Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's STALIS Q3 twenty twenty Order Intake and Sales Conference Call. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today. I'd now like to hand the conference over to M.
Bertrand Delcare, VP, Head of Investor Relations. Please go ahead, sir.
Yes, hello. Good morning. Welcome and thank you for joining us for the presentation of Thales' nine month 2020 order intake and sales. I am Bertrand Delcares, the Head of Investor Relations at Thales. With me today is Pascal Bouchard, the CFO of Thales.
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 of the call will be available in a few hours. With that, I would like to turn over the call to Pascal Boucher. Thank you, Bertrand, and good morning, everyone. So before moving on to the numbers, and as usual, I wanted to highlight a few key messages.
I'm now on Slide two. First, as we explained during the H1 results presentation in July, after the disruptions that we faced in Q2, we targeted returning to close to 100% internal productivity over H2. Thanks to the mobilization of the teams, operations recorded strongly in Q3, which enabled us to post much improved sales growth. Organic sales growth actually turned positive if we exclude the Aeronautics global business units. Second, the past few months have provided us further confirmation that the dynamics on our defense markets remain solid.
The French government presented its 2021 budget a few weeks ago. In spite of the COVID-nineteen crisis, the defense budget continues to track the trajectory that was approved in 2018, as part of what is called the LPM, the Military Programming Law. The budget will increase by €1,700,000,000 in 2021, I. E, around plus 4.5%. I could also mention Australia, our second largest defense market, which reaffirm its commitment to a seven percent year growth in its defense budget.
Or Greece, which recently announced its intent to buy Rafale aircraft. These continued dynamics drive a significant pipeline of orders, including several that we expect to book in Q4. Finally, we recently announced a string of ESA contracts in space exploration, which are coming on top of the successes in Earth observation that were mentioned during our h one results. In particular, as shown on the slide, Thales and Astellas will be a major supplier to Artemis, the NASA's lunar mission. It will design the two European modules of the space station that will orbit around the moon for a total value of more than €600,000,000 that will progress progressively in the next years to come.
These awards demonstrate the robust dynamics we are seeing in the institutional space market. Turning now to slide three, which summarizes our key figures for the third quarter and the first nine months of the year. Figures for the first nine months are, of course, marked by disruptions we faced in Q2. More interesting are the Q3 figures, which show a strong recovery. Organically, order intake was only down 8% and sales down 4% compared to last year.
As I will show in a minute, excluding Aeronautics, both KPIs actually turned positive in Q3. So I'm now on Slide four with our order intake dynamics and key commercial successes for the first nine months of twenty twenty. The nine month order intake was marked by the impact of the COVID-nineteen crisis on civil analytics demand and by the phasing of large orders, which you see on the right. However, looking specifically at Q3, order intake declined by only 8% and excluding analytics, we actually achieved a low single digit goal. Year to date, we booked six orders of more than €100,000,000, including two in Q3.
The third tranche of Scorpion, the French military vehicles program, and also a support and services contract for the French army. Going forward going forward, we see a significant pipeline of large orders unfolded in q four, starting with NKX-one 118, this German frigate program. And surprisingly, the decline in small orders below €10,000,000 primarily reflects the impact of COVID-nineteen on demand in civil analytics and also biometric passport. Moving now to Slide five, looking at the sales. The chart on the right shows the different drivers behind reported and organic growth.
The currency effect was a small negative over nine months of 0.8% of sales. It was concentrated in Q3 where it represented almost 2% of sales. It was particularly strong at DIS, which was impacted by the devaluation of several emerging market currencies. The significant scope effect, euros $697,000,000, was of course primarily due to the Gemalto Q1 twenty nineteen sales. Turning to organic growth, the breakdown per quarter shows a major swing After the 20% decline we faced in Q2, sales achieved a strong recovery, minus 4.3% in Q3.
On the one hand, as expected, we were still impacted by the major drop of demand in civil aeronautics, around 45% in Q3, driving a 30% decline for the all aeronautics global business units. On the other hand, thanks to the mobilization of all things, we achieved a strong recovery of sales in the other businesses, which actually managed to grow by 1.5% in the quarter. Now, looking briefly at each segment one by one, I'm now on slide six. So in our space, orders were down 13% compared with the first nine 2019 at €2,300,000,000. This reflecting two positive trends.
The major negative impacts of COVID nineteen on our on our civil aero businesses, and the recovery of space orders. As I mentioned earlier, we have seen a lot of activity in the institutional space market. In q three, we booked the first phase of two of the five Copernicus missions we are involved in, and we expect the three orders by the end of the year. On the other hand, the commercial telecom satellite market remained soft. Excluding c band related orders, only four geostationary satellites were ordered year to date worldwide.
Sales improved materially in Q3 compared to Q2, minus 18% versus minus 38%. With an organic decline of around 45%, Civil Aero sales improved slightly, but remained heavily depressed. Considering the travel restrictions that were imposed again at the end of the summer, we naturally remain cautious on the level of civil error demand in the coming months. The bulk of the recovery came from the strong productivity improvements in the rest of the segments, in in military agenics, in microwave tubes, in space, which altogether delivered low single digit growth in Q3. Now moving on to Slide seven with Transport.
Transport order intake saw a pickup in Q3, up 19% organically. They were down only 6% over the first nine months of the year. Mainline orders recovered in Q3, but we continue to see delays in urban rates contract awards. Sales in Transport were down by 12.3% organically. As mentioned previously, part of this negative growth was expected because of the saving down of work on major urban rail projects, which have been driving very high comps since the 2018.
This was aggravated by the COVID nineteen operation disruptions, especially in regards to carrying on-site installation and testing activities, and to a lower extent by delays in urban rail contract awards. Turning to slide eight, looking at the Defense and Security segments. Defense and Security orders amounted to €3,900,000,000 down 27% year on year. This was primarily due to the volatility of large contracts above 100,000,000. We booked five such large orders this year against nine last year in the context of delays at finalizing contracts.
As I mentioned earlier, we have a significant pipeline of orders being finalized and we expect to catch up in Q4 and to deliver once again a full year book to bill clearly above one in this segment. Sales were organically down by 3.3% and reached $5.75470000000.00 euros. Thanks to the mobilizations of all the teams, many businesses recover strongly from the operational disruption they faced in q two, including surface radars, military communications, and combat aircraft. Now moving on to slide nine with digital identity and security, the last segment. I don't comment order intake, which, as you know, is not meaningful for these segments.
Pro form a over nine months, sales were down only two percent. Overall, solid performance considering the impact of the COVID-nineteen crisis, on the biometrics and IoT markets. Sequentially, sales growth improved slightly in Q3 compared to Q2. As expected, Smart Card sales moved into negative territory in Q3 after an above long term trend performance in H1. Biometrics and IoT remain affected by the health crisis.
With respect to Q4, we expect Smart Card sales to face high comps and biometrics and IoT to remain a bit weak because of the sanitary crisis. So all of that brings me to the last slide, slide 10, with our 2020 financial objectives. As you understood, Q3 order intake is in line with our expectation. And once again, we have a solid pipeline of orders for Q4, which allows us to confirm our full year order intake target, namely a book to bill ratio above one. Thanks to the mobilization of the team, sales growth recovered strongly in Q3, more than 15 points above Q2.
This quite solid performance increases our confidence in the group's ability to meet the full year objectives, 15,500,000,000.0 to €17,200,000,000 We confirm as well our 2020 EBIT target, euros 1,300,000,000.0 to €1,400,000,000 We are making good progress on our Global Adaptation Plan, which enable us to confirm the €750,000,000 target for 2020 cost saving actions. And beyond negotiations on the mix of structural cost measures are ongoing, so it's too early to update the restructuring cost assumptions embedded in this guidance, €130,000,000. And, of course, we remain extremely focused on cash management in this quite unprecedented crisis. So thank you very much. Many thanks for your attention, and I will now be pleased to take your questions.
I guess the line is or should be open for Q and A now.
Yes. So thank you, ladies and gentlemen. We now begin the question and answer session. And your first question comes from the line of George Savo from Bernstein. Please ask a question.
Hi, good morning. So first question for transport, in the press release you talked about order weakness from delayed signature notably caused by financial difficulties of some operators. We didn't see that language from last quarter's release. So have you observed anything incrementally worse over the last three months as it pertains to the demand impact on the customer's ability to sign contracts? And my second question would be on the book to bill for Aerospace coming below 70%.
Is that really driven by the Civil Aeronautics? We saw the slight uptick in revenue in the quarter, but did the orders improve sequentially for Civil Aeronautics? Thank you.
Okay. Thank you very much. So your first question on Transport, we really need to consider on one hand the Mainline segments, where we see a good dynamic there, within particular some significant orders that we booked in Q3. And overall, we remain quite positive in these mainline segments as opposed to more of the urban well segments, where we see here more weakness. And as we mentioned, I guess it was as we released our H1 figures, yes, through some operators facing quite a steep drop in terms of passenger traffic and putting them in, of course, a more difficult situation when it comes to awarding a new contract.
And basically, this is what we kept seeing in Q3. So I wouldn't mention that, I mean, the situation has worsened in Q3 for the urban waste signaling business. I would say it is pretty much in line with what we have seen so far since the beginning of the pandemic. On Aerospace, yes, I mean, it's quite obvious that an empty negative book to bill that we've seen is really driven by this quite low level of demand in the civil aeronautics business. So yes, in this business in particular, we are today operating at a level of book to bill, which is below one.
It going to be the case for the full year. Yes. Now, I mean, the more we'll move on, the more we'll see, I guess, order intake and level of sales in Civil Aeronautics converging because, as you know, this is a business where, I mean, the cycle is quite short. But yes, it's true that today, the Civil Aeronautics business is driving a book bill, to which is significantly below one.
All right. Thank you.
Thank you.
And your next question comes from the line of Dean Hillen from Bank of America. Please ask a question.
Yes. Morning, Pascal, Petrone. Thanks for taking my question. I was wondering in SIBLA Aeronautics if you could break out the impact and the trends that you saw in Q3, into IFE aftermarket and the line fit avionics work that you do and potentially any color of how you see those trends, progressing into Q4?
And then, Pascal, I
know you mentioned in core in your prepared remarks that orders, are not super important for Gemalto, but they were very weak in Q3. Could you help us to understand why? And you highlight that there's going to be tough comps for that business moving into Q4. Could you help us understand what you expect from an organic perspective in Q4 on revenues? Thank you.
Okay. Good morning, Ben. So on civil, IRO Q3, ISA line fit. So overall, I mean, we mentioned that on our civil aero business, we have seen a drop in sales in Q3, which is, I would say, pretty much in line with what we're seeing in Q2. So let's consider overall a drop, which is around 45% against Q3 of last year.
And overall, it's, I would say it's pretty much, I mean, what we see across our global global civil aero business. You mentioned IFE line seats. So overall, it's it's pretty much what we see. So I mean, a drop in line seat and drop in aftermarket, which which overall which overall looks looks pretty much are pretty much similar. Now, it's true that we might see, in some months, a bit of improvement, but then in the next month is showing a new drop.
So we might see, and this is what we're seeing in Q3, a level of sales for each particular month, which might be a bit different. But overall, when you consider, I mean, a three months period, basically, Q3, overall, this is this is what we have seen pretty much across all our civil IO business and no specific points to report to you showing a dynamic that would be quite different from aftermarket versus line sheet or IFE versus versus more the cockpit heavy mixer business. On the IS and Gemalto, I mean, So what do we see and how could we anticipate Q4? You probably have in mind that in our BIS business, in particular, in the 2020, we benefited from quite a strong level of demand in our smart card businesses, by the way, both on the banking and also on the telco segments. And we knew that we would see a progressive reduction in demand, in particular in the banking segments after this quite strong level of demand in H1 and in particular in The US.
And basically, this is what happened in Q3, and we think that it will continue in Q4, where this banking segment has to compared to quite a strong Q4 twenty nineteen. So first point. Now overall, I mean, the level of demand as we see still remain overall quite solid, it's probably more Q4 twenty nineteen that was exceptionally high in terms of level of demand. I mentioned in my presentation the situation in particular on biometrics, and to a more global standpoint, the overall secure documents segment, where it's true that we keep seeing today and because of the COVID-nineteen crisis, a clear reduction in demand as compared to the same period of last year. And it is quite simple.
I mean, the less people travel, the less we see a passport renewal in particular. Our cybersecurity is doing quite well in EIS, in particular, I mean, Q3, which has been quite strong. Now we need to see how Q4 will look like. I mean, it's a short time cycle business, but overall, the level of demand is there. And last point is IoT.
Well, overall, I mean, we keep seeing quite a soft level of demand in this business. A bit of recovery in the automotive markets during Q3, however, we remain quite cautious on this market even for the automotive segments where we might see up and down throughout the next few months. So overall, I mean, is a picture I can share with you on our IS business, which overall has shown quite a strong level of resistance against the, filtering of the crisis.
Okay, great. Thank you.
Thank you.
And your next question comes from the line of Olivier Brochet from Credit Suisse. Please ask your question.
Yes. Good morning, Pascal and Bertrand. Thanks for taking my question. I would have actually three. The first one on the free cash flow for 2020.
Has anything changed compared to what you were seeing at the June? And is, for instance, the strong order intake that you expect in Q4 having an impact there? Second on currency, if currencies stay where they are at the moment, what should we expect in Q4, something similar to Q3 and in particular in DIS? And third, how do you see a space looking in 2021 with all the order intake that you've had so far this year? Thank you.
Okay. Good morning, Olivier. So first question about cash flow. We see today, I mean, a level of cash flow, which is quite which is quite, I would say, firm against last year and and and despite, of course, I mean, this drop this drop in overall, I mean, level of EBIT since 2020 against the same period of last year. We see our cash flow today holding quite firmly.
Now I mean, probably a bit too early here, and I don't want to change the guidance that we provided to you on cash flow for the full year 2020. All what I discussed with you July remain fully valid. Now of course, it is also true, and you mentioned the point that q four is traditionally quite a strong quarter in term of cash flow generation. And it's it's good that, of course, we are expecting a level of down payments associated with various large orders that should kick in in Q4. All of that being in line with the guidance that we shared with you for the full year cash flow generation.
Now in terms of currency, it's true that, I mean, as we all know, have seen, I mean, some deviations in some emerging countries, currencies. I mean, the same for the U. S. Dollar, and it is in particular on
the
DIS business. So, yes, we are still expecting in Q4 at our DIS business, I would say, a negative impact coming from currencies, probably not as negative as it was in Q3. Space, and I guess your question was more about our view on 2021 level of sales for for our space business. At this point, it's it's it's really too early. No, so let's move on step by step.
We have seen an order intake in Space in Q3, quite a strong progress as compared to Q3 of last year, but Q3 last year was also quite a modest level of comparison. So let's complete 2020 before discussing how we should see we should be seeing 2021 in term of level of revenues for this business. Overall, I mean, and the message is still pretty much the same for this business. We see a level of demand in the institutional markets, whether it's observation, and it was the case in particular with the Copernicus project or whether it is exploration is what I mentioned about the this new Lunar mission managed by the European Space Agency. We see, I mean, the institutional market of space being quite being quite strong.
On the other side, as I mentioned in my press, we keep seeing a level of demand in the civic telco business, which remain quite low as we speak today. Thank you. Thank you.
And your next question comes from the line of Jeremy Bragg from Redburn. Please ask your question.
Hey, Pascal. I wondered if I could ask about the confidence in the defense orders coming through in the fourth quarter, please. And if they don't come through, whether it really matters, from a kind of medium term perspective if they if they slip. And then, also, could you please give a little bit of color about the restructuring progress, the kind of negotiations that you're having there with the unions? And then the final thing, cheeky one, is would you be prepared to give any kind of initial view on 2021 whether you expect organic revenues to be up next year, for example?
Thank you.
Okay. Good good morning, Jeremy. So on defense order, I guess my my my tone was quite positive, when commenting in our q three ordering page for Defense. And it is true that September level of order intake for Defense is quite below what it was a year ago. Now I made it quite clear that we are expecting Q4 to be quite strong in this business.
And I'm quite confident on that, as I mentioned, we're finalizing various large size contracts. And I mean, MKS 180 is a good example. And this is really, I mean, a jumbo a jumbo contract for a a a a a Now, of course, as always, I mean, we might see here and there potentially, I mean, some kind of cutoff or, I mean, we might see in the worst case scenario, some order intake in defense moving from q four to q one. So of course, in terms of overall level of revenue for 2021, 2022, it will not change the overall picture of defense. But of course, we might see some some delays there, which I don't see today.
So I guess I'm quite positive on our level of Q4 order intake for our Defense and Security business. Second point, restructuring. So we are today negotiating with our trade unions and we expect finalizing with them a global group agreement agreement in the next in the next few a few weeks. I mean, at least, of course, I mean, by the 2020. So, I mean, discussion are pretty positive between us and the trade unions.
At this point, and coming back to our guidance, our 2020 guidance, it's probably an opportunity for me to remind everybody that our guidance of EUR 1,300,000,000.0, 1,400,000,000.0 EBIT guidance is based on the level of restructuring, which is around €130,000,000 You probably have in mind that July, I mentioned that 113 would be probably more a floor than a ceiling on restructuring. This is my view today, this my view today. So we might end up at a level of restructuring charges that could be a bit above this level by might be a few or several times of being enrolled. This one is probably still a bit uncertain as we have not finalized those negotiations. And of course, I mean, if it makes sense for Thales to go a bit further in terms of restructuring, of course, we proceed I mean, in order to prepare for the future.
Your last question was about 2021 in terms of organic growth?
Yes, that was it. Thank you.
Yes. At this point, of course, I will be, at this point, a bit cautious. I mean, got this question from Olivier on space and globally for Thales. Of course, I mean, we're expecting our level of revenues in 2021 to be above what it will be in 2020. Of course, by definition, with in particular the disruption that we face in Q2, now at this point, I guess it's, I'm sorry for that, but at this point, it's really too early to be more precise on that.
So let's complete our 2020 and fiscal year delivering on those guidance. Also seeing how we see, I mean, the COVID situation evolving. Guess that all of us, we see that the overall sanitary context is deteriorating. And I'm not talking about tariffs, I'm talking about the overall COVID-nineteen situation in particular in Europe with, I mean, more and more countries putting in place curfews, but also even some other countries putting in place new lockdowns, I mean, the case of Ireland, for instance. So of course, we are a bit cautious and a bit difficult to anticipate how, I mean, the sanitary situations will look like in the in the three months, in six months, in nine months.
And of course, I mean, all of that, of course, we think could be quite important in particular, in terms of level of demand. Now, and I guess this is quite a positive message. You probably remember that when we released our H1 figures, we made it clear that the disruptions that we have seen in terms of production in Q2 was for most part of them over. We learned how to operate despite all the sanitary constraints linked to the column. And I guess that you have seen that our Q3 figure demonstrates what we shared with you July, our ability to restore a level of production that is almost a normative level of productions.
Now all of that with cemetery situation, which is overall under control. And this is where, of course, we need to remain cautious as we see day after day global cemetery situation in various countries to deteriorate. So I'm of course a bit cautious, but I'm confident, of course, I'm quite confident on all the figures that we shared with you in terms of 2020 guidance.
Thank you very much, Pascal.
Thank you, Jeremy.
Thank you. And your next question comes from the line of Tristan Sanson from Exane. Please ask your question.
Good morning, Pascal. Good morning, Bertrand. Thanks for taking my questions. I have four, so I'll try to make keep them short. The first one is on the behavior of your JVs, you indicated quite a drag from them in H1.
Naval Group, your JV with deal U. S. Businesses. Can you tell us how they behave in Q3? And especially if you could expand a bit on Naval Group, think they just announced a new transformation plan.
How you see the business evolving, that would be useful. Second question is on your cash flow trajectory to refine a bit or make sure I understand your answer to Olivier. You mentioned firm free cash flow or firm cash flow versus last year. So I suspect you're talking about like free cash flow. We were at EUR 1,370,000,000.00 in 2019.
Consensus is at €500,000,000 for 2020. But so you're saying free cash flow should be closer to the one from 2019. And does the difference that fully comes from new order intake, down payments coming from H2? Or is there any other parts in the free cash flow bridge that has moved? Third question is on different spending, the spending environment.
You talked about support from mature countries. You mentioned Australia, France, solid different spending momentum. Can you tell us what you see today more in emerging markets, Southeast Asia, Middle East? What is the feeling you get on the persistence of different spending there? And I'll stop you here because there's already a lot of things.
Okay. Good morning, Christian. So first on JV, I mean, when going through our JV, I mean, some of them are in particular in the field of civil aeronautics. And we have in particular, I mean, two JV of this kind, one located in Germany, which is the D and Aerospace, which is clearly impacted by the severe drop in demand. And what we see overall at Thales in terms of level of demand, we see, I mean, a pretty much a pretty similar scenario in terms of demand for BLE Aerospace.
Of course, I mean, the contribution of this JV will be, as you can imagine, quite low as compared to what it was a year ago. We also have a JV of this kind in the Analytics business in U. S. Together with L3Com. And here again, I mean, we see quite a strong drop in terms of demand.
So of course, I mean, this JV line will be quite strongly impacted by, in particular, I mean, those two JVs. Another group that you probably have in mind that has seen a quite major disruptions in terms of production in Q2. We see the situation improving at another group. Now it takes a bit of time, so at this point, a bit cautious in, I mean, on H2. Of course, I mean, H2, we'll see quite a significant improvement as compared to Q2.
However, I don't expect, at this point, Naval Group to come back on H2 to the level of contributions that they delivered in H2 twenty nineteen. Cash flow, I mean, thank you very much for your question because my answer was not precise enough. So thank you to give me the opportunity to come back on this point. What I wanted to mean was that because of this quite strong drop in terms of EBIT, as we have seen end of H1 compared to end of H1 twenty nineteen and also considering the quite strong drop in terms of EBIT for the full year 2020 as compared to 2019, I mean, without a specific cash optimization program, we might see, I mean, quite a difficult situation in terms of cash flow. And my message was not this one.
My message was that I see a level of cash flow as I speak today, which is quite well under control. It will be the case, I mean, the same message of H1Z and of H1. I see today a level of cash flow, which is well under control. And in particular by all our cash optimizations actions that we have put in place, including also on containment in terms of capital expenditure and many other actions. All of that's allowing me to confirm what we shared with you in terms of 2020 guidance for the full year.
And I remind you what I said July, starting with, I would say, a standard on normative ninety five percent conversions ratio from net income to cash flow. I mentioned that in 2020, we would see the material reversal and done payments on, in particular, large defense contracts. And I mentioned a level of down payments reversals of around €200,000,000
all
of that driving a level of consensus, which in my recollection is something around €500,000,000 And I'm quite happy with this level of consensus, really, I mean, reflecting what I've just mentioned, which is first, I would need to keep a convergence ratio, which is rather good, but also still having in mind the fact in 2020, we'll have quite a material reversal of down payments on several large export defense projects. Defense spending support, yes, I commented that in particular France, and Germany is also quite positive as you know, I mentioned also Australia, where I mean the seven percent I think, average growth has been confirmed, so all of that is positive. Now your question about emerging markets, we see today in emerging markets quite a strong level of commercial activity with a number of requests for proposal, a number of discussions. Now, what I see in emerging markets is a process to make final decisions in terms of awarding and making decisions to award contracts, taking even more time than it was in the past. Mean, Mudonis is a good example of that.
So hence, the fact that, of course, need to remain cautious. I mean, you are pursuing various opportunities in those countries. But this is where, I mean, we might have a bit of uncertainty in terms of the exact timing for booking those contracts. So strong level of commercial activity. Now we need to move from that to getting and being able to book contracts.
And that's it, guess, Christian.
Yes, that was it. Thank you so much, Pascal, for all your answers.
Thank you very much, Thank
you. And our next question comes from the line of Celine Forbonaro, the Ubert Alesic de Votrocruston. Please ask your questions.
Thank you. Good morning, everyone. Two questions, if I may. My first one would be just regarding transport and the slowdown that you're flagging regarding Euroban rail And if that could have an impact regarding your profitability progression? So what's the impact on the mix?
And also if you need to do further restructuring in that division, and that could be one reason why you also think you could have higher restructuring charge? And the impact on cash if you have deferred payments from some of these customers. And then my second question would be regarding the cards in Gemalto. So regarding the Q3 performance, if you could just help us understand how much were the cards down in the quarter and if that was relatively slightly less worse than what you expected? And where do you see the biggest drop in Q4?
I think you suggested potentially in banking cards, but why would it all of a sudden happening in Q4? Thank you.
Mhmm. Okay. Thank you, and good morning, Selim. So on transport, yes, I mentioned and concerning the slowdown in terms of level of demand from the urban segments. And as I mentioned, I mean, driven by the drop in passenger traffic.
Now, will this affect the midterm profitability? My, my answer is quite simple. I mean, if, the COVID generates in the midterms, I mean, less demands in Ergon, I mean, we'll adjust our cost accordingly. And overall, as here we are more on, I would say, midterm project in terms of execution. I mean, I don't see today the need to drive on this material restructuring on this front.
And what I mentioned in terms of 2020 restructuring level is not at all associated with this softness in terms of demand for the urban transport business. And I don't see a significant impact on cash coming from this softness in transport. Your second question was on DIS and in particular on smart cards. So overall, we see we have seen so I mentioned that in the 2020, both banking and SIM cards managed to get quite a good level of activity as compared to the same period of 2019. And we have seen, I mean, even throughout the COVID-nineteen crisis, we have seen in H1 a level of demand, in particular, by the way, in the banking area being quite strong.
And probably some of our clients are probably considering that there might be some production disruption and probably some of our clients asking for some kind of this additional stocks, precautionary stocks. Q3, I mean, overall in the Smart Account business, a drop which is close to 5% against Q3 twenty nineteen. So I mean, how do we see Q4? I mean, we know that Q4 last year was quite strong. So will we see in the Smart Count, I mean, the level of drop in volume of around 5%?
I mean, I guess, it's probably a good rule of thumb. I cannot be more precise on this front, but probably, I mean, this is probably a good proxy. But once again, on the basis of a quite strong Q4 twenty nineteen level sales in those two sub segments.
Thank you, Pascal. And if I'm not mistaken, I think you have said maybe a 10% to 15% drop in so, that would be quite encouraging. Thank you.
Thank you very much. Okay. If I understand that there is no further questions, so thank you very much for your participation to this call. Maybe an opportunity for me to remind you that even if all investor events are now virtual, which is not that helpful, of course, I mean, this situation must not prevent you from engaging with us. I would like to tell you that together with Patrice, Kane, I will participate in a few conferences and events in the coming weeks.
And of course, in the meantime, the IR team Bertrand Olivier, of course, I mean, they are at your disposal if you have any further questions. So thank you very much. See you and 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 calls, please do not hesitate to send a question to Thales Group's investor relations at iatthales dot com, and we'll get back to you as soon as possible. Thank you for all participation. You may now disconnect.