Good afternoon everyone. I'm Alexandra Boucheron, Head of Investor Relations at Thales. We are very pleased to welcome you today to Thales 2024 Capital Markets Day. I hope you enjoyed the product demonstration. I must admit that it was a bit of challenge to select from the vast array of innovative technologies that Thales masters. But we selected products that best illustrate the unique technological edge Thales holds across each of its business units. Please note that you will have another session of product demonstration after those plenary sessions for 45 minutes. I would like to take a moment also to thank the persons who are connected through the website and via webcast. So we'll be together for the plenary sessions until 6:30 P.M., starting of course, the afternoon discussing strategy. And Patrice Caine will actually present his perspective and vision for Thales by 2028.
Afterwards we'll have Hervé Dammann, Hervé Derrey and Yannick Assouad who will come on stage and each present the strategic direction and differentiating factors of each of the businesses they are actually heading, namely Defense, Space and Avionics. This will be followed by a dedicated Q&A session. After a short break, we will have the pleasure of welcoming Philippe to the stage who will present Thales' unique positioning in Cyber and Digital Space. And Sébastien Cano will join Philippe Vallée to explain the unique value proposition that we are rolling out in our cyber products. Another Q&A session will be dedicated to those two businesses. And finally, Pascal will explain how these strategic and operational considerations translate into value. You will then have the opportunity to ask questions to Patrice and Pascal for the last Q&A session.
So I would like to mention two elements, as you may have noticed, and really for the sake of simplicity, we have decided to talk about defense rather than defense and security, because it was simpler. And furthermore, to highlight the growing importance of cybersecurity and digitalization in the segment led by Philippe, we have decided to rename it Cyber and Digital rather than DIS. So it's the last time we will mention DIS. So with that delighted to leave the floor to our Chairman and CEO, Patrice Caine.
Thank you, Alexandra. Good afternoon everyone. Or good morning for our U.S. colleagues. Welcome to this Capital Markets Day. My pleasure to see you in person and also for those who are joining us online. We are here to share with you our vision for the future with all the details that are necessary to give, I would say, credibility to what I'm going to explain in terms of vision. I will have two parts in this presentation. Number one, I will come back on the journey so far to really understand finally what is today the foundation of the starting point of this vision, and then during the second part, I will tackle the vision and what lies for us in the next five years.
Definitely the journey so far has not been, I would say, the one we expected in 2019 since the last market day in terms of, I would say, unexpected events. I'm not talking about the last as such, but clearly in 2020, probably, certainly no one was expecting having to bear COVID. That was not on our agenda during this period of time. During 2020, 2023, we've had as well to tackle the most severe chips or components shortage I've ever known in my career. 22 years, it's the first time I see such a situation, supply chain disruption as well. And so more and more volatile, unpredictable geopolitical environment. Now, despite all of this, we have been able to deliver regularly. We have been able to meet our commitments, our goals, our objectives with more growth and of course a better profitability.
At the same time we have been able to improve drastically or to reinforce the quality of our business portfolio. Clearly, we have transformed Thales into what I call a global tech leader in several domains, in several verticals: defense that corresponds to our historical roots, Avionics or aviation, Space and Cyber and Digital. Not anymore DIS, so to do so we have really, I would say, worked intensively on the quality of our business activities, our business portfolio. Since 2018 we have top performer companies on one hand as well disposing non-core assets or assets that were considered less, I would say less promising than others. So what we have done in defense, we have grown the business. We invest organically with a small M&A. Also because of the quality of the portfolio which was already, I would say world class.
But typically we have acquired a training and simulation at RUAG. We have taken over the 50% shares in our joint venture in the acoustics domains and some other. We have reinforced as well our aerospace business organically. Also for this important acquisition that we announced last year and this year we have of course build a strong pillar solid and digital. And the main, of course, step was the acquisition of Gemalto in 2019. And at the same time we have disposed of the GTS business transportation business as represented in this slide. So as of today we look at the group. The group is pretty different compared to the one you knew in 2018 with now, I think, a fine-tuned world-class portfolio of business activities, positioned on green markets and delivering good profitability with world-class products of course driving the company.
It's not only looking at the quality of the business assets or the business portfolio, it's also working on our intrinsic, I would say quality on our product lines, on our competitiveness and the journey. Also on this front, very positive. So just a few KPIs to illustrate that, but normally they are well known by all of you. The first one illustrates the very strong commercial dynamism that we have enjoyed during this period of time, and you see the backlog here that has increased drastically between 2018 and 2023 from EUR 32 billion to EUR 45 billion as of end of last year. It's also the case in terms of profitability with the increase of the EBIT margin EBITDA sales percentage from 10.6% to 11.6%, and as well in terms of cash flow where we enjoy a 1.5 times higher cash flow than in 2023 than in 2018.
So again, needless to spend too much time on what was the past. But just recap what we have done as an industrial player to improve the quality of the group and its operational performance. Probably the most we say striking point seen from the outside behind these figures is the key strategic pivot that we have achieved with the creation of this Cyber and Digital business. Clearly this EUR 4 billion business in Cyber and Digital pulls some of the very best talents in many fields, providing cutting edge technology in mobile connectivity in banking and payments in biometrics in cyber, of course. But this is also a story of turnaround.
We have turnaround Gemalto when Gemalto joined the group, and you see here a few figures to illustrate its performance improving, for instance the profitability of Gemalto 8.5% EBITDA sales at that time to 14% EBITDA sales in 2023 end of last year, so this is by the way acknowledged by stakeholders as a great turnaround of this activity now being the most profitable activity at Thales, and this is satisfactory, but this acquisition had other merits as well. It's also. It was also as a consequence an opportunity to expose a group to fast markets like cyber to get access to a complementary tech mindset and agility. Clearly Gemalto brought a lot more agility. That's also an intangible asset, but it has its own merits and also new technologies and business.
We have created a lot of value with synergies thanks to synergies between again Gemalto and the rest of the group. To illustrate that we have chosen few examples which shows the combination of Gemalto technologies with Thales legacy businesses or technologies to be complete. You see here for example the Aviation Security Gateway which is a brand new, I would say piece of equipment for a large OEM based in Toulouse that combines cybersecurity technology from Gemalto with our Avionics business. The second example, the creation of the JV with Google named S3NS to create sovereign cloud or trusted cloud service. A great combination of cyber technology coming from Gemalto with cloud competences coming from Thales.
The 4G or 5G new offering that we have proposed to the French MoD is also great combination from key competencies of Gemalto in 4G, 5G, 6G in the civil or commercial telecommunication domain with our deep knowledge in the military field in secure communication. And the last example of value creation of new offering named Fly to Gate. It's a great combination between biometrics technology coming from Gemalto with our security business at Thales for airport customers offering a frictionless journey to passengers since he arrives at the airport and at each and every touch point in an airport when he has to register, to leave his baggage to go, security to go to the lounge or get to boarding. All these touch points are now frictionless thanks to biometrics.
It's also an occasion, still looking at this 2018-2023 period of time, to re-explain what was and is our strategy in terms of cybersecurity. Sébastien will tell even more on the product offering, what we do offer to our customers. But here lies the story and the vision we had a while ago. In fact, it started 10 years ago, even before 2018, when we had intuition that most of the value in cyber lies in cyber products versus cyber services. And it's true that many companies speak about cyber activity, but in fact cyber activity, this word encompasses a vast variety of type of business and quality of business as well. So yes, 10 years ago we were not a new player in cyber. We had a SafeNet you see on this slide, EUR 500 million.
It was mainly a niche business in products with HSM hardware security modules for equipment that generate encryption keys to encrypt data and also a local, I would say, business in terms of cyber. The idea that was really to accelerate cyber product field. Hence the first, I would say, acquisition in 2016 of Vormetric was a leader in his field in the data security field offering software services, software products. The second important step was through the acquisition of Gemalto. The combination of SafeNet, which was a kind of a twin brother of, I may say, that was previously acquired by Gemalto. So we combined SafeNet that we found was not a surprise when I said that we found within Gemalto with Vormetric and we created a strong leader in this domain.
We decided to enter an adjacent domain which is named IAM Identity and Access Management with OneWelcome. This was in 2022 and more recently we clearly can still with the acquisition of Imperva, both reinforcing our data security product or service offering with application security product portfolio. We have now joined a unique world class positioning in these three segments. Data security, cyber security, application security. And IAM with strong synergies between the two segments with sizable business, more than EUR 2 billion in terms of size and of course growing quite rapidly. Sébastien will explain the so called famous Rule of 30 that is the sum of growth rate and the EBITDA margin in this domain and which applies to this very surprising business. Thales is a strong platform tackling several verticals.
Defense, aeronautics, Space and Cyber and Digital. And I will leave the different colleagues who head the business explain in more detail, said by Alexandra, the merits of each of these. I would say vertical business.
For the past or the recent past. And that clearly lays great foundation to build upon and to tackle the future. So moving to what we see ahead of us and tackling I would say several strategic priorities as we are convinced that there is still a lot of potential in terms of value creation. Now again to give I would say credibility to this. These are the main levers, the strategic priorities. The how we think that we are able to create even more value in the future. Looking at Thales number one and I will come back on each of these five priorities is clearly to serve. I would say this dynamism on our markets, Defense, aero, Space, cyber, digital. These combined with the excellent world class portfolio that Thales embrace.
Number two, and this is a bit new, the notion of premiumization. How are we going to improve the quality by premiumizing our offering along the road to make our products services solutions always or I would say from our customers. The third one is of course you'd be surprised if I would not mention it. How technology is important to drive the future of Thales. Why do we think we have reached a critical mass that again gives credibility to looking forward for the future of Thales and how we will reinforce technological trends at Thales? Number four, it's clearly reinforcing the employee attractiveness. You know that the main input is brains, it's talent. So it's a key. I would say question we have, I would say regularly with Pascal and we'll come back and it will be of course, for the future.
We'll come back on this strategic priority, of course, and explain to you how we'll continue to tackle this very important level and five, even though we are not going to spend too much time because this afternoon was too short to discuss it in detail, so we organize a specific event, as we did in three, by the way, dedicated to ESG topics. Though it would have been surprising not to mention this afternoon. I will say as well a few words on our ESG journey and we envisage for the future, so let's review these strategic priorities one by one. The first one is really dedicated to growth. How are we going to embrace growth in the future in each of these different verticals?
First of all, we need to be well aware, well convinced that we benefit, if I may say, from megatrends that fuel growth in each of these verticals. In defense, it's obvious the megatrend is the geopolitical situation. Let's not spend too much time on it. I think this is a given we'll come back as well. This mega trend is going to fuel, I would say, the growth each and every country has decided to reinvest or regrow their defense spending to spend more defense and security, which gives, by the way, an all-time high visibility to us. I've never seen such since I joined Thales again 22 years ago.
If we just look at our backlog, which is a direct consequence of this momentum and this great visibility in defense, we would reach by the end of this year probably four years of sales in our backlog. So giving us great visibility on top of this strong momentum moving to Avionics, I would say it's a similar story. Even though the megatrend is different. Similar story in terms of long term growth. In terms of long term visibility as well, probably a decade of visibility of growth for our Avionics business. All the forecasts that we have in hand say the same in terms of air traffic increase. In terms of, I would say ramp up. All of this clearly will continuously fuel growth at our Avionics business. Space could be seen as a bit different.
However, if we take a step back and this is not, I would say a yearly guidance that we are sharing with you this afternoon, it's clearly we are taking a midterm horizon. If we look at Space clearly on the long term, the needs expressed by institutional bodies by institutions are immense, are immense in exploration, navigation, in observation. We see as well new demands, new needs coming from military use case as well, which will fuel long term. I do not discard at all the short term challenge. We have in one segment of this business, the telecom, telecommunication, civil telecommunications segment business. And I'm pretty sure that they will come back on it. But again, take a step back. Space is still seen as an attractive business on the long run. The last one, Cyber and Digital.
The megatrend that supports this long-term visibility is clearly the digitalization at scale at large of our society. It's a no-brainer, it's very true, very valid for companies, for governments, for administrations, for our own life, by the way. So clearly this is the megatrend that fueled our digital business at Thales. Very concretely is the digitalization of our sea business. Digitalization of payment means, amount means, digitalization of ID identity documents as well. At the same time, more digitalization means unfortunately more vulnerabilities, cyber vulnerabilities, which means more cyber needs. And as well, it's good news for Thales. So more digital is good for Thales. More I would say cyber, it's good for Thales. So these are the megatrends that again gives credibility when we look forward and when we forecast growth of the market and of our different businesses.
Now we have encountered unexpected, I would say, events, as I told you: COVID, chip shortage, supply chain issues. Now, one key characteristic of Thales, which is genuinely true, if I may say, is how resilient the group is vis-à-vis, I would say, externalities. And here are a few elements of resilience we should keep in mind especially when we look forward with this kind of mid-term horizon. Number one, the group is, yes, exposed to a wide range both in terms of portfolio and domains of application, which is a source of risk. You take defense, we provide equipment, services, solutions to navies, air force, land forces, cyberSpace command, which means that we do not face a single point of failure. We are as well secondly platform-agnostic.
A good example of this resilience in terms of being platform agnostic is, for instance, the naval domain where we serve in France Naval Group for the French Navy, where we serve the Royal Navy with Babcock for the Type 31, where we serve the German Navy with Damen F126 frigates. So we see that we maximize optimize our footprint in terms of go to market being platform agnostic. Another example I could take, this one is probably could be seen as more controversial, but it's not controversial at all in our mind, is the deal that was sealed between Australia and France in the submarine domain. When the Australian government changed opinion and decided to cancel this deal, it was a lost opportunity for Thales France.
But the day after it was a new Thales U.K. and since then it has been a source of business for Thales U.K. with BAE and they are clearly part of this new AUKUS arrangement between Australia, the U.S., and the U.K. Another and the third factor, third element in terms of resilience is the fact that geographically speaking, we are, I would say, present in many countries. And again, we are not facing a kind of a single point of failure because we are super dependent on one export country. Clearly we are dependent on our domestic countries. Domestic countries being Australia, being France, being U.K. but in terms of export countries, we do not face, I would say any single point of failure. And this is for me a key advantage.
Lastly, when you look at the composition of our orders, the fact that almost 50%, 45% to be precise, on this line, almost 50% of our order intake is made of orders smaller than EUR 10 million . It's also a great advantage. We do enjoy, I would say big contracts still for sure, but clearly smaller contracts are much less politically exposed than larger ones. So having half of our orders being I would say less visible, I would say more sticky in terms of order, it's also a great advantage for Thales. Moving to the second priority and speaking about our willingness, our objective to premiumize our offering, what do we mean by that? First of all, premium is not luxury. If I may be a bit pedagogical, it's not luxury.
Luxury is clearly another world where there is a stronger and a clear decorrelation between price and cost, where clearly you organize de facto the scarcity of your own product to push up the price and where you enjoy a long established, very strong brand. I'm not talking about this type of industry. Being premium is a bit different. Being premium is to play with all the elements that are on this slide that make your products. When I say products, I mean solutions, services and so on and so forth. Always a bit more, if not much more desirable compared to the competition. So how to increase the desirability of our products versus our competitors from time to time.
To explain that notion of minimization of non-experts, I take the example of another world, B2C world or Apple, which is considered as being premium thanks to great design, a great user experience, a great quality support and service, and also innovation and technology. If you take these different ingredients, you could translate them into our. Sorry for the mic. We can improve, of course, not only the technological innovation aspect of our products, which is absolutely key, but also improve quality, the support and service, the design, user experience to be considered at the end of the day as being more desirable versus competition. This has concrete consequences, of course, if you reach this level of desirability by gaining market share and by being able to price more and better when you sell your products versus the competition.
Now coming to the third priority, and you would have been surprised if I would not have mentioned it, it's key. The role or importance of technology at Thales. It was true. It will continue to be true. Looking forward, number one, I think that we clearly have reached for a while now what I call a critical mass. We have the right size to embrace very large scope of technologies that are all useful for the different verticals or different type of applications, thanks to the size of talent, clearly. Would we be a pure player? That's a question we still get from time to time with Pascal. Would we be only a EUR 10 billion company?
In defense, for instance, we would not have the right size to invest EUR 4 billion in R&D, to have 33,000 people in R&D at Dallas out of the 80,000 people, by the way, and as you can see on this slide, we are not trying to embrace a very large scope of disciplines to work with the most prestigious scientists with Nobel Prize down to very pragmatic development for our products and solutions. Secondly, it's being a technological group. It's also a question of anticipation. We shall not miss the next wave, if I may say that we will have to surf in terms of technological breadth. That's what we have tried to represent, this kind of S curve, showing that concretely speaking, we are investing in technologies of today, but technologies of tomorrow and the day after tomorrow. We are obsessed by being always in anticipation.
Looking at the technological evolution. Another and last characteristic I wanted to share with you, that again should give you confidence when you invest in Thales that we will be still world class in five to 10 years ahead of us, is the fact that we are both a technology creator and a technology integrator. That's why you find two colors on this curve, a green one and a blue one, showing that yes, we do create technology. When we work on quantum, on SQUID, on NV centers, on cold atoms, we do create our own set of technologies. But at the same time, of course, we know how to embark technologies developed by others. And a good example is cloud computing. We didn't invent cloud computing, but we have the right skills, the right knowledge to embark cloud computing technologies in our solutions, products and services.
Moving now to a particular technology, a specific technology or technological field, because it's not a single technology moving to AI. AI-wise because AI is clearly the new hype. So again, you would have been surprised if I wouldn't have spoken about AI definitely in this particular set of technologies. Again, we have clearly the we say appropriate critical mass to develop at scale and at speed. I would say AI features for products, solutions and systems. So we have announced beginning of this year, an acceleration in domain with this cortAIx. I would say accelerator, which is based on three pillars: cortAIx Lab work on I would say technologies that are useful for us and typically TrUE AI which is a breed of AI much different compared to the one used by the GAFAs.
Of course we cannot use the one developed by the GAFAS as such in safety critical domains. The second pillar being our cortAIx Factory. It is an AI factory. How do we industrialize AI for all our decision aid making systems, like an air traffic management system, like a command and control system. The third being cortAIx Sensors. How do we embark AI features in our sensors? For those who follow the demos, for the pods, for the radars. You have seen how AI algorithms have already started to be embarked in our sensors. It is always even more convincing when someone else explains or says what we do in terms of AI. We are going to show a short film coming from NATO. It is not a Thales film.
This has been produced by NATO explaining what they do and by the way, mentioning one of their key partners to support them in this AI field, which is named Dice. If you can launch the video, please.
In the ever-evolving landscape of modern warfare, the need for precise and timely decision-making has never been more critical. The complex operating environment to master the level of understanding that goes beyond human capacity alone. The sheer magnitude of information, the speed of engagements, and intricate weather variables create a battlefield where human cognition alone falls short. The NATO Science and Technology Organization recently brought together scientists, researchers, and military operators to test a new system that merges artificial intelligence with command and control.
I think there are many opportunities to use artificial intelligence.
We need to build our situational awareness.
Because artificial intelligence will help either to b etter address these data deluge coming from e verywhere, from the battlefield, coming from any i nformation environment, coming from Space.
You have to bring that somewhere, and the first is a command and control chain to the decision making. We have to win the battle of opportunities.
In the heart of our command centers, AI is emerging as a force multiplier, providing our military with unparalleled capabilities to analyze, adapt and overcome the complexities of the modern operating environment.
Artificial intelligence really underpins so much of what NATO now does, right from military o perations through to political decision making. It is the backbone of so much of NATO's activity. And because of that, NATO is taking a very broad approach to adopting AI.
The NATO team proved a system named WANTIS during a recent exercise. The AI-enabled command and control tool based on NATO STO research and created by French aerospace company Thales is designed to aid decision-making in an operational setting. Using its inbuilt war gaming tool, its advanced machine learning algorithms and analyze real-time data, predict potential scenarios and offer actionable insight for military decision makers.
It's not the machine, it's the human in the loop who will decide it.
But you will have the opportunity to g o faster, to get some proposals faster than ever. And the aim is to the edge.
Faster than the adversary.
Strategic partnerships between NATO, industry and academia from across the alliance allow for the pooling of resources and knowledge, enhancing the development and implementation of cutting edge technologies such as the ARTEMIS project.
So this was this interesting testimony that illustrates one given example our implication in AI. With our customers now moving to the fourth priority. How are we going to attract, recruit and retain the talents we need? Because to grow the business engineering and for that we need more talented people. So we of course behind the great businesses that we run at, we worked as well on other routes to make the company as attractive as possible. Expressing our sense of purpose, developing thought leadership with heavy commitments. In terms of importance of STEM, I also take partnerships with academic or top universities and academic clubs and as well explaining how what we do really contribute to tackle some major societal challenges. To give away a bit of sense what we do on a daily basis.
On this front, I think the challenge is well under control and the proof lies in the pudding. If you look at the figures this year we would have received one million résumés, one million candidates at Dallas, and we have been able over the past few years to hire over the past three years nearly 30,000 people. I could have said 50,000 people over the past five years. So I'm not saying that it was an easy journey, but we've made it and we can be considered looking forward now the next challenge, which is, I would say, work in progress, but I'm confident about it: realize what we call putting in place a genuine learning company. What do I mean by that?
All these newcomers, these new hires with a good, if not a great academic background, well, are not from day one cyber experts or radar experts or Space experts. So we do need, of course, to upskill them, train them, to make them, to transform them into real experts in the domains in which we are involved. For that, of course, we have developed this notion of learning company. We have, I would say, professionalized, have not started from scratch, of course, but we have professionalized the way we upskill people with the setting up of internal academies, professional academies, by allocating time as well to this key task or key responsibility, and also by measuring what we do. It's always important to measure what we do with a set of indicators that is very useful to measure progress in this.
Last priority, of course, is to continue to work on ESG matters. And what makes Thales a bit different compared to other companies is the fact that we do contribute to more than the sole environmental challenge. This one is important, of course, and it's part of the plan. But considering the nature of activities, we also bring our contribution. And I'm always adding in a modest way, for these challenges are immense. But to make the world safer and not only greener and also more. It's true on two fronts.
Externally, or I would say if we take an outward looking stance, if we look at what we do in terms of products, services, solutions, yes, the ultimate game or the ultimate, I would say utility of these products, solutions and services are make the world safer, which is obvious in defense or in cyber, to make the world greener. It's obvious when we look at our Space business, which helps the scientific community to better understand the impact of human beings on Earth. And in terms of being more inclusive, when we bring legal identity system to countries that have no legal identity system, meaning that as a human being you have no existence. But we also work on what we do internally and typically we have mentioned here several examples, no time to comment or to develop all of them.
But it is the case when we developed what we TrUE AI, transparent, understandable and ethical AI in our many areas, in particular for different defense businesses. It's also true when we submit our carbon trajectory to the SBTi to demonstrate or to make sure or to prove that our, say, commitments are credible and robust. And it's also true when we, I would say, participate in community engagement on STEM, as we do think that we need our world needs more and more engineers. Now, of course, all of these results in figures in terms of financial trajectory, what do we foresee for the future. So all of these, I would say, brings credibility to the growth on which we are committing today 5-7% in average over this period of time. And in terms of profitability, between 13% and 14% EBITDA sales in 2028.
Of course. And Pascal will probably spend a bit more time on the important question of capital allocation. But the simple, I would say, message is that we are not going to change our stance. We are going to continue to use all the different levels that are within the toolbox. Of course, organic growth investment in terms of organic growth M&A dividends share buyback. They are part of the toolbox and will have the full set at our disposal. And of course we apply ourselves selective and pragmatic approach in terms of M&A. But as I'm already very late, we.
Will come back on this during the Q&A. I'm looking at Pascal.
Sorry for that last slide, and I will hand over to Hervé Dammann, who is just to give the future ID card of Thales in 2028. That is what we would look or should look like 2028. A company greater, having a turnover above EUR 25 billion, investing around EUR 5 million. R&D being a sustainability, being an attractive employer, having managed our portfolio proactively and having a 100% premium product portfolio. That's the ID card we would like to represent in 2028 for those who will be still with us at that time. And this concludes my presentation. Thank you for your attention. And now I'm leaving the floor to Her vé who will present our defense activities in more details. Hervé, the floor is your.
I'm excited to launch the business reviews with defense. I'm Hervé Dammann, I'm in charge of one of the different business units within the group: Land and Air Systems. Let's start. So what does defense mean for Thales? The defense business accounts for roughly half of Thales revenues. In 2023 we achieved a turnover of EUR 10 billion with a margin of 13%. I will explain during the brief today what we concretely do in defense. But to start with, I wanted to give you, let's say, an identity card of the various defense businesses. First key aspect clearly, as said by Patrice, acceleration of 7% in the past two years compared to 4% in the years 2018-2020.
Then, an outstanding level, outstanding commercial performance, generating a very important backlog, I would even say unprecedented backlog in defense, which gives us I would say a very nice visibility for the long term. Globally, we do rely on a very reasonable model. On one hand we are serving a large number of customers, in a large number of geographies, on the one hand. On the second hand, we are also serving, let's say, all verticals, air, land, naval and joint which make us very resilient against geopolitical changes in one context and of course which give us quite a long term visibility as well. So as promised, let me take a minute now to explain a little bit more in detail what we do in defense. We said our mission first is really to support armed forces in their decision moment across all domains.
For that we have a unique position across the value chain. First element, data detection and gathering with sensors. It's a little bit, if I take a simple image about what you hear, what you see, what you feel with our sensors, electronic sensors, radar sensors, electromagnetic detection. Data transmission is everything about secure communication. You have the data processing and decision making. It's a little bit the brain in defense called the mission systems. It's where you decide which action to take. Finally you have the action, the effectors, which is the first pillar of that approach. Of course, across that value chain we are able to leverage some enabling technologies that we master quite well in Thales and for instance cyber security, AI or quantum.
So let me now illustrate with some concrete examples what that kind of positioning mean for Thales in defense. For first example, air defense capability. You have all heard, I'm sure, about Ukraine and the fact that they are facing, they say, a variety of diverse threats like missiles, helicopters, drones. On this photo you will easily recognize the four bricks I was mentioning before. The sensor here on multifunctional radar, the communication system, the brain of the system, the emission system, and then and finally the effector, in that case a missile. Thales is represented across all the chain. Also leveraging key enabling technologies such as cybersecurity in that case, and now I illustrate this differentiator with what we do on board of air combat aircraft like the Dassault Rafale, for example.
So in fact we provide leading Avionics equipment on board of the aircraft bringing air superiority to the Dassault Rafale. It's a little bit to give you an idea if, let's say we allow the pilot to become a real tactical decision maker rather than simply analysis of biosensors on board of the Rafale. So just to give you a feel, Thales equipment accounts for 25% of the total value of the Rafale. So we are therefore in full support of Dassault to, let's say support the success story of the Rafale in the future as well. So now if I move to a typical naval platform, it's pretty much about the same. So we combine high performance sensors together with the ship brain, the mission system, which in naval is called combat management system.
And with some effectors, everything being linked together with secured communication networks and cybersecurity systems. And to give you a figure as well, for naval, the weight of Thales equipment on board of a typical naval system is about 20%. So now that you have a better understanding of what we do in defense, at least let me explain or let's have a look on the dynamic of the market. So of course, let's say it has been said already by Patrice as well, the market in defense is clearly growing. Global tensions around the globe have triggered an increase in long term military spending. That's clear. Many countries are now becoming aware, and this is important, they are becoming aware of the need to rebuild long term military capability. This is one aspect.
And second aspect, many countries are also unfortunately preparing for say high intensity conflict in the future. So this is the main reason why we do expect, let's say, a long term growth decade of growth in fact, in front of us in the defense segment. And as you can see on this map, Thales is also favorably positioned, let's say, on the right geographies, globally, worldwide, let's say the market growth is expected to be at roughly 4%. But if we combine, let's say, if we look at the exposure of Thales geographies as to the market, we do expect a market growth of 5.5%. So now let us come back to Thales and let's say the premium positioning that we have in defense, which we believe relies on a unique combination of strengths which will be our common thread in the future.
We can categorize those ranks into three pillars. First one, the strong foundations. This is about the unique technological breadth and depth. I will come back on every strength later in the presentation. The second one, still in the strong foundation, is that we have right products at the right time. But those products are also world class, combat proven products, which is today a key buying factor in the defense segment. Second pillar of strength, operational excellence. We are able and are demonstrating to rapidly step up production rates for especially high demanded products by our customers today on one hand, and also we support our customers with premium services throughout the entire life cycle of those products and finally sub pillar.
We are getting prepared for the future by investing and developing the new star products of tomorrow on one hand, and also by anticipating new technologies, disruptive and new technologies. This combination of strengths is really unique. Some competitors may have some of them or one of them, but to our knowledge, no one has all of them. So that's why we believe this positioning is really unique. So let's now come to those six strengths one by one to explain them a little bit more in detail. So first our unique technological depth and breadth, which puts Thales really at the core of the customer operation. So what is it when we speak about the domain and operational breadth? So domain and operational breadth is that we helped armed forces across all domains, meaning the first.
This is what I've said at the beginning, naval, air, land, and joint into all those domains in order to provide them with consistency across all those domains. This is the first part. What is the technological depth? Technological depth is that we master critical components, we can integrate those components, we integrate those critical components which are, let's say, the key for top-notch performance into products and we integrate those products into system. This is, let's say, the way it works. If I take just one example, I will take the example of naval. Remember the slide I've shown regarding the naval positioning before? We deliver, let's say, the naval combat systems for the main military vessel, which is really the brain of the vessel, where you do a central command and decision making at the core of the vessel.
To do so, you need to use, let's say, data coming from sensors, so radar to look at above-the-sea threats and sonar to look at underwater threats, for example, typically submarines. To have top-notch performance in those products, you need to master critical components. For example, gallium nitride, in that example for radar, and ceramics. When I say mastering critical components, it's really about producing, developing, and producing those components. This is what we do in Thales, which makes us unique compared to the competition. That pattern which I have explained for naval can be replicated all across the domains in land, in air, and in joint, hence making us really unique in that market. This vertical integration is key, is really key to keep the differentiation on the long term.
One hand, to give freedom of operation to our customers, and also it makes us really autonomous versus other approaches. Second strength: our product performance. They say yes, our product performance is really recognized by the world's most demanding customers on the planet. So I will spare you the technical details about the product, unless somebody is interested, but maybe after the session, just to give you three recent illustrations of recent commercial wins. The one with the U.S., where we are delivering, let's say, sonars to provide decisive anti-submarine warfare to the navy.
Here we won, let's say for the third time in a row, the most important award in that domain and which has allowed us, let's say, to penetrate the US market to provide sonars, which is the yellow product you can see on that slide against the U.S. players. We can really say that in this particular segment we are the leader in the world. Second example with U.K. where we provide, let's say a mission combat system for the Type 31 frigates as discussed by Patrice as well in this presentation, delivering many equipment on board of those frigates, which is a key program of the U.K. MoD. The first of these frigates will be at sea as soon as next year. Last example with NATO where we have been selected by NATO to provide the first ever defense cloud which will be deployed in the battlefield.
Cloud is. What is it about? Cloud in defense is simply. I don't know, but at least it is mixing commercial and civil technologies existing on the market together with specific armed forces needs and providing the very resilient and secured network information into the cloud. And we have been selected in competition by the way in NATO, which is a great example as well. So our products are high performance. They are also combat proven and adapted to customer needs which are seen today. And two nice examples may be to illustrate this third pillar. The first one is about the story or the success story of the Ground Master radar. The Ground Master radar, as I have explained before, is really at the core of air defense systems. We have been selling since the introduction of that radar in the market.
[200 to 270] radars, more than 35 countries in the world. It does represent a turnover of more than EUR 5 billion. You can see, I believe, or you can guess maybe to the extent of the references of the Thales footprint, thanks to the map. On the right hand side. On the right hand side, yes, of the slide. Second example, which is. Yes, it is on the left, sorry, on the left hand side. The second example it's about, let's say the unique end-to-end connectivity in the battlefield. It's true that we have presented already that example during last capital market day some years ago. We say why. The reason why we are presented again is that we have enriched a lot that approach, that solution.
Thanks in particular to the feedback we had with the MoDs of the Ukraine war and today the keywords are deployable hybrid networks, cloud integration with Space-based solution, cybersecurity, of course, and guess what? We can rely in the defense segment on our colleagues, which will come on stage later in the Cyber and Digital division or in the Space division to provide those services and integrate them as per market needs, which is really unique, as well as positioning. So now that we have been through the foundations, so the technological depth and wealth of our portfolio that we have also you have seen that we have the right, the right products and solutions that we sell worldwide. Let's now move to our next stage, Operational Excellence.
So we are first pillar able to rapidly step up the production rate for the products which are in high demand by the market, and we have indeed organized internally and externally to accelerate the production internally by investing in some of our production sites and externally to support, let's say, our supply chain, so let me just take a few examples to support that in radar, so you've just seen before how the radars are, let's say, a product which are in high demand in the market today. We have ramped the production by three in France and Netherlands, which are our production sites. You are, I guess, well aware of the success of the Dassault Rafale aircraft. We have invested of course to support the Rafale ramp up so as to be able to deliver triple the number of chipsets that we deliver to PAs.
So every year, and last example, there is a high demand in terms of effectors which are especially due to Ukraine war. And we are increasing the production capacity not only to serve, let's say, the needs of Ukraine, but also to serve the need of the MoD to replenish their stock to achieve this. That was internally. To achieve this, we are constantly working with the supply chain by first, as much as we can, or whenever we can to introduce double sourcing on some components. Second, by anticipating, let's say, some stocks for critical components in house. And third, by giving say more visibility to our suppliers on the worldwide demand, give them some long-term contracts or multi-year. Second pillar of the Operational Excellence, it's about service.
So we support and this is really an important pillar as well the customers throughout, let's say, the entire product life cycle with what we call premium services. And premium is not luxury, as it has been said already. So and our customers are really eager for that for at least I think three main reasons. First, we are helping them, let's say, we are increasing their equipment availability, which is, I would say obvious or sounds obvious. We provide predictive maintenance as well and we are helping them to some extent to serve some operational challenges. And for us it's also a good way to introduce new services, data AI services on one end and also finally to increase the customer satisfaction. And the beauty of this model of course is that those contracts are giving long term visibility to Thales.
And as you can see by the way on the example on the slide now, EUR 1 billion for 10-year contract with the French Air Force for air command and control system, national air command and air control system, or GBP 1.8 billion for a 15-year contract with the Royal Navy to increase the number of days the ships are active in the UK. So as you can see, this approach is really providing us with long-term visibility which helps us also to develop and to increase what we call the customer, our customer intimacy. And the combination of those two aspects is of course a good ground for developing the capability for us to catch new contracts with those customers. So we have the right products for the customers today, we support them with premium services.
But that's not all, of course, we need to prepare the future. So this is the civil and defense strength. So we are preparing the smart products of tomorrow. And I will just give three examples among a very large pipeline of products and solutions that we are currently developing within the group. The first one being radios. And the next generation of radio will offer, let's say, unique capabilities, especially to operate in very saturated environments, such as one we are currently seeing in Ukraine, to be clear. So they are ensuring critical communication capabilities while being able to face very powerful jamming on one end and also while offering discretion or the most discretion approach in the battlefield. And of course with those radios we will be able to leverage, let's say, on the very large installed base that we have won in the past.
Second in the middle, we are also developing currently. I said the new generation of air defense systems, multi-layer, multi-effector. So it will be really the most sophisticated air defense system in the world, we believe, which will be able to give nations the possibility to defend assets and citizens against the new kind of threats that unfortunately, sometimes the news are coming to us like ballistic missiles or hypersonic missiles. And France and Italy have already secured orders and we do see quite a high demand for those kind of systems on the worldwide basis.
And last but not the least, let's say the future airborne radars were granted developing the new airborne radar, because we have been already awarded to do so, which means that we are already an important supplier as I have seen, as I have shown before on the aircraft of the Dassault Rafale aircraft. We will remain the same on board of the future generation aircraft as soon as it will come. Finally, we continue to invest, let's say, in new and disruptive technologies. It has been explained a lot by Patrice at group level.
If I take, let's say defense, of course I could have talked about maybe a quantum or laser or even hydrophobic material, but maybe I will spare that for today and rather give a word in the continuum of what has been said by regarding cortAIx, regarding AI and how, let's say we put AI at the core of the defense solutions. So indeed, of course we are relying on cortAIx and we are really relying on three main strong differentiators. First one is we have a leading position in sensors. So we are also able to integrate AI in those sensors, to embed AI in those sensors, hence improving the performance of those sensors, especially in very constrained and contested environment. Second one, we have a deep knowledge of our customer operations.
We are. I've said that many times in the presentation. We are at the core of the operation for customers and leveraging on data. On those data we can deploy AI either to increase system autonomy or to decrease cognitive load of operators. And by the way, the film on NATO just before demonstrating how AI can decrease the load of operators within operations. And the third is that we are able to develop specific algorithms in house in order to integrate AI within defense, which is really key, especially to integrate security and cybersecurity within AI. So we have already many examples, if not done already. I invite you to go during the demo tour to see some of the demonstrations and just to mention a few. In sensing, we can show how to discriminate birds from drones. Sorry.
Or, for example, autonomy with the mine warfare. So of course with AI for us is going to be the possibility to develop new businesses, but also to reinforce the strong premium positioning that we would like to achieve, that we are achieving with our customers, which gives us a very nice customer intimacy. So here we are. I'm pretty sure that you were all expecting this slide. So what does, let's say, this overarching story mean for the financial trajectory in defense? So for defense, let's say the growth will be strong and robust, 6%-7% growth over the period 2024-2028, hence overperforming, let's say the market in which the States, on one hand, and in terms of profitability an EBIT margin at 13%, which is on par with best-in-class US peers.
So as a form of conclusion, if I may say so, I would like to insist on something which has been said already, but I think it's really important for defense is the long term visibility, long term visibility that we have in our business, which relies on a series of factors. First, as said before, an unprecedented backlog which will be even higher at the end of this year. Second, a true real visibility in the various markets we play. Third, the quality of our products, or I would even say our portfolio of products in general. And finally, a strong customer intimacy, which all of that give us, let's say, confidence for the future. Thank you very much.
Good afternoon everyone. My name is Hervé Derrey. I'm heading the Space activities in Thales and I am the President and CEO of Thales Alenia Space. So what are Thales Space activities? It's constituted of two joint ventures. On one side, Thales Alenia Space, which is dedicated to Space infrastructure, the associated ground, digital as well as modules for everything related to Space stations and rovers. On the other side, and this activity represents a turnover of EUR 2.2 billion in 2023. On the other side we have also another joint venture which is Telespazio dedicated Space analysis. Thales Alenia Space is 2/3 owned by Thales, one third by Leonardo and the other joint venture has exactly the reverse participation, focusing on Thales Alenia Space. As you can see, we have a set of different activities.
We have the domain of observation, exploration and navigation represents 70% of our annual turnover and which is mostly related to institutional segments, our, let's say Space agencies as well as defense. And we have 70% of our turnover that relates to telecom, most commercial, but also defense in that domain. And as you can see, we have a quite significant footprint in Europe, especially in our two main countries, France and Italy. Together two joint ventures form what we call the Space Alliance that combine, let's say, the strengths of Infrastructure and Services and sometimes have common offers. In Space, our focus is on profitability and I'm going to talk about our financial trajectory, which is based on a baseline scenario, assuming a modest growth. As you can see, even though we are pursuing specific upside or specific additional growth opportunities that we didn't factor in our financial scenario.
Looking at our two domains, OEN observation, exploration, navigation, we have enjoyed significant growth in the past three years, up to 11% CAGR. This is the domain in which we expect, in fact, stable for the years to come. And in telecom, as you all know, this is a domain for which our customers, the telecom operators, let's say, are facing a certain level of disruption coming from the Starlink constellation, from SpaceX, and which has turned our geostationary satellite market from 20 satellites per year to about 10 satellites per year. But we see additional growth opportunities into the demand of constellations that did not enter our financial scenario at this stage. Another key characteristic in telecom is that we have this year, especially in 2024, we have a high level of R&D related to the development of our core product, Space INSPIRE.
It's a software defined satellite, a very advanced and very innovative product that basically represents, let's say an abnormal or high level of self-funded R&D that will decrease the EBIT. So in a nutshell, what I'm going to explain to you is how we are going to basically reach this higher profitability by sizing and optimizing our footprint, our organization. Focusing on this baseline trajectory that I described, assuming at this stage a modest growth trajectory, but at the same time selectively pursuing opportunities. So let's now look at the two market segments of Avionics and Space. Starting with Avionics. This market has grown over the last years and is going to stabilize. As you can see, overall addressable market size is estimated to EUR 15 billion for 2028 on the basis of a CAGR of around 1%.
When looking at the different subsegments, I start with observation. What do we call observation in Space? Two sub-segments on one side, environment monitoring. You might know that 75% of the parameters or the indicators that are used by the IPCC members are coming from Space. But also observation relates to defense. With observation satellites that provide intelligence, surveillance, and reconnaissance information to the militaries. This market is expected to be stable over the next years. Second segment navigation. Navigation is everything related to geolocation, both for consumer applications, but also for applications like secure aircraft landings. In that domain we see a slight decrease of the market in the years to come.
Finally, the domain of exploration and science, which is an EUR 8 billion market for us, which is constituted of, as I said, Space infrastructure, typically everything related to pressurized modules in Space stations that can apply for the International Space Station. I'm going to come back on that. It also includes the future lunar mission. It also involves everything related to missions on the moon, missions on Mars with robotic missions. We have also put in that segment new domains such as in orbit servicing as an example. This demand is expected to grow in the years to come. Now let's look at our own positioning, the one of Thales Alenia Space on that market segment. I start with Earth observation. As you can see, our current revenue level is EUR 600 million in 2023. We expect a stable revenue for the years to come.
Our baseline scenario, the one on which we have built our financial trajectory, is based on our current position, our current very solid position. First observation for environmental monitoring. It turns out that the so-called Copernicus that you probably heard about. Basically we are on five out of the six new missions of Copernicus that provide data for Earth observation. Data such as CO2, CO2 emissions, let's say everything related to the ice melting as an example. But we have also a very strong presence in observation for defense, being the champion in France for optical observation and the champion in Italy for radar observation. And the combination of optical and radar is extremely powerful because optical provides extremely accurate data. But has the disadvantage of not looking through the cloud or looking being able to see at night, which can be done with radar.
We have this unique value proposition of being able to combine optical and radar. We see as potential additional growth opportunities not factored in our financial trajectory. Future observation program for security in Europe as well as a number of export defense opportunities in the Middle East and Asia. When it comes to navigation, it's a domain in which we have an annual turnover of around EUR 500 million. Here also we see a stability over the years to come. Our strong positioning today is on the Galileo system. You know, Galileo is the equivalent of GPS in Europe, where we are both. Well in fact the European leader providing at the same time the Space segment and the ground segment. Here also we see additional in a system LEO PNT. You might have heard about that.
These are new constellations that will be at low Earth orbit and that will provide extremely accurate positioning. Basically it will enable autonomous cars. In that domain we have already won a demonstrator with the European Space Agency. We see an opportunity for pretty large programs that will be deployed in Europe and potentially in other countries. There are also other export opportunities for navigation systems in Asia and in the Middle East and Africa. Finally, exploration and science. It is a domain in which we expect growth, 7% growth in the years to come. We have a strong position that demands we are probably one of the real world leader in what we call pressurized modes. If you can go and see the demo available there, you will see what it represents.
One of the best hidden secrets is that we provided 50% of the International Space Station pressurized modules. It turns out that we are also now in fact participating in the ARTEMIS program, which is a return of man to the moon. It will consist, it will include in fact a Lunar Gateway which is going to be a lunar station if you wish, as the kind of first post for the astronauts before going to the moon. We provide big majority of this Lunar Gateway. We are also present on the lunar and Mars exploration. As an example, the ExoMars program which will basically extract samples from Mars in order to see if there is life on Mars in that domain. We see also great potential additional opportunities. First is the new commercial exploration programs.
As you might know, International Space Station is going to be discontinued in 2030 and there are companies that are willing to deploy commercial station and one of them is our customer Axiom . But we see also additional opportunities in orbit capacity to do maintenance in orbit as well as export opportunities for the ARTEMIS program. Let me now come to telecommunications. So a short explanation on what are Space telecommunication systems? As you can see, those systems can operate over different orbits. With these different orbits you have different, let's say use cases. Can be applied the geostationary orbits, very well known systems which are always facing the same, let's say the same continent or same areas of the Earth. These are systems that can provide services such as broadcast TV but also broadband internet.
Then you have constellations, either medium orbit constellations called MEO or LEO constellations that can also provide broadband communication as well as the D2D direct-to-device services. Basically the capacity to communicate with your mobile phone through a satellite. So as you can see, let's say the size of each of these projects differs. GEO satellites, this is typically from EUR 150- EUR 500 million. Whereas LEO constellations can go up to EUR 2 billion and LEO constellations can even go up to EUR 10 billion. I'm not going to detail, let's say the pros and cons of each system, but we see real complementarity in these different orbits. As a matter of fact we design for our customers architectures based on multi-orbit solutions that basically combine the advantages of each of these orbits.
When looking at our references, this is the blue side of this, the right side of this chart, you see that we are present in all orbits. We have a very strong, let's say leadership in geosatellites, both for military and for civil application. We are also present and we have demonstrated capacities in MEO and LEO orbit in EU. We have done the Iridium NEXT system which is extremely well. We have put it in italics. IRIS². IRIS². As you probably heard is the future European Constellation that is supported by the European Commission. I have put it in italics because this program is not fully launched. It has just been recently awarded to three operators and the contract will come into force early 2025. So when talking about telecom, what is their position?
Annual revenue EUR 700 million. We expect we basically have in our plan a growth of 3% in the years to come during the period. Our baseline scenario is based purely at this stage on a conservative basis on our geo market, where we have a very strong and recognized position thanks to our, let's say, very strong positioning in digital processing. It turns out that we are the recognized leader digital transparent processors, which is the key for flexibility in communication satellites. And this capacity is of course very important for geosatellites but also for installations. So our business scenario assumes GEO based on our 33% market share and based on the strong backlog for new products, as I said, called Space INSPIRE. We are also obviously counting on our position on the military geostationary satcom business.
And here also we see a number of additional opportunities that we once again didn't take into our baseline scenario. This is projects related to military satellite communications, but also broadband constellations. At this stage we took. We didn't factor in our scenario as well as other consolidation opportunities, especially in the domain of Direct-to-Device . One word on Telespazio. As I said, Telespazio activities. These are two joint ventures. So Telespazio is the Space activity. EUR 700 million turnover representing three activities: operations on one side, the geo information and satellite communication. This business is sitting on a quite steady growth market. 7% - 6% annual growth expected during the period 2023 to 2028. The strategy for Telespazio is to on one side consolidate its position on existing market, on the European market and on the different segments on which it's currently operating.
But also to expand, expand geographically on one side, but also expand into new domains such as the exploration, space logistics, space traffic management and space situational awareness. Altogether, Telespazio is planning at a pace either equivalent or even faster than the market and to reach 11% return on sales by 2028. So I told you that our focus was profitability. So what is the path to profitability for our Space activities? In 2023, the level of profitability of our Space activities was 1%. Our trajectory, our plan is to go to 7% plus in 2028. And the bridge from this 1% to the 7% plus is made of the following elements. On one side, even though there is a modest growth. There is 2% growth that will generate additional EBIT.
Second topic, I told you that we have an exceptional level of R&D in 2024, a peak in 2024 that will gradually decrease in the years to come. We will come back to a normalized R&D level in the future to come, which will obviously positively impact our profitability. Third element, it turns out that a number of our backlog projects in the Geotelecom domain have been signed before the Ukraine war, before the inflation. These projects were signed on the basis of fixed and firm price and therefore, when implementing them we see, let's say, a lower margin, what we expected at the first place, which has a dilutive effect that will only disappear when these projects will be completed. So here again, once those projects will be completed, we see a positive effect on our mix and our profitability.
The fourth element, which is in fact the most massive element to our path to profitability, relates to our adaptation plan. We have announced on 5 March a major adaptation plan for Thales Alenia Space constituted of, let's say, a redeployment of 1,300 people within Thales group and also significant cost savings, the structure side as well, on our supply chain side, and you see that this provides in fact the bulk of the improvement. This plan, this adaptation plan is going to be completed in early 2026, and finally, as I said for Telespazio, we expect a certain level of growth and an improved profitability which will also contribute to the path to profitability, so as a conclusion, I think you got the message. My mandate is to restore the profitability of our Space activities. We have based this, let's say, financial trajectory on a modest growth assumption.
But we at the same time follow and pursue additional goals of opportunities that I have presented to you. When looking at our OEM domain, our objective is to leverage our extremely strong position both in civil and defense to be able to acquire new markets on the export market as well as the commercial market and in telecom. Our objective is to adapt to the new normal for our geostationary market, but also these opportunities in considerations in order to rebound altogether. This represents a 2% annual growth for the period 2023 to 2024, sorry, 2024 to 2028 and an EBIT at the end of the period of 7% plus. So that's it. I'm now going to pass the floor to Yannick Assouad who will present you our Avionics business. Thank you very much.
Good morning to everyone. For those on the telecom, I am Yannick Assouad heading the Thales Avionics business. Now let's turn to our Avionics performance and explore in detail our positioning in the global market. Without further ado, let's take off on this short journey. Thales began its industrial transformation during the COVID period. To emerge stronger, we are rising with renewed energy and a bold ambition to build a more connected and sustainable future. In 2023 we reached a revenue of EUR 3 billion. While this is not yet at pre-crisis level. We are today on an upward trajectory with over 12,500 employees and a global presence. This is the characteristic of Avionics over the world across 38 sites. We are a global leader in connected Avionics and flight entertainment.
So let's take a closer look at our sales which highlights two key strengths that set us apart. First, we have a very balanced market between airlines, aircraft OEM, civil aircraft OEM and defense OEM. Our activities as well very balanced between OEMs sales and aftermarket sales. So this really positioning give us a solid foundation and secure our operation. We were talking about resilience. This is the way we are resilient at Avionics. And we are of course determined to keep that balance equilibrium between our different market and different type of activity. So let us dive into our market and their dynamics. All indicators in Avionics are really positive across the board. Whether we are talking about commercial aviation business, civil turbine helicopters, defense platform, advanced air mobility, which has as you see, very strong growth for sure, double digit and also support and services.
The Avionics industry or addressable market is worth roughly EUR 15 billion and is really solid across all those segments. We benefit of course from this growth, but especially since our positioning and we've seen it in the next slide is geared towards commercial aviation which is growing at a very robust 11%. Moreover, we have built a strong business across those five different segments with our support and services activity, and this growth will unfold in two phases. A very initial dynamic growth due to a shortfall in new airplanes. You are aware of the supply chain constraint that all airplane OEM are facing today, which leads the airline to extend the life of their older platform. Therefore needed support and maintenance for them, and this will be followed by more moderate growth, roughly aligning with IATA traffic forecast.
So in conclusion, we are driven with high growth market and we are well positioned into that market, mainly on commercial aviation. Oops, is something wrong? Apparently I'm missing a slide. Yeah, seems like I'm missing the slide. No, I'm not going to detail this slide but it shows you our product on the different segments. So we offer an extensive portfolio of over 30 different Avionics solutions across all market segments, as you can see. And we are present in more than 20 major global platforms which showcase our strong presence both in defense and civil aviation. And we have a major advantage. You can guess it from the slide. Our portfolio is really focused on the best performing market segment today which is.
As you can see from this slide, we have six key pillars in our strategy and rather than detailing them on that slide, I'm going to dive straight into the detail. Our first priority is to leverage our extensive portfolio in flight Avionics. We benefit from a strengthened Avionics portfolio which is really pivotal to our growth. To keep our market leadership, we focus on four key quadrants. First, the one that is displayed on the slide, critical computers, such as flight control but also integrated modular Avionics onboard airplane cockpit equipment with the man-machine interface including the flight management system. I hope some of you have seen our newest system which is called PureFlyt equipment demo outside, then the navigation and surveillance system and at last the cockpit connectivity that has been enhanced lately with the acquisition of Cobham Aerospace Communications.
Each quadrant is fortified by comprehensive cyber security from start to finish and really not a clear expectation from all our customers, whether defense or civil customer. Additionally, we are integrating artificial intelligence to optimize performance of course, but also enhanced safety which drive our growth trajectory and ensure we stay ahead in a very competitive market. Speaking about competitive edge today with our comprehensive cockpit solution, we have really everything needed to be the brain of the airplane. As I was saying, the recent acquisition of Cobham Aerospace Communications completes really nicely our portfolio and allows us to stand to extend our business to new platforms and particularly the upcoming platform from Airbus or Boeing in the commercial aviation field. As well new regional platform like the one that Embraer is preparing. Second focus the integration of Cobham Aerospace Communications.
So this acquisition was really a master stroke because it really completes perfectly what we were doing in the cockpit. We were holding the glass cockpit, the navigation surveillance system, the computer, the cyber security which is in blue at the bottom of this slide. And Cobham communication is provided, what is green and it's all the traditional communication means digital audio, radio, also newer communication with the spectrum communication and transition to cyber secure as well. So this entity allows us to address what we envision as the two key major challenges to come in aviation. One go to green trend. We aim at the 10%-15% reduction in emissions by optimizing flight trajectory and to do that real-time weather data. But you also need an efficient data link with the ground and with the air traffic management on the ground.
The second challenge that we have envisioned that the civil aviation will face is more automation in pilot function. And again, for that, you would need a cyber-secure datalink with air traffic management, so securing cockpit connectivity, especially satcom, is crucial to those two initiatives, and what I must stress is that it is available now, which allows us to start decarbonizing the civil aviation as we speak. It can start as early as now, and it gives us, of course, great confidence in the ability that we will have to deliver on our very, let's say, high-cost business plan on which we made that acquisition. Let's change topic and go to our third priority, which is if.
As you probably know, IFE has suffered a lot during the COVID crisis and now on the contrary, it is driving both in line fit and in retrofit with robust growth projected with growth rate 10%-12% from 2023 to 2028. This growth is of course driven by strong market demand for new airplane, but also from a vast increase of cabin retrofit again due to the supply chain constraint that makes new airplane difficult to be delivered. So during the crisis we didn't stop investing in this segment. We actually invested quite a lot and completely renewed our product portfolio. Our high definition product AVANT Up has been chosen and now is being delivered to major airlines like American Airlines, Emirates and Air India. We have also launched FlytEDGE which is the first cloud based IFE which is really transforming this industry.
You can imagine and think of it as this product being able to transform an airplane into a node in the cloud which allow you to have real time web services like you would be sitting at home. So that's really what FlytEDGE provides. And again I encourage you to see the product demo as this is a product we elected to show you to showcase what we are doing in IFE. This product which is brand new, not delivered yet, but has been selected by major airlines, one undisclosed one in the U.S. and Qatar Airways announced that two weeks ago. In the Middle East these two new products have been recognized by the industry with three Crystal Cabin Awards three years in a row at Hamburg so globally for IFC we are regaining volume with a high backlog and increasing profitability thanks to the volume.
So clearly our renewed IFC offering is positioning us very well to sustain growth during the years to come. Fourth element of focus. Yes, our support and services activity we benefit from a substantial and rapidly growing global install base. As you know, there are more and more airplanes flying. Additionally, we have expanded our footprint recently with a new facility to capture that specific market. We are really on par with our American competitors hosting a fully deployed network. And Thales is number one maintenance, repair and overhaul by Airbus which highlights our leadership in this field in the ecosystem, maintenance and overhaul world. It is worth noticing as well that our traditional and spare part services are evolving towards digital services assisting pilot supervision and trajectory optimization. Our connected application supports all Star Alliance airlines. So far at 65 airlines around the world.
It's really again a very global business from Europe to the U.S. to Asia. So in summary, our premium aftermarket service is really strategic Avionics of course supporting a very large airline customer base. So it is really without doubt great level for long-term profitable growth. Avionics has the same DNA as Thales, meaning the technology is at core of what we do. I'm going to give four examples of what we do in terms of innovation. I will start by navigation component, the component that locates an airplane on the earth where we are using micro-electro-mechanical systems to build inertial systems. Our work on autonomy building automatic flight function in the flight management system for reduced crew airplane. We have vision that clearly on some phase of the flight there will be less cockpit in the year to come.
Drones, which is really a perfect example of testing technology that will help autonomy. And right now we are developing Autonomy Piloting Solution for Drones that are connected directly and cyber-securely with the unmanned traffic management that is also provided by Thales and green operations to reduce the CO2 emissions as I said by at least 10% but probably more and connect the aircraft to the air traffic management. Our efforts span really from the component to the system and to the service as well to be a leader in autonomy, green operations, and advanced Avionics, and that will sustain our growth and profitability. Sixth focus. Last but certainly not least, and I said it started during COVID where there are very bad. So we have really four major transformations that are ongoing and that are there to enhance our competitiveness.
One is industry transformation undergoing many twists, digitalization, automation, and vertical integration of the supply chain and the resilience of the supply chain through the component crisis. Clearly, as Patrice spoke, we realized that we are not that resilient. So we are changing the way we procure. Double sourcing whenever possible, inventory when it's not possible, strategic transfer and multi-year contracts including firm orders into those multi-year contracts. We are also completely modernizing our engineering tools, bringing them to the cloud for civil applications and clearly using AI also to be faster and of course leveraging offshoring for productivity, but also to find the number of engineers we need to continue to grow. Last but not least, we are revamping completely our IT system to bring everything to the cloud again, to the civil cloud for civil applications, and to the protected cloud when it comes to a military project.
So all these efforts are directed towards one key objective. Enhancing productivity both in engineering and production. Boost margin and reinforce market leadership as we draw to a close. I'd like to emphasize that at Thales, uniquely, we are not just participating in industry. We have the mission to be a leader and we have a clear vision for that. We aim at achieving an organic growth from 5%-7% over the period with an improved EBIT margin going to 13%-14% coming from the 11.5% we achieved in 2023. I am extremely optimistic. As Patrice said, we are in a market that is really a growing market and we believe we have defined the right vision. We are recognizing that technology is crucial for building a sustainable future.
We've already shown tangible results, especially in 2023, providing great value for customers as well and enhancing our competitiveness and margin. And in summary, I fully believe that our strategic and innovative solutions position us to drive long-term profitable growth. And with that I think we go to Q&A and I would like to answer any question you may have.
Yes, thanks Yannick. Just before starting the Q&A session let's come back on Thales AI accelerator cortAIx. A quick video. We will start with the question from the audience. If you could please limit yourself to one question per person. Very nice.
CIC Market Solutions. In fact, my first question will be for defense in the trajectory of growth. I mean, I think you showed a very interesting slide on where Thales is and in its growth compared with the overall market progression. I think you show 1.5% increase versus the overall defense market. Therefore, my question is very simple. You're 6%-7%. What assumption have you taken for the global defense market in terms of growth in that period? Could you share that with us? Especially, you know, taking into account, I mean, we are in higher inflation and the CAGRs we see in Europe in all the defense market have increased quite significantly not only in Europe but also in Asia and Middle East.
So I was wondering if you can s hare a bit more detail on the a ssumptions you have taken for defense.
So indeed, as you rightly said, the assumption of growth that we are taking for the defense trajectory is 6%-7% and 1.5% on top of the 5.5% we see as a market. On the market which Thales plays a role in which Thales has, let's say given balanced geographical approach, that is for defense we are local by local. So we are playing in U.S. by having let's say domestic activity, U.S. serving U.S. while domestic in U.K. serving the needs of U.K. MoD who are local in France and so on and so forth. So by weighting, let's say the growth that we see in the various markets which we play the estimation of the market growth we see is 5.5% compared to an overall worldwide growth which is at 4.1%, so roughly 4%.
So we do see, let's say, us as a defense business also performing the overall market growth that we see. After region by region, it is maybe a little bit more, let's say, difficult to say. But indeed we are a major player in France. We are having, say, a little bit more than 40% of our global turnover made in France and we have, let's say, for instance, program load which is quite high and will be executed, hopefully. Yeah. So it means that there are going to be some regions which are going to have higher growth than the one we see and the one lower than we have said in order to have, as an average, 7% growth for the next decade. Yes.
So. [audio distortion]
But of course if the question was whether 6%-7% could be, let's say, only in the bracket on top of what we see in terms of market growth. It's also the fact that, as I've said during the presentation, we do believe that decade of growth, at least at that level, which is giving us long-term visibility and comfort and confidence on the trajectory.
Thank you.
Yes, that was going to be my first question. So I'll skip to my second question then in the within Space, would additional scale help here in increasing that growth rate from the 2%?
I kind of feel the underlying question, so I'm going to answer straight to the question. As a matter of fact, the adaptation or let's say the trajectory that we showed, it doesn't require additional scale. Obviously, like the other businesses scale can matter. It's a benefit. It allows to, let's say to share some fixed cost, but it's not required in order for us to implement our plan. And the trajectory addresses scale. In all our, say, capital intensive businesses, or let's say R&D business can always help.
Yes, good afternoon. One questionon defense. O n the split that y ou gave defense actually a small part of your portfolio. Is it something that you want to grow it? Is it something where you get better margins? Was it a choice to have such a low level of defense or just history or just to better understand?
Yes, indeed, I say we are globally in defense. The weight of effectors the four weeks across the overall value chain is quite limited, if I must say. But it is growing quite significantly currently given the request or the demand linked to Ukraine and also linked to the various armies looking at replenishing their stocks, especially in Europe, but almost on a global basis. So for us it's an activity which was always say present, let's say in the defense business, in Thales. Whereas another kind of activity which we rely for the future development after, if there are some. If we want to grow, yes, we will grow it organically, that's for sure. Along with let's say the growth that we're expecting in the various segments in defense that we are pursuing.
Yes, thanks Ross Law from Morgan Stanley. So on the Space margin, you said the adaptation plan is the biggest driver of that margin improvement, which you said was going to be completed by early 2026. [audio distortion]
So well, as I explained, so we will have obviously clear effects in 2026. There will be the full effect 2027, given that the program will be completed by the earlier early 2026. Of course for us to go through a social process, we cannot accelerate plan, but it's well underway as a matter of fact started even with a phase one in France, which the social process has been fully completed earlier and already in 2024.
Yes.
Two questions on Space, please. With Airbus no longer polluting the environment with aggressive pricing and becoming more disciplined, are you assuming pricing benefits of a lower price competition for the key competitor also market share gained?
That would be the first question.
Second, what would be the impact of IRIS², if you were to get that contract?
So in fact, as I said, dilutive effect that was related to the inflation situation that we have faced. So the market has adapted and we could basically check that and testify it through the recent win that we had this year with a customer in Japan on the price level that had nothing to do with the pre-inflation period. Meaning that there is an adaptation indeed of the market price related to, let's say, this new situation. Now back to IRIS². So IRIS² once again we stay a bit cautious at this stage because let's say the bid is still ongoing and we're not really supposed to comment on an ongoing bid. The contract is not fully awarded. But this could be a significant program.
As you have seen those legacy programs, the size of the overall program is in the range of EUR 10 billion, as you could read, and it would be a significant part of that program. On the Space infrastructure side, talking about a program that could represent several billion s for the company. But we stay cautious at this stage. Even the program has not been engaged yet.
Thanks. Just in the Avionics part you mentioned t hat with the integration of the Cobham t he Certus equipment, you could get t o a 15% reduction in flight emissions.
From real-time weather and optimized routing.
That's an enormous saving in fuel for airlines. So could you talk a bit about the extent to which it's software or hardware upgrade that could be retrofitted or can it only go on in the line? That seems like an exciting opportunity.
So there will be several stages to this deployment. And I said, you said 50, I said 15, 10%-15% CO2 saving just to make it clear. First of all, as I said, it's available now because you can receive. And usually the reason why today an airline is equipping an airplane with SATCOM is not today to communicate with air traffic management, but with their operational center. And what they do with it. They flow, they push to the airplane real-time weather data so that they suggest to the pilot a good level of cruise altitude to benefit, for example from tailwind rather than headwind. So this type of stuff is starting now.
And therefore the pilot has the ability to ask the ATM, air traffic management, a new route so that it can benefit from that, that better trajectory in terms of fuel consumption. What we are doing is that we provide assistance to do that. I talked a little bit about it when I talked about the services we provide. Optimum top of descent to have a continuous descent onto an airport that is not taking into account the data from the airplane, its load, its weight, its meaning, etc. Its position, of course, and a pilot today can ask the ATM and now it's fully, I would say, analog because it goes through the voice of the pilot and the voice of the controller. That, by the way, but it can also optimize and we are saving a lot of fuel through that type of operation.
The vision that we have is that in the future to come we'll integrate that in the FMS. So the flight management system so that we can compute automatically what is the ideal route for an airplane given the real time data, given the weight of the airplane, the configuration of the and transmit that automatically to the ATM. And since Thales owns ATM as well, we are working jointly with our ATM colleagues to work on protocols to exchange this type of data. And with that you can really go. Actually I was in Asia two weeks ago. You know, some flight you can save up to 35% of fuel when you see the type of trajectory that some airplane have. So clearly there's a great potential. And again, the technology is available now.
Hi George from Bernstein. O n Space.
So you know, ever since 2017, when
we saw the weakness in the commercial telecom market. You've been talking about the need to step up R&D investment. But overall we haven't seen that translate into higher growth. So has this become an industry where R&D intensity has simply become structurally higher than expected given the rapidly changing technology? Or what gives you confidence that R&D investments can indeed come down from this year?
It's definitely an R&D intense activity, I think. I cannot deny that the cycles of innovation are faster than they were back in 2017. It turns out that part of these R&D expenses have not yet translated into growth. Indeed, it's also related to a number of events that took place during that period. And I think they were mentioned by Patrice in his introduction. The COVID-19 and a number of things have happened in the meantime. Once again we anticipate a decrease of R&D. We have as a matter of fact a peak of R&D these days because of a specific key development that is ongoing. But we don't expect to stay at the R&D level at which we are as of today. So we will normalize our R&D efforts in the years to come.
Yes, thank you, [audio distortion] with Redburn Atlantic. I have a question on Avionics and the EBIT you generate there.
Could you give us a sense of
the relative contribution of the various of the three main blocks in terms of the move from 11.5 to 30.14?
Clearly our plan is as you've seen, to grow by 200 basis points in margin with a contribution that is coming mainly from the volume we are going to gain in IFC. We went very low number during COVID. Why? And I said so why continuing investing to a lesser extent, of course that what we did is strictly but to a substantial extent when it comes to the ratio of investment versus sales that is going also to decrease CapEx versus sales because of the increased volume, which allows us to come back to actually positive numbers. We are still negative aiming at high single digit for profitability at the very end of the period. So that's what we are aiming at then. The second contributor clearly is the acquisition of Cobham Communications. We've communicated that already.
When we talked about the acquisition back in July last year, we said that the profitability of Cobham was clearly two digits, actually very high digit as we talked about 30%. So clearly, although it is not a big business as of now, roughly EUR 200 million in 2024 and it won't be EUR 200 million because we integrated only the first of April, but overall for the year and growing quite rapidly, clearly. So that's the second contributor to that plan. And the third contributor is clearly our effort in terms of competitiveness, internal effort in terms of competitiveness to a lesser extent because we have also to fight inflation that we don't always succeed to translate into price, clearly. And that is also there to really remain at good profitability globally across the board.
A quick question on Space, as I understand from the launch days, Space INSPIRE for about a year behind Airbus's OneSat. About a year behind Airbus OneSat in development. Airbus OneSat started going spectacularly wrong about a year ago and continued going badly wrong. We know that your R&D has been higher because of some problems with Inspire. Can you give us confidence that it's not going to be a OneSat?
I'm not going to comment on my competitors. What I can say is that we recently passed the critical design review. The system is now completely defined. We are entering qualification phase. We don't see any development roadblock in front of us anymore. So now it's becoming an industrial challenge because we have, as I said, seven satellites in our backlog, which is traditionally a domain in which we have. We don't have majority. So I would say today, I can't deny that it's not, let's say, super easy program, but we have passed a very significant milestone with this critical design review. The qualification process is engaged.
1 or 2.
Sash Tusa from Agency Partners.
An Avionics question, particularly on FlytEDGE. The normal rule of thumb in Avionics is that you get paid by the pound weight that you deliver and you're reducing what you deliver to a single astonishingly clever box.
I accept that software is more profitable.
But can you actually maintain shipset value?
Shipset profit, or is this j ust a case of you being squeezed o ut because that's the trend in the i ndustry and towards customers using their own devices.
Yes. First of all, yes, you're right, we used to sell Avionics by weight. You're absolutely right. It's less and less true because of the very specific huge feature we put both in the hardware and the software to cyber secure our operation. So it's less and less true. Just as a general comment now when it comes to specifically FlytEDGE. FlytEDGE was thought initially to be a screenless. If it so happened that the two customers to which we sold already this product to big fleet and we are talking between the two customers we have hundreds of airplane. So we are talking about big fleets. All of them have screen including in the Yankee class. And therefore the shipset is actually not different. Actually it's more pricey because we sell the ODC, the onboard data center actually more than a traditional server. Why?
Because we sell the value of the service it's going to render to an airline. An airline today has a burden to bring every month content to load it on every airplane. And when I'm saying every airplane is physically to each and any airplane there they can stream over the net to any fleet or part of the fleet or one airplane if they want with no difficulty and no time. So that's what this product brings to the airline. Therefore we are selling the value to the efficiency that the airline is getting from the product.
Very quick question.
Yes.
Thank you for taking my question.
I would like to get back t o the very first one on defense growth, please.
It looks to me that the dispensation
was probably a bit more conceptual around the 1.5 times factor relative to the term assessment that you have shared with us. Because when looking at commercial reality for it, looks to me it's more about execution. When we think about the Growth Guidance 2024-2028, you have four years of accessibility and mentioned production tripling on keystart products like the Ground Master or the Rafale.
So I was wondering if you could?
On the elements which are probably limiting growth for you or if we should just take it as a degree of conservativeness in the guidance?
I think that first element is that what you have to consider in defense within Thales is that indeed we are stepping up production for some products which are in high demand in the market. But it does not represent the bulk part of the defense business. Indeed, what we deliver from the bulk part of our business are complex military programs, highly intensive in terms of engineering and highly intensive in terms of software development too, which are taking some time in materializing sales, which is really the core of what we do in defense. And by the way, in effect, we are as Thales, of course, increasing the production for the UAVs that are highly demanded currently by the customers. But we are not much exposed, they say, to that particular segment.
Should, by the way, let's say the geopolitical situation change in the short or longer term. So in defense, we have a very resilient model where we do see growth in the various markets we play for decades. So rather than saying that maybe we can grow or we could grow by 15% CAGR in the next two years, we do see a growth trajectory for our particular segments which is set at 6%-7% higher than what we see in the market, but on the longer term for a decade. So of course the Capital Markets Day, the dates are 2024 to 2028. We say that before 2028, of course, but we do see as well that kind of both.
We have now a short break, 15 minutes. So please let's reconvene in 15 minutes. Thank you.
Thank you very much. I hope you enjoyed the break. I'm sorry, but we are a bit late, so we will start again. So I will ask now Philippe Vallée to come on stage and to the Cyber and Digital business.
Very good afternoon to all. My name is Philippe Vallée. I'm leading the business unit called Cyber security and Digital Identity, formerly known as DIS. I joined Thales in 2019 with the acquisition of Gemalto. I was the CEO of Gemalto at the time. I would say I'm very proud about what the team has achieved since the integration. You saw the trajectory, the EBIT trajectory showed by Patrice, but also the level of external revenue synergies we have created. When I say the team is really Gemalto people, new hires and obviously people coming from Thales, a really great collective effort. Let me introduce you first to the ID card of the business. We were a EUR 4 billion revenue activity in 2024. This is including the full year of Imperva and Tesserent.
So the two acquisitions we completed in 2023, you see the number of employees. We have a truly global presence in the sense that our biggest revenue generating country are the United States with 29% of our total revenue. The second largest country for us is amounting for around 5%. So we do not depend on any single country for the revenue we are generating. So as you see on the slide, our revenue is made of 40% in cybersecurity and I will detail that later on, and 60% in what we call the digital identity segments. That will come comment obviously in a minute. So we are serving blue chip customers with very high level of security requirements. Just referring to the banks, for example, the financial institutions or the insurance company are one of the top spender in terms of cybersecurity.
We are also serving them in terms of identity management. When it comes to what we do with governance today, we work with more than 100 governments with different programs helping them to issue an electronic passport, a driving license and so on and so forth. A very important notion. For 73% of the revenue we generate, we are number one in the segment we have chosen to serve and we are in the top three for nearly 90% of our revenues. Now, if I look at the growth, the overall growth of the market we serve. So these are coming from the different data sources which are indicated in the slides. We are serving different digital identity segment and the cybersecurity. So when it comes to digital, what we see on the slide is that those markets should grow over the period by little less than 6%.
And when we talk about cybersecurity and at least the cybersecurity segments that we have decided to serve, and Sébastien later on will speak about one of them, several of them, we think that the growth is not. We think the market analysts are indicating a growth which is clearly double digit. So what are the underlying drivers of these different growth elements? The first, and Patrice said it, we are observing across the planet an increasing digitization of the exchanges between a user, a customer, a citizen and their service providers. So which comes with a lot of transformation in the customers we are selling. Second, in particular, when you think about those digital exchanges, they are creating loads of data, in particular personal data. And with personal data comes a lot of compliance rules, laws which the companies have to fulfill and comply with.
And so therefore it's a direct spending driver for the companies. Now the digital identities we are talking about are used to identify a user vis-à-vis its service provider. So when we issue a SIM card, we are helping someone to be connected to a mobile network. We are creating an identity mechanism. So we do that for banks, we do that for governments and also very important and Patrice, with all these exchanges, all these data flying all around within the premises of the companies and beyond in the cloud the need for data security data protection is super relevant nowadays and we have chosen to serve to diverse solution around this data centricity kind of solution.
So now we will show you, we'll share with you a small video which is giving you a hint of the different use cases we are serving with our product today.
Hi everyone, I'm Pamela, heading to London with my friends for the incredible Lion King show. Thanks to my mobile ID wallet I can easily rent a car. I take a selfie and an ID photo which are securely transmitted to Thales Secure Identity Platform. This server verifies my identity and once confirmed my digital ID is sent back to my wallet. Now I can book my car smoothly and securely. Meet Antoine. He's excited to book his flight to London but there's a hiccup. His banking card has expired. No stress. Thanks to Thales Trusted Service Hub he has the perfect solution. This hub acts as a secure bridge between e-retailers and banks generating secure network tokens for every transaction. Antoine's card details are replaced with encrypted tokens allowing the airline to process payments without storing his information.
In no time, Antoine secures his flight and gets ready for the show. Antoine is ready for takeoff. Thanks to Thales, his face is his passport. With a quick selfie he creates a secure digital identity. This ID is temporarily stored safely on his mobile device and deleted after boarding, ensuring his privacy and security. Meet my friend Soraya. Before leaving the train station, she's ready to buy a new tablet with Thales biometric payment. With just a quick touch, her transaction is secure. This cutting-edge technology combines smart card expertise and biometric algorithms for top-notch security. Protected by embedded AI that detects fake fingers, Soraya can shop without a PIN and without limits as she travels to London. Activating connectivity is a breeze.
With a simple scan of a QR code from the local mobile operator, her mobile subscription is instantly activated thanks to the Thales On- Demand Connectivity. In moments she's connected at the best local pricing and ready to enjoy her new device on the move wherever she goes. I'm in a rush to meet my friends but I have a few last-minute tasks to complete. I need to quickly check my home alarm and send an important contract to a customer. Using Thales cloud security solutions. My identification is very strong thanks to multi-factor authentication and my sensitive data is encrypted. My critical information is secured and fortified against cybersecurity attacks. We are all finally together in London ready for an unforgettable show. Thanks to the Thales Digital Car Keys accessing my e-rented car is effortless.
With my secure digital key on my mobile, I can lock, unlock and start the vehicle without pulling out my phone. All through Bluetooth combined with ultra-wideband, Thales ensures keyless access is secure and protected. The group is now ready to fully enjoy the long-awaited Lion King show.
By the way, if you want to see the French version of Le Roi Lion is just on show at Théâtre Mogador, 200 meters from here. So feel free to buy online your ticket at the next break. So now what are we doing when we are talking about creating this trusted relationship, this trusted connection between any kind of service provider and a user over the wire, over the Internet, the mobile Internet? First we are talking about the identity verification, which is the very essential part that we also call the enrollment. So the person is not known and he or she is about to be enrolled into the service.
Then once you are known by your service provider and you trust it, obviously you use it on a regular basis be it to hire a car like we see in the video or to buy something online. So this is the authentication. That authentication, by the way, can be more or less strong, depending on the level of assurance you want from the transaction, then you are authenticated. Therefore the transaction can be authorized, can be triggered, and the final step, which is also something we call the right to forget, is the fact that if you want to change a service provider, your personal data needs to be erased from the database of the service provider. So as you can see here, the statistics are telling, quite telling.
If you look just at the first half, 2024 alone, more than 1.1 billion people have suffered from, in a way or another, from a data breach, data leak involving their personal, some of their personal data. It's a big increase compared to the same period in 2023. Just to give you, and Sébastien will come back a bit, just to give you an idea of the kind of systems we are installing to protect our customers. Imperva capabilities is today, I mean, is analyzing something like 1.5 million requests and judging if it is a genuine one or fake, and blocking nearly 63 billion attacks per month. Okay? Protecting those applications exposed to the web. The very good news, if I may say so, is that this journey applies obviously for human beings, you and I, but also for objects.
Here we are talking about the Internet of Things, which is the many millions of things that are coming and that needs to be connected so we can think about a car, a connected car. We can think about an electricity meter, a point of sale terminal.
Right.
So this gives us more growth perspective going forward and way beyond 2028 by the way. So now if I talk about the key underlying elements that we are using across the board within Cyber and Digital business unit. Well, probably a key word you need to have in mind is the word encryption. This, this word has been said already several times when we are loading your personal key onto your smartphone. In the eSIM we are creating, we have created before with the mobile phone manufacturer. We have created a secure enclave which is encapsulating that key. That key is super secret and this is protected, this is encrypted. When we exchange information over the wire, we are also sometimes encrypting those data in order for them to be protected data which are transiting over a network. And then we are extending that to hardware security.
Today we are working with many mobile phone makers in order to create, let's say these enclave, this protection mechanism in order to protect what's happening into the device. And we are extending that to software security and then to application security. And you will know more in a few moments. So we are really this enabler for privacy and sovereignty. Now if I deep dive on the digital identity segments that we are covering at Cyber and Digital. First let's talk about connectivity solution. So this represents 16% of our total revenue. And here we are somewhat the broker, the transaction, the subscription broker between the mobile carrier, the mobile operator and the end user.
So here we are selling to the mobile network operator the possibility to download its key, its subscriber key all the way down to the mobile phone so that the mobile phone can be activated and be connected to the network. This so-called eSIM technology now is pretty pervasive. You see on the slide here that the market analysts think that by 2024, almost 300 million mobile phones will be shipped to the market with this technology on board. So we are, you know, we are connecting those devices with the eSIM on board. Now we do that, for example, with the iPhone. There is a very important moment in the U.S. coming soon which is the Black Friday.
At the Black Friday moment, we are crucial. In a day, something like 300-400,000 new phones and new connectivity just in one day with Apple. These eSIM capable phones are growing. You see here on the market, the market view is that by 2028 it will be more than half of the phones shipped to the market will be equipped with that technology. We are moving from this hardware based business to that transaction based business. In 2024 it will be roughly half, half of the revenue made on the embedded SIM card and over half on this new business model. You see this is we think helping us to forecast a CAGR of between 3%-4%. Low single digit.
We think that going after 2028 the cargo will accelerate a little bit because there will be no more traditional SIMs to ship to the markets. Now if we look at the second digital identity segments we are serving, banking and payments, here we are talking about payments slightly less than 30% of our revenues. First we are helping top-notch banks to issue their physical banking cards. You see some of the logos of the banks we are serving today. We work with 14 of the 20 largest banks on the planet in Asia, in Europe, in the Americas, South and North. You see some of the value add capabilities we are creating on top of the card.
You've seen in the video somebody paying with biometric equipped banking card so that we are presenting a fingerprint instead of using the PIN to create the transaction. It's at the payment moment at the checkout. And this is improving the level of security by the way and moving forward like we have done, like we are doing on the SIM card, we are also helping the banks to issue a virtual banking card. Today we are working with most of the wallets of the planet. So in particular Apple Pay, but Google Pay, Samsung Pay as well. And here we are again interconnecting the bank with the device in order to issue what we call a token, a payment token. And that token being let's say the equivalent of your physical card.
This is a market which is growing more than double-digit growth here. We have already over 100 customers using our technology to create this virtual payment mechanism onto the device. Last but not least, segment what we do for government. 17% of revenues. Here three key drivers. First from the unfortunate 9/11 events, the United States and then many more countries have decided to really reinforce the security at their borders and therefore issuing an electronic document, electronic passport. This is this document business we are talking about. Now more and more countries have the mandate to issue and they need to issue those secure documents. It's both a very secure chip.
A software in the chip which contains your face, your fingerprints, so that you can be identified at the border control, but also a lot of security elements which are in the plastic of the document. A second key driver is about this. Yannick mentioned it. This very important growth in terms of air travel. Many more airports are built, as you have seen in the slide of Patrice. We are working with Adani, which is a very significant airport operator in India. Adani is using our Fly to Gate solution. This is something which is helping the passenger experience at the airport. This is where we are using our biometric solutions in particular.
Finally, last driver mentioned by Patrice in the ESG components of what we do today, there is a United Nations mandate that each and every citizen on the planet should have an identity at the time of birth, which is not the case by far today. You know that having a proven and proper identity is the possibility for you as a citizen to receive the benefits from your country. This is true in India, this is true in many African countries. India has made, for example, tremendous progress since they launched their biometric identity progrm 10 years ago.
Here again we are talking about digitalization, some countries, for example, I could quote. We are working today, for example, in Australia with the Queensland state, and with that state, we are helping them t o issue
a digital version of the local driving license, and the reason, the use case behind that, is the possibility based on what has been installed in your personal wallet, secure wallet in the phone, to prove some elements of some attribute of your identity. You can prove, for example, your age, your address and things like that by just showing and displaying your phone or when you are connected online; then the person or the service at the other end can check your identity based on that wallet, that secure wallet into the device. So thanks to these different drivers, we think that business to grow high single digits, both in terms of top line and in terms of profitability. Now, before Sébastien comes on stage, I would like to give you global snapshots of what we do at Thales in terms of cybersecurity.
So first of all, we forecast ourselves to be around EUR 2 billion in 2024. This is divided into three segments. The first one in blue, what we call cyber defense. Here this is super high assurance, let's say sovereign crypto capabilities. We are securing very sensitive data over very sensitive communication systems for governments in particular for the MODs. This is a single-digit growth business, but double-digit margin. Then we have what we call the premium services. This is a business where we are helping customers. We are delivering services here at the premium level. The idea is, for example, to manage on behalf of our customers their security operations center, their SOC, and different, let's say, cyber consulting services we are delivering to them.
So we operate those services into a selected number of countries, in particular, the countries where Thales is already very strong, because we have a lot of synergies between the presence of Thales in the country and these activities. We are talking about the U.K., about the Netherlands, about Australia and France, obviously. And finally, what we do in our global product activity, managed by Sébastien. And he will detail that in a few minutes. So this is in that global product activity that we have inserted, if I may say so, in Parva. So we do that for two main reasons. First, because we think that there is a lot of adjacencies between our digital identity and what we do in cybersecurity. So there is a strong need over the planet to protect and secure the data.
We do also that because we think that it's the possibility to guide and to help the rest of the business of Thales to be, to have what we call an approach which is based on cybersecurity by design. So just to refer to the example of Yannick a few minutes ago, when we are connecting a plane to the ground to modify dynamically the plane trajectory, you can guess that we need a very, very strong cyber security mechanism to connect any kind of plane to the control on the ground. So this is really helping to differentiate from its competition. So we have a fairly significant pool of experts in cybersecurity, slightly less than 6,000. And we have today a very strong position in terms of product. But Sébastien will detail that.
And lastly, before Sébastien is on stage, an information that you all been waiting for quite impatiently. We will disclose from Q1 2025 for the top line reads of our first quarter. We will detail our performance year on year, our financial performance in cybersecurity going forward. So now, without further ado, let's hear from Sébastien who will tell us about what we do in terms of products.
Thank you, Philippe. Good afternoon, everyone, so my name is Sébastien Cano. I run the cybersecurity product division of Thales. I'm based out of Austin, Texas. That's where I live and where most of my management team is also based. That's where we run the business from. I joined Thales in 2019, also like Philippe, through the acquisition of Gemalto. I used to run the Cybersecurity business of Gemalto. My biggest competitor at the time was Thales, and in 2019, when Gemalto joined Thales, actually I was offered by Patrice and Philippe to merge the two businesses into one and build the business I'm going to present today, but before I get started, I wanted to show a short video about what we do in our division.
This is what data security looks like today.
Thousands of threats coming from outside and inside the organization, going after applications, data and identities managed across many clouds, all defended by lots of products, many siloed and not connected. And that means less visibility, less control, and increased complexity and total cost of ownership. So imagine a world where the complex becomes simple. Threats are visible and security works as one with integrated and modern platforms that c entralize how you protect applications, data, and i dentity across your entire enterprise.
At Thales, we're creating a global cybersecurity l eader, protecting more applications, data, and identities than any other company and enabling tens of thousands of organizations around the world to deliver trusted digital servics to billions o f consumers every day.
Okay, so when I present our business, I always like to start from our customers. So every year we perform a quite broad survey of our users, potential customers, prospects. We interview about 3,000 IT executives, IT professionals, security officers, Chief Information Security Officers. And we ask them multiple questions about their challenges, their concerns, the trends, the technology they see. And we learn a lot. And over the past few years, we've learned in particular from a particular trend that has been growing, which relates to the complexity associated with their investment in public cloud. Obviously, public cloud is a megatrend. They all use public cloud extensively, but unfortunately for them, actually public cloud, the usage, the adoption of public cloud raises new challenges for them. They now have sensitive data all over the place on third parties, infrastructure software, as a service vendors, cloud service providers.
There's a consensus in the industry that actually the only real solution to that problem, to that challenge, is to rely more and more on data security. Focused data. Focused security. That's good news for us because that's what we've been doing for a living for years. It aligns very well with our vision, actually. Precisely what is our vision? I tried to summarize in one slide here, what is our vision? Actually, it's all captured in the title we claim to secure your most sensitive data and all paths to. What you see at the center of the chart here is the traditional life cycle of data from the moment it's created, when it's in motion, moving between data centers, when it's at rest, stored at rest, or when it's in use.
And what we've been doing at Thales for almost two decades now is to provide the best products on the market to secure this data at all stages, right. We provide encryption platforms, key management solutions to make sure the encryption keys are actually safe and managed centrally. We are very good at that. We are market leader in that space. Through the acquisition of Imperva that was completed a year ago, we added a very important additional capability to this and it's the ability to have visibility over the data. That's what Imperva does, actually provides a solution that will help customers know where their sensitive data is, who is accessing the data, what for, in what context. If I have to use an analogy, think of this like the two important aspects of securing a building or a house, right?
At Thales, we've been providing the gate outside of the house, the lock at the door, the safe in the bedroom, and Imperva has been providing the alarm system, the cameras, the monitoring system. Obviously you want both to keep your house secure. That's what we've been doing. Through the acquisition of Imperva, we also added a very important new capability with the application security offer of Imperva, one of the best in the market, so this is really about securing web applications, websites and the traffic that goes to and from websites, making sure that threats are identified, potential attacks or data extortion attempts are identified, and either an alarm is raised or the transaction is blocked before something bad happens, and that's a very good complement to an activity we had on the Thales side, which is around identity and access management.
We've been a leader in the identity and access management space for a long time. We, we help identify securely a user that is accessing an application that is accessing data. So I hope you better understand how we can claim that we secure all most sensitive data and all paths to it. This chart is a more detailed view of the same picture, basically showing each icon. Here is a product in our portfolio or product category in our portfolio. And it shows, actually, I think two important things. First, the depth of our portfolio. I mean, most of our competitors usually compete with us on two or three of these icons. Very few players have such a broad portfolio centered on data security. And obviously that's a great news for us in our ability to potentially do a lot of cross selling.
Because when you have a customer for one or two of these icons, you obviously can try and sell them a lot more. And obviously at the center of the picture, what you see here is our intent to merge the two data security platforms, or the two data security capabilities coming from Thales and Imperva. The dark blue one coming from Thales is really like a toolbox that we're offering to customers. And the customers would get to decide which tools to use to keep their data safe. But we really didn't have a say in what data to protect. The customer would decide that the light blue side from Imperva was doing something complementary. As I said, providing visibility, showing where the sensitive data is and then the customer is happy about knowing where the vulnerabilities are.
Now to address these vulnerabilities, that was not something Imperva could help with. Now bringing the two together, as you can see is quite obvious. You can solve the entire problem. Don't ask me why nobody did that before, but we're working on it now. These are the sub segment of the cybersecurity market that we address. So we are probably on the fastest growing sub segments of cyber. We don't do everything. We secure applications, data and identities and combine these three markets represent roughly or represented last year about EUR 22 billion. And this is expected to double by 2028. That's fueled by the digital transformation of companies. As I said, the massive adoption of public cloud but also artificial intelligence. That's a great opportunity in front of us.
Securing AI is a big challenge, for it's going to be a big challenge for the years to come. Regulations is also a wind in our sail because most regulations around the world recommend the implementation of solutions like the one we offer to encrypt data, securely identify users of applications and secure applications themselves. This is a snapshot of our market footprint, customer footprint. I think the most important takeaway is in the title. We have been serving over the last three years alone more than 30,000 enterprises worldwide. And this is the combined market access of the Thales cybersecurity business, the business before the acquisition of Imperva plus the addition of the customer portfolio of Imperva and you see here obviously the cross sell potential on such a large customer base.
If I really have to highlight one particular number in this chart, the center one, the 92%, we sell to 92 of the top 100 largest banks in the world. The BFSI segment, this banking, financial services, and insurance segment, is the highest spender in cybersecurity. They're also the most demanding. They set a pretty high bar, and obviously being so trusted by this segment, by this market, is a great credential to address other industries, retail, manufacturing, tech companies, and so on and so forth. This is a quick snapshot of how external analysts view us. Right. One thing that we tell you we are great, it's better when a third independent party says so. This is a chart from IDC showing the market of application security. You clearly see here that we are one of the top, top three vendors in the industry.
This mirrors an equivalent chart that is well known from Gartner. They issue magic quadrants, you may have heard about this in different segments of the industry. And they identified the top three same leaders. We're also there, one of the three leaders in the category, a clear leader in application security in identity and access management. You see this is a more fragmented market. A lot more players are there. But here again we are identified by KuppingerCole as one of the leaders in this, in this segment. And finally, same analyst KuppingerCole also positions not only Thales but also Imperva. This study was performed before we completed the acquisition of Imperva. So we were ranked as two independent companies here. And you see that in what we do, each of us or what we did at the time, each of us independently.
We are both of us considered leaders in data security. So you can imagine where we'll be in 2024, 2025 as a combined platform and as we build more capabilities on
top of the two platforms.
This is a zoom in on our competitive landscape in each segment with our top competitors in each category. A couple of takeaways on this slide. Number one, we are the only player in this three high growth segments. Nobody else is playing on these three sub segments of cybersecurity. And the other one is really, I made an attempt here to show some valuations of some of our competitors in the different spaces we serve. And you can clearly see here that we are playing. We are a leader in three markets surrounded by highly valued peers. Quick snapshot on our integration of Imperva. It's an important work for our team nowadays. So we started this integration not even a year ago in January of 2024. Things are well on track for now. The chart shows where we stand in the delivery of our synergies.
Just the beginning, but for now we are even a bit ahead of the plan, so that's a good news. Always good to have a good start, and more importantly, we have identified most of the synergies that we will need to deliver in the years to come to achieve this plan, so we are pretty optimistic about our ability to deliver these numbers. Now we are very busy merging our sales teams. It's a long process, it's a complex process. We want to make sure we don't break everything in the process, and this is instrumental for us to generate the cross selling opportunities. Seize the cross selling opportunities I mentioned earlier and from day one.
The next takeaway here is the fact that from day one, as we merged two businesses, we had our engineers working together hand in hand to build new capabilities on the common platform and bring things to market that nobody does today. I don't want to be too conceptual here, so instead of explaining the theory, I thought we would show with a short video. Actually, one exact use case of the things we will be able to do very soon. As soon as Q2 of next year actually, as we launch these new capabilities. Can we play the video please?
In our hypothetical scenario, Strato International Group is rumored to be purchasing rival company
United Defense with Global Trust Bank. As the underwriter, the transaction approaches its conclusion, a senior bank executive sends a pivotal email to his trusted assistant Charlotte Rue, containing highly confidential financial information. Upon receiving the email, Charlotte commits a critical error. Instead of copying the confidential information into her private encrypted folder, she mistakenly places the data file in a shared network location.
Fortunately, Global Trust Bank is protected by Thales Unstructured Data Security. Advanced pattern matching algorithms recognize that sensitive unencrypted data is now in an insecure location and immediately notify the security operations center. Thales Data Risk Intelligence elevates the organization's data risk score. The SOC staff goes into action. They quickly identify who and what is responsible for the elevated data risk.
Leveraging advanced large language models, decades of e xperience and petabytes of training data, the Thales AI assistant helps the SOC staff p lan risk remediation actions. Built-in automation can quickly apply risk m itigation measures to reduce the organization's exposure t o a potential data breach.
Utilizing the industry leading CipherTrust Transparent Encryption solution, the Thales data protection platform immediately secures the sensitive data with very strong cryptographic keys and limits access only to authorized users. Based on this occurrence, machine learning algorithms can immediately apply new rules and policies ensuring that a mistake like this will not put the company at risk in the future.
Okay, so what you've seen here is something that doesn't exist today will be brought to market in Q2 of next year, and you've seen the capabilities coming from Imperva, the monitoring capabilities of Imperva identifying a potential exposure, how immediately the encryption capabilities coming from the Thales side prevented a mistake that could have had catastrophic consequences, and how we are adding AI on top of this to automate some of the rules definition that would have taken days in the past and that will be now available in a matter of minutes to prevent this type of mistakes to happen again. Okay, this is my last slide. Very quickly, just to summarize our financial ambition so we plan to continue in the years to come to deliver profitable growth so we define this as the Rule of 30.
If you're not familiar with it, it's just the addition of the percentage of top line growth with the operating margin of the business. Rule of 30 is quite ambitious for a business our size. Just check public cybersecurity companies. Few of those companies actually operate at that level by delivering double-digit top line growth, and I think we have a vision to do that. Clear vision that I laid out in the slides. We have scale, which is very important in our business. We are one of the top five cybersecurity vendors in the world today. We have a world-class product portfolio that is validated by independent trusted third parties like market analysts, and we have a lot of great sales synergy in front of us, so that's it for me, Philippe.
Back to you.
Thank you Sébastien.
So, last slide before the conclusion here we wanted to share with you the share of the revenue we are generating based on the cloud.
On the cloud.
From the cloud means revenue we are generating. Excuse me. When, for example, we issue, we create a key into the SIM to connect a mobile phone, when we download a virtual banking card in a device, and so on and so forth. So as you can see on the slide, in 2024 we will deliver something like EUR 400 million in such recurring revenues. And that number should be multiplied by 2.5 till 2028 with a number above EUR 1 billion. Why are we doing that? Because first of all it is based on the subscription-based model. So it's pretty efficient in terms of margin generation. You see the kind of growth we can enjoy with this business. And third, since we are invoicing in advance of delivering the services, it's also very good for the cash flow generation.
So it's a very, very positive contribution to the overall EBIT of the business. So we are monitoring because this business comes with the digital transformation of our customers. We are operating the services they are buying from us not as a CapEx, but as an OpEx and we can predict better the services growth. So with that I would like to conclude by telling you that if you aggregate the different elements of the business, we forecast the overall CAGR of the business to be between 6% and 7% with an EBIT margin target being comprised between 16% and 17% by 2028. So with that I think it's time now for the Q&A.
Thank y ou.
Thank you, Philippe and Sébastien. Yes. So it's time for Q&A now. We have a 15-minute session. I think Mike has a question.
Yes, it's Mike at Kepler. I've got a question on the margin guidance because I don't understand why, why it couldn't be higher and why the rule of 30 could not become the rule of 40 given the scalability of the business. So you have made a EUR 3.6 billion acquisition and you have important synergies plan. So just that should allow you to perhaps get to 20%. It would imply otherwise that you have something else that is acting as a major drag. Is it the cloud-based IFRS 15 accounting or is it something else that we should be aware of? So that would be the question.
More generally, should we be right to assume that the gross margin of this mostly software business is around 75%-80%, that there is about 20% in R&D being spent every year and therefore the rest is mostly able to kind of scale up to much higher margin? That would be my question.
Yeah. So I think you partly answered the question yourself, right? Yes. We need to invest a good amount of our resources in innovation, in developing new capabilities, new products. We showed one example today. So this is an industry that requires high investment in R&D. It's a must. Otherwise you just become obsolete and irrelevant very quickly. Don't underestimate the cost of sales and marketing. It's an important aspect of our P&L. I mean we address a very fragmented market. Selling to 30,000 customers requires people on the ground in every country, in every market to talk to many different companies.
I would say only one thing. I mean we expect to deliver synergies that would come on top of the plan. I presented the Rule of 30. But again, if you think that's not as much of a challenge, I invite you to look at our peers, public companies in cyber of our size. Obviously not a startup size.
Right.
But our size, you will see that very few actually reach that bar. And again, we're here for the long game. So we don't plan to just do it for a year or two and then disappear. Our plan is to do this multiple years in a row.
Yeah, Charles.
If you could put yourself.
Into say a Chief Information Security Officer's position, what are the things that he looks at when he's buying, presumably capability and price, so can you just talk through pricing.
What you've assumed within that growth.
What l imited things I know about cyber or t ech is that price goes down every year and volumes go up, price goes down.
Your sales is an incidental byproduct of those two.
Yeah. Basically, what would CISOs look for, right? In solutions like the ones we sell?
Yeah.
First, in particular, for the nature of what we do. Right. We address. We protect highly sensitive, highly valued data. The most sensitive data you can think of. Right. SWIFT is one of our customers. We secure 80% of the financial transactions in the world. Right. So highly sensitive stuff. They want trust, they want something. They can. They want a vendor they can trust.
Right.
Not a vendor that is. Is a sexy startup with an attractive technology that is at the mercy of being acquired next year. Right. So I think, in particular, for what we do that is so sensitive, they want a supplier that is going to be here for the long run. That's where I think we have an edge. Being part of Thales, I think the other thing is most companies. And if you talk to CEOs, I don't know, you can maybe testify. Patrice. CEOs usually feel like they're spending too much in it, in security in particular. So they want a lot of bang for the buck. Right. So they want to make sure that what they invest in, cyber in particular, has a tangible return on investment. That's why we are working in integrating these two platforms I told you earlier about.
There's one capability coming from Imperva that we like a lot that is very important to us. That is called the Data Risk Analytics. It provides a risk call to the CISO. So you deploy the Imperva solution. They will look at vulnerabilities, find vulnerabilities, and give you a score.
Right.
Now that we merge this with the encryption capabilities coming from Thales, once the vulnerabilities are identified, the encryption can be applied to databases to improve your risk scoring.
Right.
So as a CISO, to answer your question specifically, if I'm a CISO, I would really like a solution like this because I need to beg for budget every year to my CEO or to the board. And now I can show tangible improvement that I'm bringing to the overall exposure of the company. That's what the CISO wants. He wants to make sure the money invest actually makes a material difference. And I could show, I would be able to. To show that my risk scoring is improving as I deploy and I invest more into security. That's the kind of things that I think a CISO would be looking for.
Just to complete your answer, Sébastien, I think if you are talking about data security, the idea of this deal with Imperva is to create a 360-degree platform around data security. Something that is sort of a one-stop-shop approach so that the CISO doesn't have to look after different solutions to create such a platform. And the driver, as I said during the presentation, is about compliance. And compliance is a key topic today. When you are a company operating in Europe, you need to check your compliance with the GDPR. And if you are not compliant, you may have to, in case of data leak, pay a very heavy fine. So the approach is really to simplify, not to cover every aspect of cybersecurity, but really to simplify the mind of the CISO.
But with buying one solution, I have all what it takes to check my level of compliance with the GDPR.
When you think about the portfolio that you have today, are you happy with it? Are there more technologies within the portfolio that you feel are missing that you need to go after other areas of the portfolio that you feel you don't need anymore? Can you talk a little bit about the portfolio? You've done a lot of deals. What's the next step for this Cyber and Digital business f rom a portfolio perspective?
I can say g lobally, for Cyber and Digital, we think we have a very good portfolio. We have invested, but we have also divested. Like we said before, we have divested in IoT module business, which was not any more relevant with what we had to do now with what we have. We are first of all busy integrating the different acquisitions we made in cyber over the past two years. And we have, we think a sufficient access to the customer base when it comes to serve what we want to serve in digital identity segments and in cyber as well. So in a nutshell, we are satisfied.
Thank you. I think in one of your slides, Philippe, you showed your market growing almost 11%. So just wanted to understand the difference between that market growth and your own. And I mean, is it just the weight of the different submarket? Is it because you're mainly managing for profit? And from that comment that you're managing for profitability, should we assume that there are some structural headwind to margin in some segments? Thank you.
Yeah, so specifically for cyber. So you know, cybersecurity is a segment that attracts a lot of money, a lot of investment and where a lot of startups also, you know, are well-funded startups bringing new technology and are often in hyper-growth mode. Right. They don't care about how much money they lose. They just invest into building a new market. Or capturing a new market and they pull the average growth of the market up. Right. We are not in that category. As I said, we aim for profitable growth. That's our plan. And we probably grow a little slower than the average because of that reason. Because the average is pulled up by those hyper-growth startups. So that's why the ambition of low double-digit growth is already quite ambitious.
It's 2, 3, 4 points below the market average and again done in a profitable way.
Hi George Zhao from Bernstein.
Compared to pure-play cyber companies, how
are you better positioned competitively by being part of a bigger and more diversified company like Thales? And related to that, we know that in the software business, specially in the U.S. equity issuance is a very key to hiring. So how do you compete on that?
Yeah, so there's a few reasons why I think, I mean we can thrive as being part of Thales. The number one is we've just demonstrated it a year ago, right. Thales has been able to write a $3.6 billion check to expand our footprint in cyber. I mean not many companies can do that. If I'm not mistaken, I think it was one of the largest, if not the largest cybersecurity acquisition in Europe in 2023. Another benefit we have of being part of such a large group is that we get in particular with the help of Patrice, C-level engagement with CEOs of a lot of other potential customers, other companies, tech partners, you know, large, large cloud operators, large SIs, or again companies that can be customers of ours. We wouldn't get that level of access that triggers project.
We have a tangible project. In the next few days we'll be signing a large project that started from an engagement at the CEO level. This is a very tangible benefit for us. And finally, I would say the third reason why we really feel good being part of Thales in our business is that as I said, what we do is very sensitive. When a large bank decides to encrypt their most valuable assets using a vendor technology, they want this vendor to be around for many years to come. They don't want to trust a startup that could disappear in a year or two. And we have won a lot of business being more expensive than some startups and tried to undercut us in price just because we were a trusted name. And we have been around for a long time and will be around for a long time.
Our customers know and value that.
The equity part.
Sorry, I didn't answer that particular portion of your question. We have put in place some mechanism to try to offset that. And we have been able to attract talent on a regular basis using some incentives, financial incentives that mimic more or less the behavior of equity compensation. So we can be competitive on that Space and attract the talent we need.
One more question. Hey Christophe.
You mentioned your sales and marketing costs that are a major cost. How can you contain them? I mean, as your business develops, you will need to cater to more clients. So what is the right level? Where should you, what are your best, I mean beyond the big banks and t he big bank clients.
In percentage of
revenue, they've been pretty steady over the years. I think Patrice showed how we grew our cybersecurity revenue in the past few years through organic growth and acquisitions. Our percentage of spend in sales and marketing has been pretty steady. We are doing it again with the acquisition of Imperva. We rationalized the management structure. That's one way to generate synergies and optimize our overall cost structure. We add more revenue and we need more salespeople. But in proportion it stays pretty reasonable. Another thing we leverage a lot is our go-to-market strategy. We have a two-tier distribution model. We rely a lot on distributors. That was true for Thales before the Imperva acquisition. It is true for Imperva and we're actually combining our networks to build an even broader network of partners around the world.
This is how we contain our cost structure. It doesn't grow as we grow in proportion of revenue.
Herbert, you had a question?
Yes, Herbert from the CIC. In terms of distribution, again, how do you work with your distributor? Is it just a one-off sales you are doing or is it more seen as again a SaaS type of business with recurring revenue which add, you know, all the time.
I'm trying to get, you know, the d ifference between the one-off part and the, you know, the recurring business.
That's a good question. We have, we have done a significant effort in the past two years, three years to move all our sales models from perpetual software, in particular perpetual licenses, to term licenses, which is a form of subscription, right to multi-year subscription. Basically Imperva was already in that model of selling through a subscription. So our business is I would say 55% right now recurring. The rest is a mix of hardware or things that have not migrated yet that will continue to migrate through to a subscription. Actually all new products we launch today are subscription based, either monthly, ratable or multi-year through a term license. And as far as distributors are concerned. That was the first part of your question. We pay them well and we try to build loyalty with them. We make sure they like our products.
We give them a good margin to push our products first. And actually we have most of the broadest, largest distributors in the market actually enrolled and being active distributors of our products. That's the only way you can actually build loyalty with distributors, right. Is to pay them well for their effort and have products that are quite unique so that they push your offer against other vendors because customers find something in your products that they don't find elsewhere. This recipe has been working pretty well. Today we do almost all of our business through partners.
Thank you very much, Philippe. Thank you very much, Sébastien.
Now let's see how all those strategic considerations are translating into value. Pascal Bouchiat.
So no jingle for me.
No.
No video, no nice videos. We come back on Earth.
So.
Hello everyone. I guess it has been quite a long day. It is the last presentation. We share a lot of information. Hopefully you are not too tired. Are you still awake? Okay, good. So we can start. So yes, I mean a number of information and it's probably up to me now to provide some kind of wrap up what all of that means in terms of financial trajectory for Thales for the next five years. I will be talking about some important points, earnings per share, free cash flow generation. You probably noticed that Philippe discussed a bit on free cash flow in particular coming from the positive impact of recurring revenue. But it's true that cash flow at this point has not been looked at in detail. So I would like to spend a bit of time on free cash flow as well.
Of course I mean capital allocation policy, which I think is a must that we need to share. Now, before talking about the future, I would like to spend a bit of time coming back on what we have done in the last five years. I think that we have done a lot and I need to come back on some of those key points. What have we done? I mean, in Thales since 2018. 2018. First, I think it was quite obvious from Patrice's presentations. We have actively managed our portfolio, both acquisition, but also disposal. It's true that today we have a higher added value portfolio of businesses with much larger exposure to stronger growth markets and also higher profitability.
Also when you look at our overall operational commitments, I think that we deliver on all of them, be it on a commercial side overall, with a book-to-bill which has been above 1 consistently over the last five years, be it on a profitability standpoint and this on the ground of a continuous rigorous product project executions and also of course on cash flow with I would say outstanding level of performance on this matter. And lastly, and I will come back on this point, I think that we add also a quite active allocations of capital in the last five years. So now I mean to explain in more detail what all of that means and what we have done. Precisely. So let's start maybe having a snapshot on Thales back in 2018 from a P&L perspective.
You see at that time a Thales with overall gross margin. Gross margin is a very important indicator because it indicates the indicators that really reflect the added value of what we do overall as a group. At that time gross margin in terms of percentage you see slightly below 26%. Now what we see, I mean five years later in 2023, an increase of three and a half percentage points of gross margin. This reflects both, I would say organic improvements. Behind that is overall cost competitiveness. But it is also how we manage value pricing in the last five years. Of course I mean this increase also reflects how portfolio management has led to a more added value portfolio of businesses. It's true that today we've got a set of businesses which is more and more technology driven.
I think it was quite obvious from the various presentations, and all of that means higher proportions of R&D expenses as you can see on this slide. It's also true that more and more Thales is a platform-based type of businesses and cyber security process. We have a good example, and this means also higher sales and marketing expenses that you see. Now to illustrate what portfolio and how portfolio management supported the group's transformations, you can look at this tab on the left part of this slide with first the disposal of our transport business. Transport low growth, low profitability business, and today the scale up of our Cyber and Digital.
And you see, I mean what we expect in terms of revenue growth rate and also the level of EBIT today, a solid double digit EBIT margin and more to come in the next five years.
Moving on.
Overall, what we have done from a commercial standpoint since 2018, what you see here is our book-to-bill year after year, and you see that this book-to-bill has been consistently above 1 in the last five years. This is even more obvious for our defense business which of course operates with longer cycles. Now the outcome of this pretty favorable book-to-bill is this quite strong increase in our backlog that you see on the right which has increased by 40%, and you see in particular that in Defense expressed this time in terms of number of years of revenue. Today it represents 3.6 years of expected revenue and probably by the end of 2024 it will represent four years of expected revenue.
This of course and I guess it was quite obvious from our R&D element presentations, this provide us quite a long term visibility in terms of growth. By the way, this level of backlog, it doesn't take into account the massive and record level of backlog at our civil aero OEM customers which is just marginally reflected in the figures that you see here. Now what also give us strong convictions in terms of growth of revenue for the next few years and this level of resilience that Patrice described this morning, it's overall, I mean these distributions of order intake, whether it's from a geographical standpoint but also in terms of unit value.
You see in particular when it comes to the overall split per geography, pretty much balance between four key areas, France for us, Europe, the U.S. and emerging countries. Also I mean this time more from a unit value. Overall what we said, small size project which represents the base of our order intake represented almost half of our overall order intake. And it's good because this is not I would say challenged or jeopardized by any evolutions from a geopolitical standpoint. If I move on now on profitability, overall in five years increasing EBIT by 26% and I've put behind, I mean the contributions of our various businesses to this growth.
Defense EBIT grew even quicker than the top line, resulting in a level of EBIT margin at 13%, which is really at par with best-in-class players in the world, by the way, mostly U.S. players. You also see that Avionics fully recovered from COVID, reaching back to a level of EBIT in line with pre-COVID despite the fact that in 2023 this business has still a level of revenue which is 10% below what it was pre-COVID. Third point, I think it was quite obvious from your questions to Hervé that the telco Space industry is facing major disruptions and hence I mean this drop of profitability which is quite important from 8% to 1%. But here you have seen that we've got a strong recovery program in place.
And lastly, I mean the accelerations of the Cyber and Digital business helping also quite a lot with of course also the disposal of the transport business. Now EBIT important is important, but it's not everything. Now, when you look at EPS overall, a growth of 53%, showing that EPS grew twice as fast as it did in the last five years. Now, free cash flow and on this slide, this conversion ratio from net income to free operating cash flow. And it's true that in the 2014, 2018 periods, the group Thales has made substantial progress in terms of being able to convert net income to free operating cash flow as compared to what it was 10, 15 years ago. 2014, 2018, overall conversion ratio slightly above 100%. And you see these accelerations that we managed to deliver on the 2019, 2023 period of time.
Behind that is also, I mean, the clear reductions on our capital, on our working capital requirements, which by the way is negative, which is excellent, which means that overall we are funded by our customers. It's true that this overall commercial dynamism, with a pretty proactive and sustained policy on down payments, of course, has been quite a strong input for us to deliver this level of outstanding conversions ratio. Also, I mean, we have put in place, in addition to that, we have put in place at Thales back in 2019, a cash optimization program, which we call at that time cash, and which has been also pretty good in fostering generation of cash flow within the group. In the meantime, we grew our investments, which means that this level of performance has not been done at the expense of preparing the future.
This is what you see on the bottom left. From R&D standpoint or from a capital expenditure standpoint, you see how it has progressed in terms of investments in the last five years. You see, for instance, CapEx moving from 2% to 3.4% of revenues and self-funded R&D moving from 5% to 6%. And all of that, I mean, to prepare the future of Thales. Maybe last point, I mean to close this chapter about what we have done since 2018 is about capital allocations. And I think that we have been here quite active. Here on this slide is a bridge between this net cash position, end of 2018, EUR 1.7 billion of cash on the balance sheet, to probably a much more effective balance sheet, end of 2023 at EUR 4.2 billion of debt.
And you see, I mean the key levers we use, I would say all are major levers of our toolkits to manage our capital structure. You see, I mean, free operating cash flow balance pretty much our investments on M&A EUR 9 billion of investments. You also see, I mean, this increased return of cash to shareholders, more than EUR 3 billion being the addition of both dividends but also a share buyback program. And last point, also taking advantage of the rise in interest rate in U.K. to de risk our balance sheet on this major Thales U.K. pension obligations that we have outsourced to an insurance company. Now with all of that the overall pro forma leverage ratio end of 2023 standing at 1.3 and it's true, but I will be coming on this point.
We are willing to start deleveraging the company to support this strong A rating that we benefit today. So it was what we have done. So now let's look at what we are going to do in the next five years. And it's true that we believe there are still a lot of opportunities at Thales that I'm going to describe. So what are we going to do with concrete translations from a financial standpoint? First priority, I guess it was quite obvious from all the presentations acceleration and growth. We have invested quite significantly in the last five years both from a production standpoint but also from a product and solutions developments we have today. What I think is really overall a world-class range of product and solutions.
And this at a time where we have never seen such a number of opportunities from a demand standpoint for most of our markets. Second objective, which is a bit different and I guess it was quite clear, but which is clearly a very important objective for Thales in this roadmap. We restore Space profitability at a level that would be above the cost of capital. And this is basically, I mean what Hervé presented a few minutes ago. Third point, delivery on our two major acquisitions, Imperva and Cobham AeroComms, both from, I would say organic developments, but also from a synergy delivery standpoint. Last point, of course we want to keep generating a strong level of cash flow as well as continuing to manage our capital allocations in a pretty active way as we did in the past. So let's start with what this means.
In terms of growth.
Starting from 2023 and you see, I mean, adjusted for the full year impact of the acquisition and disposals that we have completed in 2023 and 2024. Starting point 19.1%.
What we have done is to set this objective of top line growth between 5%-7% organic growth, organic annual growth until 2028. Now when we see the contribution of each of our key businesses and the key drivers behind that. So of course I mean defense 6%-7% with a combination of both, I mean our backlog, our visibility in terms of order intake for the next few years and on the other side more the delivery ability, I mean how to accelerate on delivery capabilities and the combinations of the two will allow us to generate this type of growth.
By the way, as we said, not just only on the next five years but this is basically the type of growth that we expect for the next decades for Defense business, 5%-7%. Overall, strong drivers being the OEM ramp up whether it is the IFE redevelopments that Yannick presented and of course I mean the potential of growth coming from this beautiful asset which is Cobham AeroComms. Lastly, Cyber and Digital, 6%-7%, of course I mean leveraging the cybersecurity growth, the revenue synergies associated with Imperva but also a business that we have not discussed in full detail which is however a growing business and pretty attractive one which is biometrics where we expect quite a strong level of.
So all of that resulting in a group with, in 2028, a level of revenue in excess of EUR 25 billion with overall 5%-7% annual growth. Now moving to EBIT goals. So here again I'm starting from 2019. So what will be the key levers that will be activating, I mean, to move from this level to a level of EBIT margin between 13%-14%. The first is volume and as you see which represent a significant part of this increase in EBIT in absolute volume. And this, I mean, once again is pretty obvious market demands all our investments to ramp up our production capabilities and revenue coming from synergies. Now from that we will seek to expand our margin and to play on three key price, mix, costs.
So, price we discussed a lot, our premiumization strategy, and we expect clearly a bottom line impact in terms of margin expansions from a price standpoint on this matter. Mix also, the fact that it's true that we expect overall today our most profitable businesses to go quicker than the average of the rest. So overall a positive mix effect on this matter. On the cost standpoint it's of course, I mean I would say day to day homework and we keep working hard to keep increasing our overall operating leverage. It is also I mean the cost cutting plan at Space and it is also of course I mean the cost synergies relating to the synergies that we mentioned. Now of course as we did in the past part of this increase in profitability will be reinvested in additional self-funded R&D in order here.
I mean first to keep developing our leadership from a technology standpoint but also to prepare the next generation of star products. Now from a business standpoint you see, but it has been discussed by my colleagues it's true that I mean the increase in margin in terms of EBIT margin will come from aerospace and Cyber and Digital. As we said we plan to stay at a certain percent for the defense business. Now when it comes to aerospace it was said that it would be first I mean the recovery, the restoration of margin in Space plus the increase in profitability from Avionics and Cyber and Digital moving from 14% to 16-17%.
Here of course I mean margin expansion and cyber security with also I mean Imperva synergies operating lever on the biometric activities while at the same time protecting I mean the strong digital identities margin that we enjoy today. Now in terms of EPS I said that in the last five years we grew our EPS by 53% and it is the same type of growth that we expect for the next few years. It's going to be predominantly coming from operating profit post tax of course operating converting profit. On top of that of course we'll consider EPS accretive acquisitions plus share buyback when conditions are met. Overall I mean 50%-60% increase in EPS. It is basically what we have in mind now from cash flow standpoints. I said in the past that outstanding performance in the last few years 135% conversion ratio.
So how do we see, I mean, the evolutions of this type of metric? So as I said, we intend to keep generating a solid level of cash flow, a solid level of conversions ratio 95% and 105% of our net income. Of course, there will be reversal of down payments that we benefit in the last five years, but we believe that a significant part of that will be compensated by future down payments on future large size contracts. Second point, we believe that progressively the supply chain challenges that we have been experiencing for the last two years will be progressively fixed.
Which means that we believe that will be a bit of relaxations in terms of level of stocks in particular when it comes to safety stocks that we built in order to protect us against a potential shortage from some of our suppliers. Now before concluding let me spend a bit of time on our capital allocation policy. So first I guess quite obvious top priority for us is to sustain our growth trajectory and this means that in terms of investments we will increase our capital expenditure and our self-funded R&D pretty much in line with the progression of the top line overall self-funded R&D to revenue around 6.5% and CapEx to sales between 3% and 3.5%. Second point, it's about how we see our balance sheets in the short terms.
It's true that I mentioned we leverage the companies with acquisition of Imperva and Cobham AeroComms. We want to sustain a strong weighting in the future and it means that we want to deleverage the company and this is one priority for the next probably 18 months with overall a target of leverage ratio below 0.8 overall in terms of managing our balance sheets dividends, 40% ratio will continue at this level of course. I mean at the end of the day it is a board decision. This is what we have in mind. Which means that dividends will follow the growth of our net income. M&A.
Sorry.
My God. So M&A. Patrice started to discuss about that. It's true that our top priority today is to succeed in the integrations of Imperva a nd Cobham AeroComms. n ow we believe that, I mean we will pursue additional opportunities. I will be selective on this matter in terms of business criteria. Now from a financial standpoint, what we'll be looking for of course is acquisitions with short term EPS accretions and midterms return on capital employed above our cost of capital. Last point, a buyback.
It's part of our toolkit. We use it, and I mean that's a point that we'll consider of course in the next five years and in particular I mean to avoid what would be an excessive level of deleveraging and also if we believe that we would face, I would say, a lasting mismatch in terms of valuation between our own view and overall the stock price. So here again part of the toolkit we see how we use it. We have done it in the past and this is once again part of these toolkits. Now as a conclusion, I guess, I mean sorry for stating the obvious but of course I mean solid growth across the board, long term visibility. We're quite convinced by the overall caveats that we share with you in each of our key businesses.
Now if we would just retain just one point per business as I would say, I mean the core of the core in terms of key messages, defense, it's about, I mean how to accelerate in order to capture high market demands. Avionics, we've got probably today. We've got a clear world class range of product today with our own investment but also with the acquisition of Cobham AeroComms, it's now how to leverage the market demands with this beautiful range of products. Space focus on restoring margin and at the same time being selective to pursue potential opportunities. And cyber overall today a unique product and services offering a state of the art overall solutions which will allow us to leverage the market demand which is pretty good.
All of that while keeping, I mean, the financial disciplines that we have demonstrated in the past with, of course, I mean, this active capital policy, capital allocation policy that we pursue. With all of that, we do believe that we are on track to deliver this full potential to maximize value creation. Thank you very much. And we open the last Q&A.
A session with Patrice. [foreign language ]
Okay, very good.
Thank you. Sash Tusa from Agency Partners ag ain, I'm sorry to come back to t he issue of sort of the defense long term growth, but there seems to me to be a mismatch between the incredibly impressive order intake and backlog that you've achieved over the last five years. And it's very unusual to have a defense company that has a book-to-bill of over 1.2 times five years on the trot. And then forecast 6%-7 % growth per annum for the next five years.
Clearly what we were told in one o f the previous presentations is that you've come up with that 6%-7% g rowth target in part based on top d own forecasts for different budgets.
But if we assume those are right t hat would still probably put you in t he bottom half of your European peers. So should we believe top-down forecasts?
Or should we actually look at your ba cklog and your order intake and think y ou're going to do a whole lot better?
I guess w hat I try to explain is that I mean overall, I mean first point which is quite important, we're not talking about growth rate for 2025 versus 2020. We are talking about the next 10 years organic growth for defense. I don't know which company is able to commit on this matter and in particular, yes, true, you are right. Probably today some companies mention top line growth that are probably higher than what we mentioned. Do they commit on this very long term growth? How much of their growth is linked to the situation in Ukraine, what we present today, some kind of bulletproof type of growth. This is what we believe is more important than just the very short term growth based on tailwinds that might not last forever.
Second point, I mean Thales and I guess it was also quite clear from Hervé's presentations what we do on defense is both delivery of equipment and this is where production ramp up capital expenditure is quite important. But on top of that what we do is developing pretty complex systems. And behind that we are talking about engineering, it's not us alone, it is us with our clients. And here again, when we launch the development of sophisticated systems, it's not just something that is going to generate revenue in the next six months. We are talking about developments on several years, but those developments will then provide growth maybe for the next 10, for the next 20 years. So this is how we see, I mean overall our business.
So a long-term pretty fair growth, backlog order intake, a ramp-up of capabilities and overall, I mean a pretty good balance between those two elements. Maybe.
David?
David?
Yes. Yeah, hi.
So I've got two please.
The first one is everything sort of.
To me makes sense except the one.
I was surprised by its aerospace, specifically Avionics.
I thought you were already. Maybe my math is wrong, but I thought you were already around a 13% margin for this year. So I'm just surprised the guidance isn't more ambitious. Especially when you've got the full contribution of the Cobham acquisition coming and there must be operational leverage. Maybe my math is wrong on the starting point. And then my more high level question.
Can I just clarify when you talk a bout 50%-60% higher EPS by 2028, is that including some of the potential M&A and share buyback? And just as part B of that question is, you're going to generate another EUR 10 billion of free cash flow over t he next five years. Any steer? Are we more inclined to s ee the bolt-on acquisitions versus the share buybacks? I mean, I'm assuming EUR 25 billion is, which you've mentioned today is at a constant perimeter. EUR 25 billion of sales would be without M&A. So could it be quite a bit higher than that, do you think in reality?
Okay, so maybe starting with Avionics. I thought Yannick was quite convincing because the question has been asked, I mean as she presented, but I need to come back on this matter. So I mean in terms of key levers behind this, I mean first starting point, 11.6% in 2023. So first point, yes, I mean a positive input from Cobham, a bit above 100 basis points on this matter. And then of course I mean operating leverage on IFE in particular, which is also quite important.
Last point. And I think that Yannick was clear about this matter. I mean Avionics is also a market where there is competition. And I can tell you that our clients also putting a bit of pressure on their supply chain, which means that the evolution of price, the inflation is also something that we need to take into considerations as we want. I mean to calibrate the level of EBIT margin for the next few years. It's also our responsibility not just to discuss about the positive, but also to discuss about the overall competitive landscape. And it's true that in Avionics in particular, but this is what we see in most of our businesses. We need to keep working hard. I mean in order to contain inflation and cost and also to face, I mean a continued pressure from large OEM which are pretty.
And it's something which is well known. We know that large platform makers put a bit of pressure on their supply chain. So the 13%-14% is composite of all those elements. That was your first question, David, but I don't remember the rest. Yes, EPS. No. Maybe we could come back on the slide on EPS. Yes, yes. Okay, so this is what you see. I mean this and yes, I mean we highlighted that we will use the lever of both share buyback and EPS accretion M&A. But you see, I mean in this bridge, how much it represents as compared to what we expect from an operating profit, which means that the bulk of EPS increase will come from a higher operating profit.
But here, I mean we want to signal also that on top of operating profit, we'll think about how M&A and how share buybacks could also help us on this matter. Maybe last point, but I need to be clear on this matter. All of that is based on stabilization of tax pressure in all key countries where we operate. Because by definition it's not something that we can handle on our own.
[foregin language]
Question on the EUR 25 billion, does it include the acquisition?
I mean, we said above 25 and it's organic. It's organic. David? Yes, Christophe? Maybe. No.
Yes.
Yes. Thank you. Two questions. The first one, you haven't talked about order intake. Your forecast of order intake. Are we on the book-to-bill above 1 or above 1.1 or are you. Can you commit to a book-to-bill ratio of in the next few years? That's question number one. And question number two is about the buyback program. How much leeway do you have, I mean, given your shareholding structure, to do a buyback or to carry out a buyback in the next years?
Okay, so Christophe, so I will start with your second question. No, so let's take the partial question first. On book-to-bill, how we see the situations and evolutions in the next five years. No, I mean we are quite positive. It means that we don't expect 2025, 2026 to report on a book-to-bill that would be below one. It's not our view as we see. Which means that on top of the backlog that you have mentioned, we've got today a level of visibility in terms of prospects in terms of market demands which probably supports a book-to-bill that would be above one in the next few years.
That's overall it's not a commitment but it's more how we see today market demand which means that here again we're quite positive in terms of continuous strong momentum market demand in all businesses that we are in. Second question about share buyback. Let's look at the facts. The fact is that we have completed in 2024 a EUR 1 billion share buyback program which by definition has been approved by the board of directors at Thales where it seems to me that we have representatives from our two key shareholders. Which means that when I say it's part of our toolkit, I guess it's probably the best demonstration.
A lot have been asked about the defense top line. So I wanted to ask about the margins.
You said the 13% would be in l ine with the best in class of t he U.S. peers but we know that U .S. peers have some cost-plus contracts.
Whereas most of yours is fixed-price contracts. So theoretically, shouldn't there be some more u pside in fixed price contracts if you are able to deliver on these contracts p rofitably. An d on the buyback. Just maybe a clarification. Last time before the buyback you had announced this two-year program.
Today it seems a bit more open ended.
I mean you're not announcing a new buyback program.
So should we interpret that in the near term that you'll do deleverage?
Or could you start buyback without announcing a ny two-year program like you had done last time?
On your first question. Definitely we are much less exposed to the U.S. market than our U.S. peers for sure. That's a view. Now we decided a long long time ago not to benchmark Thales only with European peers. It would have been too easy. But to benchmark Thales with everybody, including U.S. peers despite the fact that most of our contracts are structurally different from the one in the U.S. So now it's more difficult or easier. I don't care in fact or we don't you should not care. What is, I would say the most important piece is that we do generate best in class EBIT margin in defense. And that's what we have said is also very explicit. We do intend to stay at this level of operational performance for the next period of time between 2024 and 2020.
Now a question we get from time to time is why not more? We have this question regularly, why not above 13% by the way, in some years we have been able to achieve a bit more than 13%. But you know, I usually express the fact that we need to be careful also as well not to upset our customers. I mean this is taxpayer money. This is sensitive money. Some countries face, I would say difficult budgetary situation. It would be difficult for governments or even citizens to on one hand see I would say a massive amount of money dedicated to this domain with what they could consider as excessive profit. They could consider as being an excessive profit.
And last but not least, as we operate this defense business with negative capital employed, which really matters is not the percentage of EBITDA sales, but it's really the absolute value of EBIT we can generate. Hence the growth, hence the question on growth by the way, which is very valid. So yes, 13% is what we are chasing for the future despite or notwithstanding I would say the difference, the structural difference versus our U.S. peers. You take the second one, Pascal.
Absolutely. On this matter of share buyback, what we present today is our five-year strategic plan. Last time that we have done that it was in 2019. At that time, in 2019, we have not highlighted any share potential program. However we did it and I think that we announced it, I think it was probably in 2022, a few weeks before we decided to launch it. And I think it's probably a good way to do it. The fact that today we mention this potential share buyback as being part of our toolkit, it means that we progress on this matter, as I said, is now part of our toolkit. Does it mean that we are going to launch a share buyback tomorrow? The answer is no. My view and I explain it from the level of leverage that we have today.
Net debt to EBITDA, as I mentioned, end of 2023: 1.3. What I say is that I mean. O ur A rating today assume that Thales will deleverage in two years. So from 2023 to 2025. And I said that for us it is absolutely essential to keep this level of weighting. So a solid a weighting which needs to go through a significant deleverage. I mentioned a target in terms of leverage at 0.8 and this is probably what we'll be achieving by the end of 2025. So all of that means that in the short term the priority is more to deleverage a company and we gaining financial flexibility as well.
This is basically what this type of ratio allows us so sustaining the strong A rating plus rebuilding financial flexibility then to move on with and I think I was clear playing both on M&A and share buyback.
Ben.
Thank you. A question around the portfolio. So over the past couple of years most of the deals have been done in aerospace and cyber, but we heard from the presentation earlier, you have 10 years of visibility given what's going on in the defense market now. Why not do more in defense? Is it the pipeline? Is it the opportunity set? Is it the returns? It's just interesting that most of the capital is being deployed in areas outside of defense given the environment that we're in. So Patrice, any comments you have around that would be helpful, thank you.
I would say it's more a question of opportunity. As you've mentioned, we love defense so we have no, we're not shy about I would say growing the business through M&A in defense as well, number one. Number two, it's also the fact that we are already, we say embracing world-class portfolio of products of solutions. I'm not saying that we are perfect of course, but we are starting from, from a very, very satisfactory point of view. Now of course in the future, if opportunities arise, we would look at it of course in defense. So I did mention some small deals in the past, but why not considering something more substantial if an opportunity arise. Last point, perhaps also to temper a little bit also this question is the fact that in some countries it's de facto impossible.
In some countries, because there is this notion of a national champion, blah blah, blah. This is typically the case in continental Europe countries, including France, by the way. But that leaves still for us room to maneuver in what I call Anglo-Saxon countries where the approach is different. There is a clear distinction between who owns the shares and the production of the intellectual property. Hence, we operate a nice defense business in the U.S. The only concern is to operate this business under a proxy board. Hence, we are the first defense company in Australia with the sole constraints of having a deed similar to a proxy board. Lighter, by the way, or more pragmatic, but very similar. So in these countries, yes, this is, I would say, possible. In some countries, it's de facto, I would say, unlikely.
Maybe also by the way, I mean, in 2024 we completed two small size acquisitions on defense, which means that this is possible. We are talking here about small size acquisitions. What Patrice mentioned is that when we discuss about large purchase and defense, it's complex, which means that it takes time. Don't expect us, I mean, to announce a large transaction defense in the next few months because we know that it is always quite complex. Yes, I mean, good quality assets on defense would be of interest for us. As a matter of fact, good quality assets.
[Sam Aysin] from AlphaValue to come back on the first question that was asked. If I understand correctly, your current growth projections in the defense business are not primarily driven by Ukraine-related orders. So my question is therefore how much of your EUR 45 billion order backlog is directly and indirectly linked to the war in Ukraine? How might a potential end to the war impact your financial targets? And how much of your order backlog is therefore secured? I feel this is something investors are really focused on today.
If I look at t he level of o rders that we have booked really linked to Ukraine, either for Ukraine or indirectly for Ukraine, it's not at all material at the size of Thales, so it's not zero, but if you look at that and you compare it with the EUR 10 billion defense business we run at Thales, it is not material, which is somewhat, for me, good news because we are immune from whatever will happen in this part of the world.
It also illustrates the fact that growth at Thales started before the war in Ukraine is not linked to the war in Ukraine, and it's also another explanation why the growth is 6%-7% and not much higher compared to ones that really started during or just after the war in Ukraine, quote, unquote, benefiting from this exceptional event, but which will probably not last for forever, hopefully, by the way.
And then we'll probably face challenging situations where our business clearly started to grow on a much robust and sound foundation addressing many customers, long lasting customers, not linked to a given specific conflict in the world. Needless to look at how much does it represent. It's not material, it's not in our P&L.
Your second question, if I don't do well, was more about how secured is our backlog. Okay, so I mean, quite interesting questions. It is true that we see other sectors that report in their backlog also options or orders that need to be confirmed, which is not at all the case for Thales. Which means that when we talk about 45 billion EUR of backlog, we're talking about full commitment from our clients. So it's not options. And this is also why, I mean, I explained that when it comes to a civil Avionics business, what we've got in our backlog is not at all the translations of the large order backlog at Airbus, for instance. We just record in our backlog a few months of expected revenue. So basically 45 billion EUR, secure full commitments, no options. So they will flow down in the P&L.
You have time for one last question if you wish and then.
Yes, thank you. The first one is just a check, just your earnings, EPS growth, organic, I guess. I think it was mentioned, but I just want to check it does not include the overall, I mean the additional tax I guess to be paid in 2025, but booked in 2024, I guess. And same for half of it, you know, 2025, 2026. Just to confirm that.
Yes, I mean, by the way, I've not presented figures on 2024 because I presented figures 2023 and 2028. Yes, and you know, I mean this tax premium which is considered in France should be a temporary one. It should be on the 2024 accounts.
Exactly.
Half of it on 2025.
Correct.
And then it should be suppressed. So we'll get back to the level of tax rate that we benefited in 2023.
So to come back to the question.
Your CAGR growth you are showing, does it include or not these? I mean almost 100% sure. Tax effect or you don't consider it in clean earnings?
No, no. I mean, but maybe, I mean, let's be a bit more specific overall in our projections of EPS once again, 2028 versus 2023 overall. I mean this is based on the overall current tax regulations in all the countries in which we operate without considering premium and tax in France. And with overall our view is a slight overall increase in our tax rate from the 2023 level. If you have in mind, I mean our 2023 tax rates at group level overall was something like 20.4%. We believe that in 2028 overall our tax rate at group level will be probably between 21%-22%. And this is factor in the EPS projection I shared with you.
Very clear, thank you. And maybe just a last one on defense. Coming back to defense, can you give us a bit of an idea in the backlog, how much within the backlog is fixed cost, base type of pricing in terms of contract and if we see a resurgence of inflation, how you could accommodate for it? Just to avoid what we've seen, for example, like what we saw for Space.
Your question is in particular on defense.
Yes, in defense.
On defense, that's something that we communicated in the past when inflation crisis was there and what we said in the past, that 70% overall of our defense projects are based on variations of price mechanism that allow us to pass inflation to our clients. And 30% more on the fixed and firm price. Now look at what we have done in 2022 despite inflation rise, we maintain our defense EBIT margin stable overall at 13% which means that there are various way for us to compensate what might be a bit of a headwind on inflation. Overall, the message on defense overall good protections and where we don't have limited protections, there are many ways for us to compensate for that. Overall, if you believe that inflation will come back again, please be reassured about the 13% that we committed on.
We'll not get back to you saying, oh no, it's no longer 13 because with inflation now we'll stick to our 13% EBIT margin. Okay.
Thank you.
Thank you very much.
Thank you very much for your attention. Thank you also to the folks that were on the webcast because it's been quite a long afternoon as we are a bit late. I'm sorry, but we will probably shorten a bit the product demonstration because we have a cocktail for those men who are there. Exactly. No, I mean so the cocktail will still take place around, let's say, 7:15 P.M., 7:20 P.M. But so you can walk around to have a look to the last product demo that you did not catch.