After having passed very close to the abyss from 2009 to 2011, the electronics champion, with record 2015 results, has once again become a flagship of the great French export. Story of a rebirth.
Has Thales (re) discovered the growth theorem? The French electronics champion has in any case published, Tuesday, February 23, 2015 results in all historical points. Order intake? Supported by 24 contracts of more than 100 million euros, including sales of Rafale in Egypt and Qatar but also the signaling of the London Underground (1 billion euros) or the Hawkei armored vehicles in Australia, they reached nearly 19 Billions of Euro’s. “A historic record,” says CEO Patrice Caine. Turnover? After years of stagnation, it took off 8.4% to 14.06 billion euros. The profitability? With 8.6% operating margin, an unprecedented level, it is also skyrocketing, despite the losses of the transport division, due to concerns about the execution of certain rail signaling contracts.
Difficult to recognize the group in peril which, weighed down by provisions for large contracts poorly executed, capped at 1.2% margin in 2009. The company traumatized by the presidency of Luc Vigneron, who had drawn the wrath of employees by authoritarian management and a disparaged commercial policy. The industrial champion whose controlling shareholders, the French State and Dassault Aviation, were still tearing each other up last spring over whether or not Henri Proglio would chair the group’s board of directors. Now it’s time for business. And to growth: “We have good enough visibility today to commit for both 2016 and 2017-2018 to growth of around 5%”, assures Patrice Caine.
Favorable geopolitical context
How was the group able to raise the bar? The tense geopolitical context has of course played a role, with order intake almost doubling in the Middle East and the double ordering of Rafale, of which Thales has 25%, in Egypt and Qatar. Even mature countries, which are starting to rearm because of the terrorist threat, are leaving (14% in France, 68% in the United Kingdom, 58% in Australia and New Zealand). But the group has also been able to reinvent itself. Jean-Bernard Lévy, before being exfiltrated at EDF, had pacified Thales and launched the “strategic vision” Ambition 10, negotiated with internal teams, which provides for an increase in turnover of 10 billion in 10 years and profitability 10% operational.
His successor Patrice Caine, number two and in charge of the competitiveness plan under Jean-Bernard Lévy, took over the project on his own, declined in a strategic plan Ambition Boost. The competitiveness efforts initiated under Luc Vigneron and Jean-Bernard Lévy were continued: overheads fell from 4.3% to 3.8% of turnover from 2012 to 2015, a saving of 70 million euros. Industrial sites are also rationalized, as in Mérignac, where a new site with 2,300 employees, the Thales campus, will bring together the teams today divided between Pessac and Haillan at the end of 2016.
Take off in emerging countries
But Thales didn’t just tighten the bolts. “It is not only on cost-cutting sites that we can mobilize a social body”, underlines Patrice Caine, as in a subliminal message to Luc Vigneron. Thales, in search of growth, has accelerated in particular in emerging markets, where order intake rose from 3.5 billion euros in 2012 to 6.2 billion in 2015. “We have gone from a business model. export to a local production model, because that’s what customers demand ”, explains Patrice Caine. The group now has an industrial presence in around fifty countries, with major hubs such as Australia (3,200 employees) or Singapore (600 employees).
Thales has also been able to capitalize on fast-growing markets, such as in-flight entertainment systems (IFE), where it is the second largest player in the world after Panasonic. For a long time the focus of losses, the activity, on the order of a billion dollars in turnover, is now profitable and growing strongly. “We notably succeeded in entering Singapore Airlines, a long-standing customer of Panasonic,” said the CEO. The market has a threefold advantage: it concerns both new planes, “retrofit” (refurbishment) aircraft and it generates after-sales service.
Cybersecurity, a top priority
The French group has also stepped up on cybersecurity, which represents 700 to 800 million euros in sales and brings together 1,500 experts within the group. “Cybersecurity interests us both because the market is growing strongly, but also because this expertise serves us in other markets where the cyber dimension is essential: air traffic control, railway signaling, or entertainment systems in flight ”, details Patrice Caine. The FBI, alerted by a computer security researcher, was concerned last year about the possible hacking of a plane by the IFE system.
With its growth and cash flow which doubled in 2015 to 2 billion euros, could Thales consider external growth? The group had already strengthened in IFEs in 2014, with the acquisition of Live TV, and in cybersecurity in 2015, with the takeover of Vormetric. Patrice Caine says he wants to be satisfied with this kind of targeted acquisitions (200 to 500 million euros). “We don’t want big things that are flattering in terms of ego, but dangerous in execution,” he assures us. We are looking for targets that allow us to grow faster thanks to technological bricks that we do not have. ”
What if Safran put its Morpho safety subsidiary up for sale? “It’s a very good company, but it wouldn’t bring us anything in our specialty, the integration of security technologies,” replies Patrice Caine, who also excludes any major movement towards concentration with the Safran group itself. At Thales, growth is definitely there. Caution too.