Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Thales Q1 2022 Results conference call. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today. I would now like to hand the conference over to Mr. Bertrand Delcaire, VP, Head of Investor Relations. Please go ahead, sir.
Yes. Good morning, welcome, and thank you for joining us for the presentation of Thales's Q1 2022 order intake and sales. My name is Bertrand Delcaire. I am the head of investor relations at Thales. With me today is Pascal Bouchiat, our CFO. As usual, this presentation is audio webcast live on our website at thalesgroup.com, where the slides and press release are also available for download. A replay will be available soon after the end of the event. With that, I would like to turn over the call to Pascal Bouchiat.
Thank you, Bertrand, and good morning, everyone. Before moving on to the numbers, as usual, I wanted to highlight a few elements. I'm now on slide two. First of all, obviously, two months after the start of the invasions of Ukraine by Russia, we're starting to perceive some of its geopolitical consequences. This crisis is driving a major reassessment by European leaders of the need to invest in security and defense, and to do so more in the framework of a common European defense policy. Few European member states have already quantified their investment plans. As they stressed in the recent disclosed Strategic Compass and at the Versailles summits, they've all committed to substantially enhance their defense expenditures. We are convinced that this situation will drive a long cycle of growth, 10 or 15 years, for European defense budgets.
In this context, the second point I want to stress today is the evolutions of the ESG investment framework, which has been a key concern for our industry over the past two or three years. Most of you have seen the new report on the social taxonomy, published a few days before the invasion of Ukraine, which stopped considering defense activities as socially harmful. A few days before, the European Commission issued an even broader statement. Looking at the topic of European defense, the Commission stressed that sustainable finance initiatives must be consistent with Europe's efforts to facilitate European defense industries' access to financial investments. We are seeing a similar move from investors, who realize more and more that it doesn't make sense to implement blanket exclusions of defense companies.
A recent poll showed that 39%, 39% of asset owners believe that the recent geopolitical developments will lead to adjustments to their ESG approach. Capitalizing on the ESG Investor Day we organized last October, we continue to engage with investors on these topics and showcase our sustainability strategy, which represents an important pillar in our overall equity story. Finally, let me point out that while the increase in aircraft production trades will take time, the recovery of air traffic is starting to boost our Aero after-market and biometric businesses. I will come back on this when I discuss each segment. Let's now have a look at Q1 headline numbers. I'm now on slide three. New orders amounted to EUR 3 billion, down 4% on a reported basis and 6% on an organic basis.
As you will see in a minute, this performance was still strong despite the negative growth, mostly explained by an exceptionally good first quarter in 2021. Sales came to EUR 3.7 billion, up 2.7% on an organic basis, and up by 4.4% on a reported basis, i.e., including the positive currency impact. The important point to note here is that at constant scope, our Q1 sales are higher than in the previous three years. The strength of defense and security, the DIS, and space offset the weakness of Avionics. Looking into details at our order intake, I'm now on slide four. As you can see, the negative organic growth of 6% is coming from fewer large orders above EUR 100 million. Two in Q1 2022 versus four in Q1 2021.
Both contracts were for Space INSPIRE satellites with SES and also with Intelsat. As you can see, both categories, actually both categories of contracts between EUR 10 million-EUR 100 million and below EUR 10 million are growing. With orders below EUR 10 million progressing by 6%, despite the impact of COVID-19 on both civil, aero, and biometrics. Turning now to slide 5, looking at sales growth. First, a word on currency impact. As expected, a stronger U.S. dollar generated a slightly positive currency impact of EUR 54 million or 1.5% of total sales. We expect a similar pattern going forward in Q2 and less so in H2. Organic growth by 2.7% was mostly driven by the ongoing performance of the DIS and by the space business, still progressing despite a stellar year in 2021.
Turning to the geographical perspective, let me just point out that mature markets are still driving growth, with emerging countries below Q1 2021, resulting from anticipated saving effects on large contracts, especially in the Middle East. Now looking briefly at each segment one by one. I'm now on slide six for aerospace. Orders were clearly up again by 17% organically, thanks to a dynamic start of the year for the space business with the two contracts above EUR 100 million I mentioned earlier. Avionics orders were also up versus Q1 2021, despite IFE original equipment still being negative with no major win in Q1. However, we expect IFE orders to resume progressively as airlines decide how they will equip their future aircraft. Sales were up by 4.2% organically, driven by our two businesses, space and avionics.
Space was up again in Q1 2022, despite an impressive 24% growth in Q1 2021. As mentioned on the slides, the aeronautic parts of the business is progressively recovering, driven by the aftermarket, which grew by 15% against Q1 of last year. Turning now to slide seven, looking at the defense and security segments. A lower order intake, down by 29% organically versus Q1 2021, was again an illustration of the natural volatility of large contract signatures. Three were signed in Q1 2021 versus none this year. As announced a few days ago by Dassault Aviation, we have received the down payments on the UAE Rafale order, meaning that we will book this jumbo contract in Q2. You can clearly expect a very strong Q2 in terms of order intake for defense and security.
Organic sales growth was slightly negative, -1.1% organically after a strong Q1 2021 at +12%. Continuing on a very positive trend across most business lines and with an acceleration expected as soon as Q2. Turning briefly to the full-year perspective, I know some of you are hoping for immediate effects from the recent European announcements. However, as mentioned in my first slide, we are talking about medium-term impact here, not immediate impacts. Of course, we see a very strong positive perspective for the defense and security segments, and I confirm that we continue to see a high level of commercial activity. However, it would be too early to expect an immediate positive impact on our sales for 2022. Plus, please keep in mind that component shortages and supply chain tensions have started to affect all business.
At this point, let's be prudent with 2022 growth expectations, and we'll adjust further our messages at H1 if needed. Turning to slide eight, looking at our last segment, Digital Identity and Security. As mentioned previously, order intake at DIS is structurally aligned with sales for most businesses as they operate on short cycles, hence no need for me to comment. At EUR 739 million, sales were up by 12% on an organic basis. The strong performance is due to different dynamics in the DIS businesses. Biometrics have been recovering since Q4 last year with an ongoing growth in passport demands, hence a double-digit growth in Q1 and similar expectation for full year 2022. Cybersecurity continues to deliver robust growth, high single digits in the quarter, and is also expected to remain strong over the full year.
Finally, smart card businesses had a strong performance in Q1. There were two factors behind this outperformance. We saw some precautionary buying from customers concerned with the chip shortage, but we also managed to pass through our higher supplier costs. It's important to keep in mind that these factors are temporary, so let's not extrapolate them to the full year, which we now expect was at mid-single digits organically. Let me finish here with slide nine and a reminder of our financial objective for 2022. All in all, Q1 is in line with our expectations. In spite of the various uncertainties I mentioned, we confirm our financial objective for 2022. This concludes my brief presentation. Many thanks for your attention, and I will now be pleased to take your questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question. First question comes from the line of George Zhao from Bernstein. Please ask your question.
Hi. Good morning, everyone. I guess first point on the, you know, the pricing effect, on the smart cards. I guess, have you been able to fully offset the increase in the purchase cost to, you know, protect the margins through the pricing effect there? Second one real quick, you know, could you share any details on, you know, whether you've begun the repurchase program since the start of the buyback program this month? Thanks.
Good morning, George. On the smart card and the pricing effect, overall, I mean, our intent is really to protect our margin. I'm quite sure that we will be successful in this endeavor. As you know, I mean, the market is also tight. I mean, there's today in this business some kind of imbalance between supply and demand. It's clear that also, I mean, the shortage of the chip components, I mean, this is also probably a driver for all players, I mean, to be able to convince clients that they need to increase prices in order to compensate for a higher supplier cost. This is what we have been doing.
I mean, by the way, this is what we have done in 2021, and quite successfully, if you look at the overall DIS margin in 2021, which was quite close to 12%. Probably 2021, quite a good demonstration of our ability to push up prices in order to compensate for inflation on our supplier base. We see this continuing, and I'm quite confident that we will be able to fully compensate for the increase in inflation on this business. The share buyback, I mean, has started. I mean, we announced, as we released our 2021 figures, that we would start our share buyback program as early as beginning of April 2022.
It has started. I'm not going to comment today on how many shares we bought in April, but it has started. I would say it's very much in line with what we shared with you. I mean, just to remind everybody that we announced this program representing 3.5% of our overall equity. We mentioned that we would execute this share buyback program over the next 24 months, so starting beginning of April 2022. Nothing more to report except that it has started as presented.
All right. Thank you.
Thank you, George.
Thank you. Next question is from the line of Ben Heelan from Bank of America. Please go ahead.
Yeah. Morning, Pascal. Good to hear from you. I had a couple please. Firstly, is there any update from you in terms of how we should think about the French defense budget post the election last week? That would be the first question. Second question would be, would you be able to give us some insight into what the conversations are like that you are having with governments in the defense arena? Are they very focused on short cycle demands? Are they focused on more systems and platforms? Just any color around that would be helpful. A third question would be, you made some comments at the beginning that you feel you have 10-15 years visibility for European defense budgets now.
How is that gonna impact how you think about M&A? Is this an opportunity to be more aggressive now from an M&A perspective? If so, what areas are you thinking that Thales needs to grow its exposure to? Thank you.
Good morning, Ben. Thank you for your questions. First on the French defense budget. I mean, first probably it's worth for me to remind everybody that we are today operating under a medium-term programming law for defense in France, which was voted by President Macron in 2017. With, I mean, overall mid-single digits increase in defense spending on the first part of this programming law, with an expected surge in 2023.
Overall, when looking at the overall defense equipment trajectory, it was more a bit in excess of a mid-single digit in the first part of this Military Programming Law and some kind of a ramp up with getting close to double digits as early as 2023. That was basically, I mean, the Military Programming Law voted back in 2017. The fact that President Macron was reelected is probably a good sign about the French government probably applying what has been voted a few years ago, and in particular in this new geopolitical context.
At this point, of course, it's too early because, you know, I mean, President Macron was reelected a few days ago, and of course, at this point it's really too early to anticipate how, I mean, all of that will be reconfirmed. Will it come in the second half of 2022? That's my guess today. Once, I mean, President Macron will have, I would say, fully gathered his new team and probably have performed some arbitrations between various public spending.
Overall first, it's probably a good thing, I mean, to see President Macron being reelected in the context of what has been voted in 2017 under his leadership. Second, probably a bit too early, I mean to be more explicit in terms of when will this be reconfirmed. Now, also, capitalized on the overall statements of both the Versailles summit, but also the European summit that took place a few weeks ago. We're still at this point more qualitative statements, but statements that are quite positive about the needs from all European countries to increase their overall defense spending.
We're expecting a summit on defense to be held probably sometime in May. This has still not been confirmed, but this could give probably a bit more color in terms of what this means. About, I mean, our conversations today with the French MOD about the short-term type of platform. Overall, I think probably top priority of our clients in France, and my view is that it's also the case with other MODs in various countries is about being able to provide the right level of support in order for our equipments to increase their overall rate of availability.
This is a clear priority for the French MOD, with of course the level of activity for the French armed forces that of course has increased since, I mean, the invasion of Ukraine. At this point, it's more about how to get even higher availability of our equipment. Now in terms of will they order more volumes of similar equipment? At this point, it's probably a bit too early. There is, yes, a global feeling and conversations about replenishing stocks, for instance, this type of things.
At this point, however, probably not being reflected in higher order intake in Q2, but once again, it was anticipated. We knew that it would take a bit more time, I mean, to see a higher order intake. Now, I mean, probably my tone is quite explicit about the fact that we see overall, I mean, quite a strong commercial activity in terms of defense and security. Last point about yes, I mean, our convictions that this new geopolitical context will provide a much longer term visibility in terms of, I mean, defense spending. We all know that the defense is a long cycle type of business. We know that building new equipment, it takes time.
As I mean European countries have realized that we need to step up their overall capabilities, it will take time for them to achieve I mean this level of step up in terms of ability to operate. Now I mean M&A linked to this I mean longer term will this be a trigger for more M&A? I don't know. I mean at this point it's probably a bit here again a bit too early. Probably there will be a push from Europe to favor more collaboration and to provide incentive I mean for European defense companies to work more together on common program.
Now going further in terms of M&A is probably a different picture. At this point, we don't see anything that would underpin or would confirm the fact that the M&A would increase in defense in Europe at this point. No, this is not what we have heard in terms of messages.
Okay, great. Very clear. Thanks, Pascal.
Maybe additional point. I mean, we've been also quite clear that in case we would see, I mean, meaningful bids in terms of M&A in defense and security, of course, I mean, we would look at potential bids. By the way, probably a good opportunity for me, I mean, to confirm that we took over in the U.S. the share of DRS in a small size business representing something like $70 million of annual turnover.
We were a 50/50 partner with DRS, and we agreed with DRS for Thales to take over the DRS share in this business, which is quite a favorable go-to-market for Thales in the naval business in the U.S., and in particular, I mean, a very strong go-to-market for our sonar business, which as you know, is one of our key product lines in our defense and security business. It is in particular, I mean, a niche segment for Thales in the U.S., where, I mean, we have the right technology and where we expect a good level, of course.
Great. Thank you.
Thank you. Next question comes from the line of Tristan Sanson from BNP Paribas Exane. Please ask your question.
Yes, good morning, Pascal. Good morning, Bertrand. Thanks for taking my questions. The first one will be on the supply chain constraints. You started mentioning at some point that it started to impact your businesses across the board. Can you be a bit more specific which businesses are really impacted? What are the type of constraint that you're seeing? How much revenue do you think you lost in Q1? And I'm a bit puzzled by that comment that you made as far as as regards to a possible revision of the guidance with H1. Because on one hand you're talking about a fairly positive trend in aerospace and civil aerospace and biometrics with this supply chain constraint on the other side.
Could you explain a bit the condition that could drive a revision of the top line guidance in H1? What is the kind of deterioration that would be required for you to change that view? The second question is on the management of cost inflation. It's a more generic question about following the comments you made on the smart card and the ability to pass through some cost increase. Can you remind us today, within the portfolio, where you have fixed price contracts and where you have escalation clauses or variable cost contracts that allow you to quickly pass through the increase in energy, labor costs, raw materials, anything? I'll stop here to leave time for the other ones.
Okay. Thank you, Tristan. Maybe I will come directly on your first question about guidance because I think maybe I mean I misled you in terms of my message. No. What I mean is that most probably, or I mean, we could anticipate that based on our H1 level of sales, we might adjust our level of guidance for the full year and in particular narrowing our range. I mean, we mentioned as we release this 2022 guidance on sales a range from EUR 16.6-EUR 17.2, which is quite a wide range.
We mentioned that when we would see a more stable situation on various elements, we would of course seek to narrow this guidance. This is just, I mean, what I wanted to mean. In no way do I consider, I mean, to revise downward, I mean, this guidance. It's probably more the opposite, and I think today what I believe is quite a strong level of activity in Q1. Supply chain, yes, I mean, probably a good transition about your question on supply chain. Now it's what do we see on the market today?
By the way, it's not just, I mean, a Thales point, because I guess that's my comment should probably be valid for most of our peers. In 2021 we're seeing quite a difficult situation from a semiconductor standpoint on our DIS business. With, I mean, a clear shortage, which I think we managed pretty well. But at the end of the day, I mean, the amount of sales that we missed in our DIS business in 2021 was quite limited. Not to say more, but very limited. As I mentioned at our 2021 results presentations, we said.
I said that we are not seeing an improvement overall on this matter in terms of overall availability of chips on the market. This is confirmed. I mean, we still see quite tense situations with a number of tensions in the semiconductor supply chain. We see, I mean, some of this impact in our other businesses. I don't want to be more specific, but it is the case in our defense and security business, also the case in our aerospace business. At this point, all of that is very much under control. You asked me about what was the overall missed sales in Q1.
It's probably a few tenths of a million euro, and yes, so is it EUR 20-30 million? Probably, I mean, this order of magnitude. Now, I mean, we remain quite vigilant, and I can tell you that we spent a bit of time on this matter, in order, I mean, for us not to be penalized. It will be a matter on which we'll be quite vigilant throughout 2022. Last point about cost inflation and the structure of our contracts. I mean, to make a long story short on this quite important matter, there is of course, I mean, different situations across our various businesses.
In general, defense contracts are more based on contracts with a variation of price indexation mechanism. I mean, probably a good rule of thumb would be to consider that in our defense and security business probably two-thirds of our contracts are protected through a variation of price indexation mechanism. The situation is quite different in our civil business. In civil businesses in general, and in particular, when you talk to purely commercial businesses, in general, I mean, there is not that many clauses of this type with variation of price mechanism in contracts.
On the civil business, it's more, I mean, the balance between offer or demand, which is a driver in terms of being able to pass through increasing prices throughout the supply chain. I mentioned, I mean, DIS, which is quite a good example. In DIS, in most cases throughout the DIS business, there is no specific mechanism in our contracts, but here it's more about the relationship that we built with our clients and our ability to convince them that in these situations it is fair to pass our increase in supply to our clients. This is what I can share with you. Of course, indexation clauses are valid for contracts with a period of execution that are mid-terms.
I mean, of course, when you execute project on just on 12 months or 18 months, I mean, it's not that much an issue. This is my comment on your last point. I guess, Tristan, I answered your three topics, your three questions.
Yeah, it was very helpful. Thanks for clarifying, especially the situation on the top line for this year.
Mm-hmm.
That's best.
Yes. I don't want to convey a message that wouldn't be appropriate.
Thank you. Next question comes from the line of Chloé Lemarié from Jefferies. Please ask your question.
Yes, good morning. I have a couple if I may. I'd like to first build on George's question, but at the group level and concentration. Just if you had any quantification to share with us, on the impact of margin at this point. I'm what I'm really trying to get at is how confident you are that you can get to the top end of the margin guidance given the current inflationary environment. The second is on defense, on your main challenge in bottleneck to fulfill that level of demand, would it be component shortages? Would it be engineers? Would it be blue collars? Any visibility on that would be great.
Lastly on M&A, again on defense, are there any specific areas where you see European defense needing consolidation? I mean, there were quite a lot of talks in the past about shipyard consolidation and then defense. Given the higher volume that we're going to see in the next decade, would operational efficiency trigger that consolidation in your view?
Thank you for your questions, Chloé. In terms of cost inflation and our guidance in terms of margin, I mean, I don't have anything specific to report. I mean, inflation is there. I mean, I'm quite confident that we will be able to manage this inflation supply cost, preserving our margin. Now, I mean, what does it mean in terms of 2022 guidance? I mean, for me, I mean, the inflation that we see today is fully embedded in our overall guidance. At this point, I don't want to comment about will we be at the bottom part of our guidance, or will we be at the higher part. At this point, it's probably too early, Chloé Lemarié, on this matter. Your question about defense is quite interesting.
What is true is that, I mean, I mentioned about the overall commercial dynamism on defense and that I can reiterate. I mean, I've never seen so many opportunities across the board in our defense and security businesses in many places around the world. My view is that our order intake in 2022 will be probably a good illustration of this market. Now it's more about bottlenecks in terms of executions and the challenges that companies are facing in delivering their projects, in particular in defense. One key point for us is finding the right talent at the right locations. It's not that much a blue-collar in defense. I mean, it's more high-end, high added value type of business where we are looking for more engineers, software engineers, system engineers, overall digital talent.
Yes, I mean, we are pursuing various actions in order to keep attracting talents on this business as, by the way, we do on our other businesses, of course. Yes, I mean, the challenge relating to attracting, developing talents is, of course, a top priority for Thales in our overall growth journey. M&A, it's strange, I mean, this is the second question this call about M&A in Europe. I have to say that at this point, I've not seen anything that would lead us to believe that there's going to be an acceleration in M&A in Europe.
Of course, I mean, consolidation would make sense, of course. I mean, we would be very happy, I mean, to take part of these consolidations and keep us strengthening our overall position there. By the way, I mean, coming back on our key criteria about M&A, on defense in particular, not just on defense, but in particular in defense, I mean, it's really for us, I mean, these two axes in term of M&A priorities, one being, I mean, geographies and becoming stronger in countries where today our presence is not that large and where, I mean, we see quite a positive growth potential. The second axis is about technologies.
For us, I mean, strengthening our portfolio of technologies within defense is also something that we are looking for. At this point, this is basically what we would like to pursue. I mean, we are open to both acquisitions in defense as we mentioned. At this point, however, I mean, the number of firms that we might contemplate in Europe in particular at this point is quite limited. Now, will we see more about that in the next few months, we will see. At this point, I have to say that I'm a bit cautious.
One thing is to favor collaborations across various players in defense with companies from different countries working together on a program. Another thing is M&A, and we know that, and probably more than ever, we see, I mean, governments, countries not accepting to give up in terms of sovereignty when it comes to, let's say the managing defense assets. I would be a bit cautious about transborder type of M&A in defense. I mean, I would welcome a move of this kind. At this point, I'm a bit cautious about, I mean, the short-term opportunities that we might see on this matter.
Very clear. Thank you.
Thank you, Chloé.
Thank you. Next question comes from the line of Christophe Menard from Deutsche Bank. Please go ahead.
Yes. Good morning to everyone. The first question I had was on the defense and security. If there was one part of that business that could outperform in 2022, would it be fair to assume that it is more the support area, so the operational or what guarantees the operational readiness? And what share of your defense and security sales does that represent at the moment? That's the first question. I'll follow up with the two others.
Good morning, Christophe. Yes, of course, I mean, we expect, I mean, support in our defense and security business to be strong in 2022. You probably have in mind that in the last few years, I mean, we signed, in particular in France with the French MOD, various contracts relating to support businesses, I mean, to support various types of equipment. With the willingness of the Minister of Defense in France to better verticalize the management of support in order to become more effective when it comes to availability of platforms. If you look back at what we signed in the last few years, we signed contracts either as a prime or as a subcontractors, I mean, to support, for instance, I mean, the fleets of Rafale, the fleet of radars, the fleet of Mirage 2000, the fleet of patrol aircraft.
We start seeing and our clients is starting to see, I mean, the merits of this new way of managing support in order to overall improve the availability rate of their equipments, of their platform. I was, by the way, I mean, just, I mean, yesterday discussing with one of our key leader in our defense business about the start of a project that we highlighted in our 2021 figures, which is a project called VASSCO, which is designed to support the fleet of radars and the overall management of air operations for the French armed forces.
We are discussing about, I mean, how this project is starting, and it's starting pretty well, with the client being quite happy with, I mean, the start of this, of this new program. I mean, the confirmations of the needs, I mean, for this, for this type of equipment to keep improving its overall effectiveness in terms of availability. This is a good example. Overall, I mean, services in our defense and security support represent something around 20%+ of our level of revenue. On this matter, which is especially important.
Thank you. The other question was on the, actually, the discussion you have with emerging markets on defense. You discussed about Europe.
Christophe, I mean, unfortunately the line was cut for a few seconds, so I was not able to hear what you said.
Okay. It was cut also on my side. I repeat. Two other questions is, emerging markets outlook in defense, if you can talk about the discussions you're having with those markets. Also, I was wondering whether you would consider repatriating some semiconductor production to France at given point in time, given, I mean, constraint at the moment, and in fact that you will probably have more demand for those products, so the supply in a way to ease the supply chain. I mean, that's, is it something that you're considering?
No, I mean, I will start with the second question, so, Christophe, because I think there's maybe a misunderstanding about, I mean, managing the semiconductor supply chain. I mean, Thales, we don't produce semiconductors. We use semiconductors and semiconductors are made by, I mean, specific companies like STMicroelectronics, NXP, Infineon, Samsung. I mean, they're companies that are not a defense company at all. Those companies, by the way, they also rely on foundries that are located today more in Asia, in particular in Taiwan, but also in China. It's not that much, I mean, a matter where, I mean, a company like Thales could, I mean, decide to produce its own chip of semiconductor.
Now, your question is absolutely valid about, I mean, the need for this industry to keep investing, which they have started to do since, I mean, beginning of 2021 with massive investments. A few years in terms of lead time, I mean, for new plants to be commissioned, hence the fact that we believe the situations will continue to be quite tense through 2022 and probably the first half of 2023. Now what you mentioned also raises the point of sovereignty, of independence of key countries when it comes to semiconductor production. It's true that for instance, I mean, the U.S. has decided to invest in new production plants with regard to semiconductors.
I mean, Europe is considering also, I mean, this type of of investments that are quite major investments, of course. We know that it will take time. We know that for the next few years, there will continue to be quite a strong dependence upon supplies that will come from, in particular, Asia on this matter. However, with, I mean, the, I mean the key players that I've just mentioned, investing, quite a lot, in order to take advantage of, continuous, higher growth, higher demand on this, on this matter. Can you repeat, I mean, your first question?
Yeah, sure. The question was on emerging market outlook. I mean, the defense.
Mm-hmm.
Discussions you have with emerging markets, you mentioned about Europe, just anything that you may have had since events in Ukraine.
I mean, as we all know, for us, emerging markets, it's in particular Middle East and Asia. Middle East, we see quite a lot of activities in these regions, which in my view is not linked to the crisis in Ukraine, but which is more linked to the overall geopolitical context in these regions, which continue, as we all know, to be quite complex and difficult. Do we see also the impact of a higher oil price in terms of those countries willing to move ahead even more quickly on key matters?
It might be the case, but what I can share with you is that, I mean, the level of activity in terms of requests for proposal in these regions is quite strong. Asia as well with various countries, probably a country where we are quite active and where we're pursuing various opportunities. It has started, by the way, in the recent past, is Indonesia in particular. Indonesia with, as you have in mind, I mean, some quite successes in the recent past on space. But now this time on defense with, well, not commented about the Rafale success in Indonesia, but which is also something which is quite recent and quite positive.
We are also pursuing other opportunities in Indonesia, in particular on our defense and security business. It's true that Indonesia, which as you know is one of the largest country in the world in terms of number of inhabitants. I think Indonesia is the fourth most populated country in the world with quite a complex geography and with many needs in terms of protecting their country. We see Indonesia in particular as being quite a source of opportunities for Thales in this region. So ov erall, I mean, here again, I mean, we see quite a good level of commercial activity and quite positive on this matter as well.
Thank you very much for the detailed answers. Thank you.
Thank you, Christophe.
Thank you. Next question comes from the line of Andrew Humphrey from Morgan Stanley. Please go ahead.
Thank you very much. I don't have much more, to be honest. Maybe a couple of specific questions on shorter cycle items. You've obviously been relatively clear about not seeing, you know, orders coming in yet on the defense side. Are you seeing a much higher level of activity if I think about things like tactical radios, you know, ground-based support, some of the shorter cycle businesses? You know, could you give us an indication maybe how much of your defense business you would class as, you know, shorter cycle and likely to be, you know, deliverable, say, within the next 12 months?
Mm-hmm.
Secondly, on you know, potential production disruptions, you've talked about difficulty of getting hold of talent and engineers in the right geographies. Can you talk about where in the world, I guess, you're seeing most constraints or having some difficulty hiring?
Good morning, Andrew. In terms of types of businesses where we see, I mean, positive short-term implication. Once again, it's uncertain. You mention a tactical radio. Yes. But I mean, I mention also, I mean, radars which is a good example. Air defense, I mean, to a large extent is where we see also, I mean, more demand. I don't want to be that much specific, but overall, I mean, across the board, I mean, additional needs in the short term. In terms of recruitment talents, I don't want to make, I mean, a specific case on the specific country. We know, and this is a matter of fact, that this is, I mean, the war for talents is a global challenge in many places.
It is the case in most mature countries, whether it's U.S., whether it's U.K., whether it's continental Europe. It's across the board. It's also, I mean, why, I mean, we are pursuing also initiatives for us to strengthen, to keep developing engineering centers in other regions. I've commented in the past, and I can confirm the fact that we are ramping up our engineering centers in two key locations for us, one being present in Europe, which is Romania. The other one being in India with two key engineering centers for Thales in India that we are ramping up. One close to New Delhi at Noida. Another one in the south part of India, which is Bangalore.
You see, I mean, a way also, I mean, for companies like Thales in particular, I mean, to get additional talents is also, I mean, to seek developing engineering centers where, I mean, we see a level of supply in terms of a number of available engineers being quite interesting for us in terms of supply. No specific points. This is absolutely not specific to Thales, of course. This is across the board for all companies' challenge in the field of digital in particular. Thales with, I think, I mean, the strength of our brands in some countries, in particular in Europe, and also, I mean, our initiative, I mean, to ramp up engineering centers in other regions. I mentioned Romania and India are also a way for us, I mean, to keep going, managing this overall challenge.
Okay. Thank you.
Thank you.
Thank you. Next question comes from the line of Harry Breach from Stifel. Please go ahead.
Good morning, Pascal. Thank you for taking my question. I guess just a very quick couple. Firstly, you know, absenteeism because of recent COVID levels has been an issue, I think, for some companies in aerospace and defense on both sides of the Atlantic. How are you finding the level of illness amongst Thales's workforce? Is that something that you're managing through with extra shifts? Is it something that's causing any slippage in revenues? Just turning over maybe to the availability contracts, Pascal. I think you touched on Rafale, you touched there on Balzac as well, and VASSCO. Are there any other major opportunities for verticalized support involving Thales products with the French Ministry of Defense that you would highlight to us?
Okay. Good morning, Harry. On your first question about COVID and, I mean, impact of COVID on how we operate our sites, I guess your question sort of relates to other companies that, in particular, I mean, U.S. companies that have mentioned that they missed sales because of production disruptions driven by COVID. It's not a point that I mentioned in my comments. I think that at Thales, we manage our operations pretty well on this matter. It's true that we organize, I mean, the companies after, I mean, the our Q2 2021 disruptions in a way that allows us to navigate through, I mean, some of our employees being affected.
I do think that, I mean, following the disruptions that we had in Q2 2020, we have taken the right measures in order for us to operate in a pretty effective way, despite, I mean, the constraints that you have mentioned and people being affected by COVID. No, I mean, I've not seen missed sales driven by disruptions of production due to the COVID-19 issues. No, of course, all of that is a permanent challenge. Of course, I'm not saying that all of that easy, but I think that we learn how to navigate through, I mean, some of our employees being impacted by COVID.
Maybe a slight caveat on our DIS business in China. As you know, I mean, Shanghai is under lockdown, and we have the DIS production facility there, which has been slightly impacted. Here again, it's I mean, probably a good illustration of how I mean, we can I mean, manage this overall environment. We have our colleagues at Thales in this production facility in Shanghai. I mean, staying 24 hours a day, seven days a week in the plant, sleeping in the plant, in order I mean, to keep producing, they cannot leave the plant for sanitary reason.
It's probably a good illustration of the commitment of our employees to supporting the company in this situation. A specific case in Shanghai, but showing what I perceive being quite a good demonstration of mobilization of our employees. Availability contracts, of course, I mean, we're discussing with the French MOD on this matter as we see the merits of this verticalization in terms of overall effectiveness and improving the overall availability rate. At this point, it's probably too early to be more explicit on this matter. Yes, there will be of course, in the next few years some opportunities there.
Of course, I mean, it's clearly an opportunity for growth for Thales. I mean, in particular, I mean, the various contracts that I've mentioned earlier on support with the French MOD will be clearly, in my view, opportunity for top line growth in the next few years as we will sell more services to the French MOD for the benefit of improved availability of their own platforms.
Thank you very much.
Thank you, Harry.
Next question comes from the line of Aymeric Poulain. Please go ahead.
Yeah. Thank you very much for taking my question. I'd like to just cover the mix in DIS, please, to understand the return to mid-single-digit organic growth for the full year when you start with such a strong double-digit growth. Could you give us a bit more color on the trend you see in the biometric passport that is recovering from its trough, as well as the sustainability of the momentum in the payments? And also I'd like to see if you're getting more interest for the eSIM card given the shortage of semiconductors. Is it something that provide an incentive to push this activity? If so, what is the type of attrition you see when you substitute a traditional SIM card by an eSIM card, please? Thank you.
Thank you very much, Aymeric. Overall, I mean, my tone is quite positive on the level of demand at DIS in our various businesses. We will see in July whether we upgrade a bit our perspective in terms of level of revenue for DIS for 2022. It's true that at the start of the year, it's quite strong. It's quite solid with as I mentioned, I mean, a clear recovery in terms of demands for our biometrics slash secure documents. Quite a strong level of demands on our secure documents biometrics. Quite a strong level of demands in our cybersecurity business, and it will continue.
Quite a strong demand in our smart card businesses, in particular in our banking business. Overall, quite a strong level of demand today. Now in terms of a bit of caveat or element of cautiousness for the full year. We have seen probably a bit of precautionary buying from our clients in the bank segment. We need to see how we see, I mean, the demand developing in H2. First point. Second point, I mentioned that, I mean the DIS is also where, I mean, we might be impacted by the shortage of chips.
We might suffer a bit as it has been the case in 2021, coming from the shortage of chips. Again, this is where we are working quite hard. Overall, I mean, very happy with the level of demand in this business. eSIM and the move to eSIM. Is there a connection between, I mean, this shortage of chips and the development of eSIM? No, that's not my view. I don't think there is a direct connection. By the way, an embedded SIM also carries, I mean, semiconductor. It's not pure software, so there is also a bit of hardware, even though it is quite limited.
Now, I mean, what is absolutely true is that we keep seeing, I mean, this underlying quite positive move of moving from the traditional removable SIM to the embedded SIM. With, as you have seen probably, Apple making quite a stronger decision on this matter. We are quite convinced that in the next two years we'll show a clear increase in the demand for eSIM. This transitions from removable SIM to eSIM. Which is overall positive to us with more added value on what we can supply, in particular, in terms of software. I think that there is no more questions.
Let me conclude by stressing that overall Q1 is very much in line with our expectations. We remain focused on the delivery of our financial objectives, and of course, the execution of our strategy. As I mentioned many times in this call, the underlying is stronger, I mean, across all our markets. I think that I've provided various examples, I mean, to support this quite positive tone in terms of level of demands. Our next shareholder event is our AGM on May 11th. As the Farnborough trade show will be in the week prior to our H1 publications, I mean, we won't be able to meet investors there. Sorry for that.
I will be road showing with Bertrand and Olivier, and will be participating in conferences in May and June. I'm looking forward to meeting you in the coming weeks and months. In the meantime, please don't hesitate to reach out to Bertrand or Olivier if you have further questions. Thank you very much. Have a good day. Bye-bye.
Thank you, ladies and gentlemen. If you didn't have a chance to ask your question on today's call, please do not hesitate to send your question to Thales Group Investor Relations at ir@thalesgroup.com, and we will get back to you as soon as possible. Thank you all for your participation. You may now disconnect.