three steps or three key type of actions. One is, of course, to engage the social processes with works councils, employees' representatives and that in the various countries we operate in which, by the way, the three partners, the three companies operate. And the announcements of today allow us to initiate this overall social process. Second is, of course, getting ready and working on the various steps to make a stand-alone company, which means that there will be some, in particular, a carve-out works at each of the three companies. As I mentioned, at Thales, we already operate through two JVs. Which means that in our view, for our own contributions, the preparations will be -- will not be that a great challenge. And the last point, which is probably, of course, the one where the timing can take a bit of time. It is, of course, going through all the regulatory approval and going through all the regulatory bodies, in particular, the antitrust regulators. And we know that all of that can take a bit of time. Now it's also true that we have already started to engage some of them, and other regulators will be engaged in the very short term. So those are, in my view, the three elements. In particular, the last one, this is probably where, of course, we need to be vigilant, even though we believe that our case is pretty strong. Of course, I could comment more on this matter. But when it comes to this type of process interactions with antitrust regulatory bodies, we know that it can take time. So this is why we mentioned that the closing of the new JV will be in 2027 without, at this time, to be able to say when will this be enforced.

[Operator Instructions] Our next question come from the line of Herve Drouet from CIC Market Solutions.

Pascal, so two questions. First one, I just wanted to check the order from Denmark on SAMP/T NG, sorry. Was it -- do you know when it will be booked in your order book? And was the part booked in Q3 or not? And if it's not the case, at what time do you think it could be booked? And the second question is back to the Space JV. I understand you are saying you are currently operating through existing JV. So therefore, the job on your side and the cost you will have to put aside to include the business will be relatively limited. But I was wondering, did you get any data you can share with us in terms of the overall integration cost we should expect for this new entity to be put together? You were talking about synergies as three-digit -- in the three-digit million euro range in 5 years' time. I was wondering if you can give us a bit of a range potentially on the integration cost side, if you are aware of any.

Okay. Herve, so let's start with your first question about SAMP/T NG relative to Denmark. So it has not been booked in Q3. What we have announced in Q3 is the fact that we have been selected by Denmark. But of course then afterwards, you need to proceed with the final negotiations and signing a contract. Of course, this is a sizable contract. At this point, I'm not able to tell you whether this contract will be booked in Q4 2025 or in 2026. At this point, it's an open topic, but no specific stress on this matter. But it's probably quite a good example when I explained to the investors that it's always difficult to tell you that in this quarter why is it that the order intake in this quarter was above or below the expectation. It is also because we need to deal with this type of uncertainty, and it can move from December to Q1 2026. And at this point, I have no clue. But once again, it's not a concern to me. Now on the JV, I will try to be clear, but taking into account, of course, the level of details that at this point we can communicate to you. So first, in terms of the level of synergies, we mentioned in the press release a level of synergies on the bottom line. So on the operating income, a level of synergies that would be mid-triple-digit million euro. Overall if I want to explain more in terms of what should be the range, it's between EUR 400 million and EUR 600 million of synergies on the operating income. And this 5 years after the closing of the transaction. Now as I explained, to get these type of synergies, you need to -- of course, you need to spend money, you need to spend cash. And what is drafted in the press release, and I won't be able at this point to be more precise is that associated cost to generate those synergies are expected to be in line with industry benchmark. As you are expert of the industrial matters, no doubt that you will be able to have your own view about this statement. But at this point, and you need to consider that we are at the beginning of a new adventure with Airbus and Leonardo, pretty excited about putting together our assets. But of course, at this point, and considering this is the first step, we cannot be more precise on this matter.

The next question come from the line of David Perry from JPMorgan.

So it's a busy results day, and I missed a little bit of what you said. So I really apologize if I'm repeating anything. But two questions. One, could you just give a bit more precise detail on the sales growth that we saw in Q3 between Space and pure Avionics, and maybe even the Avionics civil versus military? And then just one last question. I know you've had loads of questions about Space and the JV. But that synergy number is very high as a percentage of sales for the combined entity. Are you expecting all of that to flow to EBITA? Or is that a gross number, but quite a lot of that is going to get recycled into R&D, for example, to be more competitive? So how much actually will flow to the EBIT number of the new entity?

Okay, David. So on your first question, overall looking at our Aerospace segment end of September, we said 6.9%. And I explained that Avionics growth was significantly above this level and Space -- below Space in line with our expectations, meaning that Space end of September is around 2%. And you've got Avionics, which is more probably something like high single digits of organic growth overall for the first 9 months in 2025. So we see, yes, this bit of disconnect between those two businesses. On Space, it's -- yes, what we expect is really a bottom line impact of the synergies. Of course, you need to understand that in the first few years after the closing, there will be charges to implement synergies. And it's true that 5 years after the closing, of course, there won't be any more cost to implement synergies. But synergies will still not be at full speed, but will be already pretty significant, as you mentioned. And yes, this level of synergies is expected to impact positively the operating income of the joint ventures.

Okay. Very interesting. It's a huge percent of sales. Well, good luck with it.

No good luck. Of course, you also need to consider that from the current level of revenue of the JV. We mentioned EUR 6.5 billion of revenue. This is a pro forma 2024 figure. It shows that we expect the JV, as it close in 2027 or 2028 as the first year of -- full year operations in this new JV, we expect quite a significant growth. By the way, it's also good to have in mind that relative to Thales, this JV allow us to be more exposed to more growing businesses, in particular services because, as you know Thales Alenia Space doesn't provide service because service is part of Telespazio when it comes to Thales. And it's also true that in the mid- to long-term, we expect services in the Space to grow more quickly than the infrastructure. So overall, please don't look at the level of synergies that we mentioned relative to the EUR 6.5 billion. It has to be compared to a level of revenue, which 5 years after the closing, which will be probably more something like 2032, which will be, of course, significantly above the EUR 6.5 billion revenue pro forma that we disclosed.

No, that's super helpful. Can I be cheeky and just sneak one more in? And again, I really apologize if it was already asked. In forming this JV, are there any equalization payments from any of the parties?

Yes. Of course as I mentioned, there will be, of course some kind of balancing payments. We cannot be more vocal at this point, as I explained earlier. But of course those balancing payments, it will ensure that the economic contributions of each of the three partners reflect its level of shareholding. This is quite obvious. But at this point, we cannot disclose. And by the way, those balancing payments might also take into account some valuation adjustments. So we need to wait until the closing to get final figures in terms of those balancing payments.

The next question come from the line of Chloe Lemarie from Jefferies.

Pascal, I would actually want to follow up on the topic of the F126 enrollment because the potential new prime contractor is in the process of being acquired by Rheinmetall, and they have actually called Thales among the companies they would want to partner with to expand their exposure to naval systems. So could you share maybe from your perspective, what could be the appeal of such a partnership? And what would be the key criteria for you to agree as opposed to just supplying systems as you currently do on naval platform? And the second one is on the Rafale in India. There's been quite a lot of news flow recently. So anything you can share to help us understand where in the process we are, especially around discussions on offsets and content, which seems to be a sticking point.

Chloe, I'm sorry, but I'm going to disappoint you probably on both topics. No, on Rheinmetall, of course, we are discussing. And that's already a comment that I made earlier. Of course the current situation, which is, by the way, very good with all those opportunities in terms of business development opens the door for more partnership with other companies. And I remember mentioning in particular, the JVs that we have decided with KONGSBERG in Norway, but also JVs that were put in place in Ukraine to support our development in this country. Of course, we are discussing with other partners and Rheinmetall is quite a good example. No, at this point, it's really too early to be more precise on anything because it's really too early. Maybe last point, I could comment specifically on F126. We welcome any decision from the end customers, the German MOD, to secure the overall execution of such an important project. And of course, we'll do whatever we can to cooperate with the new prime contractors if this is a decision of the German MOD. All of that with the spirit of collaborations, which is for us absolutely essential. Last point on India. There is nothing more I can say on this matter. Probably, Chloe, a question that you could direct to Dassault Aviation as the prime contractors on this type of business. So no. And always difficult to make any comment. Now, good to see that Rafale has a number of opportunities which shows the quality of the aircraft. And in particular, when it comes to existing customers willing to order more, which, by the way, happened in various countries so far. It shows how they see the quality of the aircraft and also the support from the various partners in the overall operation. So all of that is pretty positive. But you need to be a bit patient on this matter as it is the case in all, I would say, Rafale opportunities.

On the Rafale, can I just ask you to confirm whether you're involved in the discussions on the offsets and the technological transfer? Or is it all through Dassault?

No. I mean, of course, we are involved with Dassault in the discussion. Now it's true that Dassault is leading the negotiation. But of course, we are involved as a partner, as a key partner with Dassault. And you discussed about offset. We are quite used to managing offsets in various countries and not just only for Rafale. It's really part of our business to be able to manage offsets in various countries. So don't consider that this is something which is new to us. This is something which we are quite accustomed to manage on various type of Defence business in many countries. India is an example, among other examples of countries where you need to manage offset to develop your business. When I say offset, it's also -- and more and more importantly, the need for localization, which is, of course, something that we see developing for the future.

The next question come from the line of Ross Law from Morgan Stanley.

I've got two. The first is just on Cyber and coming back to Ben's question earlier. I'm just looking to understand if the integration of the sales team was completed in the first half, what exactly drove that 7% organic negative growth in the third quarter? And what changes in the fourth quarter to drive the expected sequential improvement? That's the first question. And then the second on rare earths. If you could provide some more color on which elements Thales is reliant on, where you source these, and what buffer stock you currently hold?

Ross, so on your first topic about Cyber. No, the integration of such a large commercial force, you cannot say that once it is merged, it is fully operational with a full effectiveness. And it's a progressive improvement that we expect from our commercial force through 2025. When it comes to your level of intimacy with your new customer, your level of technical understanding of the new portfolio of products that you need to sell, all of that cannot happen overnight, it takes time. And second, of course, all of that has also driven a level of turnover in our sales force, which was above what we anticipated. So which means that more turnover at our sales reps means the need to recruit more people, which means that we need to work more on training those new sales reps that joined Thales recently. So all of that has created, yes, some disturbances and disturbances have not stopped end of June 2025. So it's a progressive improvement. But it's true that it is taking time. And it's true that today in terms of overall effectiveness -- looking at Q3 figures, it's true to say that overall, Q3 figures in terms of level of sales was below our expectations. Now we see with some metrics, that situation is improving, but it's probably a bit slower than expected. By the way, on the other side, if you look at Digital, our level of revenue was also above our expectation, in particular in the mobile connectivity business. So it means that it can be a bit different from one segment to the other. Now, overall -- second question about rare earths. First, we don't buy rare earth minerals directly. Of course, we use small -- very small quantities of rare earths. At this point, we don't identify any specific risk in connection with the export restrictions, which has been imposed by China. Now of course, that's a point that we look closely. There was, in particular, the question about germanium, which is a strategic metal for Thales and in particular, in our infrared technologies. And it's true that on germanium, we have seen increasing global supply tension for this specific metal. Which means that as we have done in many other situations, we are working on different ways to manage these situations. So exploring new sources of germanium outside the traditional producing countries. We are working on some recycling initiatives with some partners. And we are also working this time more on R&D to find alternative materials or to optimize the use of germanium in particular through optimized processes in order to use less germanium for the same outcome. So you see that overall our exposure is quite limited. But as always, as we face tension in the supply chain, we put in place the traditional actions, exploring new sourcing, working on getting additional stock from other partners, recycling. So those are the type of things that we have done in the past on other materials and overall pretty successful. So I would say this is one matter in the supply chain among many other supply chain challenges that we have been facing over the last few years. And that will continue, of course, as we will keep growing our top line. And I made a few comments on supply chain in our last calls, saying that overall -- situation overall is under control, which is the case. But please don't consider that supply chain tensions are no longer there. They are still there, which means that it is a continuous effort at Thales to manage supplies on various elements. I mentioned in the past, if you probably remember, hardware. I mentioned in particular PCB shortage. And we are still struggling to get the right level of materials for this type of patents, in particular, on specific hardware and PCB is a good example. But so far, we have been able to manage all of that pretty successfully. And no doubt that it will continue this way going forward.

The next questions come from the line of Christophe Menard from Deutsche Bank.

So I had two. The first one is Defence Q3, very strong performance, as you said, organically. In the press release, you're saying that it's due to production capacity expansion being deployed. That means operational leverage, in my view. Does it mean that it could have a positive impact on your Defence margin in 2025? And the second question is on the Space Alliance. Sorry for this, you had a lot, but -- and still on the compensation, the formula that you will be using. My -- the question is, is the compensation -- I mean, you can't disclose it quite obviously, but is the compensation already agreed upon or will it be agreed upon in 2027? And will it be based on the formula mixing sales, EBIT performance, will it be based on historicals or forward-looking elements?

Thank you very much, Christophe, with your pretty specific questions. So on Defence, yes, but as I said in the past, new production capability being put on stream, yes, in Q3, but it's a continuous move. And quarter after quarters, we keep improving our overall production output following the investments that we have announced. And we gave you a few examples in the past about Thales increasing its production of effectors of airborne radars, ground-based radars. So we gave you a number of elements. I could mention also now more underwater system ramp-up capability. So nothing very specific on this matter. But all of that -- that was anticipated and all of that very much consistent with our guidance on Defence margin with this concept of 13% EBIT margin, which is the level of margin that we keep having in mind to guide you for the short and the mid-term. Space Alliance, you want to know everything about that, but I will stick to what I said. Which means that, of course the mechanism has been agreed on, but the outcome will be finalized at closing. And that's the reason why we cannot be more precise on this matter as we speak today.

The next questions come from the line of Aymeric Poulain from Kepler Cheuvreux.

The last one on Cyber again. Would you be able to separate the performance in terms of organic growth in Q3 between product and services? And since someone asked about the margin outlook, would you be also able to confirm that the margin for DIS or Cyber & Digital now would stay around 14.5%? Or is there some impact of this weaker-than-expected organic growth on the margin outlook?

Aymeric, so your question in particular is valid within Cyber because there are two elements between product and services. And this shows that where we are looking for growth. And what I said about effectiveness of the commercial force, all of that relates to the product business line within Cyber. This is where we've got a very -- pretty strong margin. This is why we are looking for growth on this segment, which is by far, the largest segment within Cyber. The other one being services, where at this point, the profitability is not in line with our expectations. And where we said we made it clear, this business is needed, in particular, as we want to develop growth in products. This is a way to go-to-market for our product. But it's really a business where at this point, we are willing to focus on the profitable segments as opposed to market segments where we believe that differentiation is not recognized by customers. And this is why we have decided to exit some subsegments. And it's true that overall, if I take this service business, overall the drop in revenue. But part of it is really what we want to do is double digits year-on-year end of September. But once again, that's something we want to do in order to refocus this business more on the profitable market segments. And I need to say that I don't remember your second question.

The implication for the margin outlook.

Okay. So overall just to give you a rule of thumb, but probably a level of EBIT margin for the full year 2025, around 14% is probably what I have in mind. All of that being very much consistent with 12.2%, 12.4% overall at a group level.

The next question comes from the line of Sebastian Growe from BNP Paribas Exane.

Thanks for taking my question and squeezing me in. It's on SAMP/T. You recently said to expect more order wins for the SAMP/T and that beyond Denmark. So now you sounded on the call a bit reserved with regard to the timing of signing that contract. So my questions are, to what extent is the contract signing impacted by the question, how many systems Denmark might ultimately be willing to purchase? And secondly, how might the signing in, say, late '26 impact the signing of other contracts that you might have in the pipeline? So the question is if the Danish order is key to unlock potential elsewhere?

Sebastian, so it's true that as we discuss about Denmark, we are still discussing about the number of batteries. And it's -- this is why between being selected and sign a contract, there might be a bit of time gap. And that to a commercial discussion, which, in my understanding, also takes into account the final number of batteries that Denmark will order. First point. Now second point, here we are discussing about a pretty sophisticated sensitive air defence capabilities. It's mid -- long-range type of capabilities. Those equipment, those systems are extremely sensitive for any countries. All of that, a bit like a combat aircraft, if I want to make some kind of analogy. All of that meaning that any contract of this kind, you've got a pretty lengthy upstream phase in terms of discussion with potential clients in order to end up with a final decision. It's not the type of contract that you sign in 2 or 3 months, it takes time because once again, it is extremely sensitive type of capabilities. But this is very sensitive, so I will not share this information with you. But of course, we are discussing with other potential customer. When all of that will materialize, it will be probably progressive, but it will be in the next few years. So don't expect January 2026, Thales announcing one, two or three additional contracts on SAMP/T NG that will be triggered by the signature of the Danish contract, no. This is quite important. And this is, of course a first step, which is so important for us as we discuss with other clients. Now the sequence of decisions in other countries at this point, of course, will take a bit of time. But as I mentioned a number of times, we are not looking for Q1 2026 order intake, but we are looking to keep growing our order intake in the next few years. And it's true that air defence capabilities is one key drivers -- key opportunities for Thales to keep growing our Defence capability in the long term. So air defence capability, in particular, SAMP/T NG is really the next 10 years in terms of capabilities because, of course, this system will continue to evolve, of course, but will be hopefully a success that will look like the Rafale success.

Last questions come from the line of Sam Burgess from Goldman Sachs.

Just following on the theme of air defence there. Some of your big wins recently have been focused on air defence, U.K., MOD, LLM, Denmark, SAMP/T. Just given the strength of demand that's likely to continue in that area over the midterm, do you see it as an area where you could do M&A or future JVs? Or are you pretty happy with your portfolio at the moment? And the second question, if I may, just the destocking that's ongoing in the banking payments business, any visibility on when that effect is likely to end would be really helpful.

Sam, so two different type of questions. So first on Defence and air defence. Yes, quite important JV. As you know, we already operate under a JV with MBDA when it comes to mid, long-range air defence capability, and SAMP/T is a common venture between MBDA and Thales through a consortium, which is called EUROSAM. Now M&A on Defence because M&A cannot just be considered on air defence, because air defence is growing, so considering M&A on air defence questions, I would take it a bit more broadly about M&A in Defence. Yes, no mysteries that we would be interested in any meaningful M&A on Defence. But this, of course, in line with our key M&A criteria when it comes to considering acquisitions. So of course the value of the technology, does it allow us to keep expanding our spectrum of technologies, what is the potential for growth, does it allow us to get a growing position in new markets, when I say new markets, in new geographies in particular. So those are the key criteria, of course, valuations as always. So yes, now we also acknowledge that M&A when it comes to transborder on Defence is always a challenge. So no rush. But of course we keep working and mapping the market to see whether there would be meaningful opportunities for us on Defence. But as you understand, not an easy ride considering the specificities of the defence industry. Your second question about smart card destocking in particular on payments. It's true that it is taking more time than expected and in particular, in North America. So I would still be a bit cautious on this matter. Now that's something that we have anticipated. It's taking a bit longer, but I don't see anything concerning on this matter. So no, that's -- it's not for me something I'm quite concerned. Even though, yes, we would like the market to pick up a bit more quickly. But overall, for us, it's a balance also between level of revenue, level of margin. And at this point, the balance between the two on smart cards is pretty positive. Okay. So I understand that was the last question. So thank you very much for all your questions. So as always, Alexandra and her team are at your disposal if you have any follow-up questions. It's true that there have been a number of questions, and it's true that it's not that common to issue both quarterly figures together with the announcement of a very important step relative to putting together a quite important business for Thales together with Leonardo and Airbus. That's a very positive news in our views. So don't hesitate to reach out. And with all of that, I wish you all a very good day. Thank you very much.

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 questions to Thales Group Investor Relations at [email protected], and we will get back to you as soon as possible. Thank you all for your participation. You may now disconnect, and have a good day.