Thales : Q3 2017 Order intake and sales - Press release

• Order intake in line with expectations: €8.8 billion, down 14%
• Sales: €10.3 billion, up 3.5% on an organic basis1 (up 3.0% on a reported basis)
• IFRS 15 implementation: limited impact on the H1 2017 financial statements, non-representative of the effects on future periods
• All objectives confirmed

  Thales (Euronext Paris: HO) announced today its order intake and sales for the period ending 30 September 2017. Patrice Caine, Chairman and Chief Executive Officer, commented: "In the first nine months of the year, thanks to the commitment of our teams around the world, Thales has maintained a solid commercial momentum. Order intake is in line with our expectations and, unsurprisingly, lower than in the first nine months of 2016, which benefited from the Indian Rafale contract. We confirm all of our annual objectives, with the slight decline in sales in the third quarter due solely to phasing effects."

  Order intake (in € millions)	9m 9m Total Organic 2017 2016 change change
  Aerospace	3,049	3,735 -18% -18%
  Transport	976	687 +42% +43%
  Defence & Security	4,766	5,748 -17% -17%

  Total

  8,833

  10,216 -14% -13%

  Other 42 47

  Sales (in € millions)

  Aerospace	4,068	3,898	+4.4%	+4.5%
  Transport	1,060	1,046	+1.3%	+2.3%
  Defence & Security	5,163	5,028	+2.7%	+3.5%

  Other 45 61

  Total	10,336	10,033	+3.0%	+3.5%
  Of which mature markets2	7,103	7,077	+0.4%	+0.8%
  Of which emerging markets2	3,233	2,956	+9.4%	+10.1%

  1 In this press release, "organic" means "at constant scope and exchange rates".

  2 Mature markets: Europe, North America, Australia, New Zealand. Emerging markets: all other countries. See page 10.

  Order intake

  In the first nine months of 2017, order intake amounted to €8,833 million, down 14% compared with 9m 2016 (down 13% at constant scope and currency), which had benefited from the booking in Q3 2016 of an order for 36 Rafale fighter aircraft by the Indian government.

  Over 9m 2017, Thales booked 11 large orders with a unit value of over €100 million, representing a total amount of €1,745 million:

  • 1 contract booked in Q1 2017, covering the supply of a telecommunications satellite to an emerging-market customer.

  • 7 large orders booked in Q2 2017:

    • The supply of in-flight entertainment (IFE) systems to a major carrier

    • The construction for Inmarsat of a very high throughput satellite (V-HTS)

    • The operation and maintenance of critical security, information and communication systems at the French Ministry of Defence's new headquarters

    • A contract in the framework of the development and construction of five intermediate-sized frigates (FTIs) for the French Navy

    • The contract to manufacture the first armoured vehicles as part of the Scorpion programme, for the French Ministry of Defence

    • The supply of AREOS reconnaissance pods to a military customer

    • The delivery of several systems and sensors to an emerging-market navy

  • 3 large orders booked in Q3 2017:

    • An additional contract in the framework of the development and construction of FTIs for the French Navy

    • The notification of an additional contract in the framework of the CONTACT tactical digital communications programme for the French Ministry of Defence

    • The sale of an integrated air defence system to an Asian country

Orders with a unit value of less than €100 million were stable compared with 9m 2016.

From a geographical point of view1, order intake in emerging markets (€2,268 million) logically declined sharply (down 47% on an organic basis), given that the Group had booked the Rafale contract in India in the prior year. Order intake in mature markets displayed strong momentum (€6,565 million, up 12% on an organic basis).

Order intake in the Aerospace segment, which was particularly dynamic over 9m 2016, returned to a level close to that of 2014 and 2015, amounting to €3,049 million, compared to €3,735 million in 9m 2016 (down 18%). IFE orders declined, notably because the Group had booked a large order in 2016 from Emirates airlines. Despite the two contract wins listed above, orders for the Space segment were also down, as the Group had booked several large contracts for this business in the prior year.

Order intake in the Transport segment surged to €976 million, compared to €687 million over the same period in 2016 (up 43%), driven by a strong momentum in both urban signalling and mainline signalling markets.

At €4,766 million, order intake in the Defence & Security segment was down 17% year on year. As mentioned above, this segment had booked the Rafale order in India in Q3 2016. Excluding this non-recurring item, order intake in the segment rose significantly, fuelled by good commercial dynamics in most businesses.

9m 2017 sales stood at €10,336 million, compared to €10,033 million in the same period in 2016, up 3.0% on a reported basis and up 3.5% at constant scope and currency ("organic" change).

From a geographic point of view1, this trend primarily reflected the continued strong growth in emerging markets (+10.1%), while sales in mature markets inched up by 0.8% on an organic basis compared with 9m 2016, which had seen a particularly dynamic performance in these markets (organic growth of 8.3% between 9m 2015 and 9m 2016).

Sales in the Aerospace segment totalled €4,068 million, a 4.4% increase compared with 9m 2016 (4.5% increase at constant scope and currency). The Avionics and In-Flight Entertainment businesses remain buoyant, but were impacted by phasing effects, which explain the negative Q3 organic growth (slowdown in deliveries of avionics systems to Airbus after a sharp increase in H1, weaker seasonal fluctuations than in 2016 in In-Flight Entertainment). Sales of tubes and imaging systems remained impacted by the weakening global satellite market. Despite a high comparison basis, sales in the Space segment continued to grow thanks to the contracts signed in 2015 and 2016, notably with commercial and military customers.

In the Transport segment, sales came in at €1,060 million, up 1.3% compared with 9m 2016 (up 2.3% at constant scope and currency). This performance can be attributed to a high basis of comparison, with 9m 2016 benefiting from the combined effect of the start of invoicing on the three major urban rail signalling contracts won in 2015 and of the return to schedule for projects impacted by execution delays. When compared to the same period in 2015, sales for the segment have continued on a strong growth trajectory (up 27% at constant scope and currency).

Sales in the Defence & Security segment represented €5,163 million, up 2.7% compared with 9m 2016 (up 3.5% at constant scope and currency). Most businesses contributed to this momentum. The Land and Air Systems business recorded steady growth, notably in missile electronics and protected vehicles, with the ramp-up of the Hawkei vehicle supply contract with the Australian Defence Force. The Defence Mission Systems business benefited in particular from a high level of activity in combat aircraft systems and from the Watchkeeper and Crowsnest programmes in the United Kingdom. Only the Secure Communications and Information Systems business was down, impacted by strong sales phasing in radio communication products.

During the quarter, the Group continued to work on the implementation of IFRS 15 - Revenue from contracts with customers. This standard, which becomes mandatory as of 1st January 2018, provides for:

• new criteria to demonstrate the continuous transfer of control of goods to the customer and enable the recognition of revenue over time;

• the unbundling of multiple performance obligations within a single contract;

• measurement of progress towards completion of a contract (or performance obligation for unbundled contracts) based on costs incurred.

Had the standard been applied as of 1 January 2017, the Group estimates that its H1 2017 results would have been as follows:

Sales 7,118 7,241 -123 -2%

Free operating cash flow1 216 216 - +0%

The standard introduces an accounting definition of the order book ("revenue to be recognised"). For Thales, this accounting definition will require an adjustment to the current definition of order book and order intake, the impact of which is not material at Group level: the adjustment to the order book at end- June 2017 results in a difference of less than 1% (€31,548 million under IFRS 15 compared to