Pres Investor Day 2 06 10 - Thales Group · Investor Day – 2 June 2010. 2 ... A lean, experienced...

INVESTOR DAY

2 June 2010

Introduction and agendaPatrice Durand, SVP Finance & LegalInvestor Day – 2 June 2010

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8.30-10.00 ProbasisPatrick Fournié, SVP Operations

10.00-11.30 AvionicsMichel Mathieu, SVP Avionics

11.30-13.00 A new organisationBlaise Jaeger, SVP International

13.00-14.30 Research & Technology(during lunch) Marko Erman, SVP R&T

14.30-15.30 Conclusion and Q&ALuc Vigneron, Chairman & CEO

Agenda

Probasis: towards a stronger ThalesPatrick FourniéSenior Vice President, OperationsInvestor Day – 2 June 2010

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1. Probasis approach

2. Key action plans

This presentation may contain forward-looking state ments. Such forward-looking statements are trends o r objectives, as the case may be,and shall not be construed as constituting forecast s regarding the Company’s results or any other perf ormance indicator. These statements are by nature subject to risks and uncer tainties as described in the Company’s registration document ("Document de référence") filed with AMF. These statements do not therefore reflect future performance of the Compan y, which may be materially different.

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2. Key action plans

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What is Probasis

Negative Program variances

Performance gap with Europeans peers

VolatileEuro/Dollar rate

Govt budgets under pressure

Challenges

PROBASIS

Decrease Non Quality Costs

Improve Engineering & Supply Chain Performance + Increase Product Competitiveness as such

Increase Support Functions Efficiency

Levers

Fund innovation to remain at the cutting edge of technology

Increase Value for the Customer

Develop Profitable Growth

Objectives

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The 3 levers of Probasis

Target: €1.3 bn savings in 2014

Target: €650m

Supply Chain> Developing, procuring and

producing better

SG&A> Increasing competitiveness of

support functions

Target: €400m

Target: €250m

Non-Quality Costs> Improving programme execution

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Probasis: a comprehensive, decentralised plan

A bottom-up approach…� Identified savings by each company / business line

� Analysis of costs by nature

� Internal and external benchmarks

� Deployment of local action plans

� A network of senior correspondents in each main Thales unit

… with strong monitoring at corporate level� A lean, experienced project team at HQ

� A steering committee at CEO/ExCom level

� A monthly review as part of Business Operations Review per entity/area

� Validation of targets and detailed action plans

� Close follow-up of implementation

A global performance planbased on new synergies and shared best practices

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A plan built on a common Thales backbone

A new Thales organisation� Closer to the customer, with a focus on the countries

� Streamlined number of business lines

� A reinforced corporate audit team, with operational capabilities

A simplified and unified corporate reference system� Common steering processes, less reference documents

� With a target for capability maturity : CMMI-Level 3

A set of methods and tools,supported by a unified information system� CMMI for maturity of Project management

� SCOR for Supply chain competitiveness

� LEAN as a key lever for efficiency improvement

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"Chorus II" : A unified corporate reference system

What will change� A single, simplified reference system for Thales� Easy access to the operational documents� Sharing of best practices� Purging of obsolete content and removal of redundancies

Key benefits� Easier understanding of the rules, methods and best practices� Improvement of collective efficiency� Reduction of risk and of non-quality costs

� Enhanced consistency towards our customers

Ensure Thales uses a common language and set of rule s

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Probasis: clear reporting and metrics

Identified and standardised metrics for each action plan on a unified format� Includes savings, associated costs and expected financial impact

� With clear work package, schedule and roadmap

Local monitoring through a dedicated Probasis dashbo ard� Regular consolidation of individual action plans per entity

� Quarterly updates at Group level

� Savings Validation Committee (Corporate Operations and Finance) to challenge results and targets

Close monitoring of Probasis progress

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2. Key action plans

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2. Key action plans

a. Non-Quality Costs

b. Supply Chain Efficiency

c. SG&A

< Target : €400m

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Non-Quality Costs: definition and objectives

What we call "Non-Quality Costs"� Penalties and claims paid to customers

� Retrofits and warranty costs

� Inventory write-offs

� Negative variances on programmes� 80% of total NQCs

� Gross negative variances (i.e. not net of built-in contract reserves and contingencies or positive variances on other programmes)

What is at stake� €1bn in 2008, €1.4bn in 2009

Demanding definition of NQCsto drastically decrease negative variances on progr ammes

13

Non-quality costs: actions

Simplified, unified and clearer processes� Redesign Thales processes on fundamentals and cycle of life

� New policy on bid commitments in relation with risk & complexity

� New policy for controlling execution of the projects

Tighter organisation and governance� More accountability at commitment level

� Reinforcement of contract management

� Mandatory peer reviews, audits to check compliance with rules

� Increased involvement of quality assurance with right of alert and veto

Skills management� Reach certification by Int'l Project Management Association

� Increased training efforts

Improving programme management capabilities

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NQC : timing of expected benefits

No or very limited benefits

2010 2011 2012 2013 2014

NQC

Partial benefits

Full benefits

15


2. Key action plans

a. Non Quality Costs


c. SG&A

< Target : €650m

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Supply Chain: objectives

What is at stake� A large variety of products and activities

� Too much tailor-made solutions, limited re-use

� Purchasing spending amounting to €6bn+/ year

Main actions� Competitive product policy

� Fostering permanent benchmarking

� Maximising standard solutions, common building blocks

� Make-or-Buy approach throughout the product life cycle

� Global supply chain efficiency

� "Smarter purchasing"

Making the most of the size of the Groupto achieve cost optimisation

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Make-or-Buy policy

Comprehensive product mapping� Optimisation of product families� Definition of specific roadmap for each product

Strict enforcement of make-or-buy process

Supply chain mapping� Reassessment of existing supply chain with SCOR Thales toolbox� Development of a network of internal qualified auditors� Improve SC efficiency through Lean and associated action plans

Strategic mapping of industrial sites

18

Thales Lean initiative

Lean generalization at Group level� favouring perennial local implementation

� based on significant experiences

Addressing three areas� Lean Manufacturing

� lower recurring (“production”) costs & better on time delivery

� Lean Functions� lower administration costs

� Lean Engineering� lower non-recurring (“development”) costs

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"Smarter purchasing"

Rationalise supplier portfolio

�10,000+ suppliers today

�Increased horizontal integration

Better integrate our suppliers in our relationship with prescribers�Product policy

�Design policy ("design to cost")

�Industrial policy

Short term Medium term

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Purchasing initiatives

Increased pooling of purchasing activities at Group level� Increase share of top 1,000 vendors from 60% to 75% of

purchasing amount

Increased internationalisation of sourcing� Implementation of purchase offices in China, Singapore & India

� Near-shore sourcing ("Mecaghreb" initiative)

� "Oceanic" programme for electronic board sourcing

Improved subcontracting process� Better value for money

� Frame agreement per segment

Leverage Group's procurement critical mass

21

Supply Chain: timing of expected benefits

2010 2011 2012 2013 2014

SupplyChain


Partial benefits

Full benefits

22


2. Key action plans

a. Non Quality Costs


c. SG&A < Target : €250m

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SG&A

Shared service centres� Leverage on current experience

� UK and France

� General expenses, finance and HR

� Development� extension to others domains

� IT infrastructure & maintenance� Test equipment

� …

� extension to other countries ("geographical hubs")

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SG&A

Real estate� Optimise the use of sites in core countries

Travel� New policy in place

IT/IS� Pursue deployment of common systems ("core models") for PLM/PDM,

Finance (ERP), Programme management and CRM tools

� Harmonise infrastructure and reduce run costs

… and many other actions at local level

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SG&A: timing of expected benefits

2010 2011 2012 2013 2014

SG&A


Partial benefits

Full benefits

26

Conclusion

A comprehensive and structured plan � Already launched and on track

� Agreed metrics

A single transformation plan� Federating all improvement initiatives

� Capitalising on existing best practices

A bottom-up approach with strong central monitoring� Ensuring local buy-in and reducing execution risks of the plan

Strong assets to successfully build a more efficien t Thales

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Probasis: timing of expected benefits

2010 2011 2012 2013 2014

SG&A

SupplyChain

NQC


Partial benefits

Full benefits

AvionicsMichel Mathieu Senior Vice President, AvionicsInvestor Day – 2 June 2010

2

1. Business overview

2. Difficult programs:

root causes and lessons learned

3. Preparing the future

Agenda

This presentation may contain forward-looking statements. Such forward-looking statements are trends or objectives, as the case may be, and shall not be construed as

constituting forecasts regarding the Company’s results or any other performance indicator. These statements are by nature subject to risks and uncertainties as

described in the Company’s registration document ("Document de référence") filed with AMF. These statements do not therefore reflect future performance of the

Company, which may be materially different.

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4

North America

Europe

Asia Pacific

Commercial

Avionics

Helicopter

Avionics

Military

Avionics

Electrical Systems Training & Simulation Microwave &

Imaging sub-systems

In-Flight

Entertainment

11,000 people

worldwide

including 6,500

in France

Avionics Division

5

Thales Avionics S.A.

Competence

Centres

Instruments

Cockpit

Navigation

Computers

Missions & Functions

Commercial

Avionics

Helicopter

Avionics

Military

Avionics

Avionics Services

Worldwide

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Exceptional number of programs under development

� In all avionics domain

� After a gap between developments (in certain technical fields)

� Resulting in very significant cost variances in 2009

Development activity

100

200

300

400

500

600

2005 2007 2009 2011 2013 2015

Base: 100 in 2005

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Main root causes of our difficulties

Exceptional development volume

� Very large number of development programmes in parallel with critical milestones at the same time (first flights, certifications)

� Creating tension on use of key skills

� Extensive use of sub-contractors

� Impact on organisation efficiency

Increased complexity of our programs

� Sub-system responsibilities, risk transfer

� More stringent certification standards

� Growing role of the software content

New type of customers

� Regional aircraft

� Business jets

� Military transport aircraft

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Actions taken to master our developments

Strengthening our competencies

� New management, bringing expertise of complex program management

� Mobilisation of best Group experts

� External recruitment for some key skills

More efficient program management organisation

� Integrated Program Teams

� More stringent enforcement of the processes

� Frequent program reviews at all levels of the organisation

� More power given to technical experts

More rigor in the interaction with customers

� Senior Management regular progress meetings with customers

� More rigorous and coherent contract management

� Joint agreement on specifications

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First results

Numerous first flights

Deliver on our commitment to customers

A 400M

G650

B787 S76D

ATR 42-600 ATR 72-600

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Actions taken to solidify our profitability

A rigorous bid process

� Commitment reviews

� Deeper assessment of the technical risks

� Frequent workload plans update

A more efficient supply chain

� Increase number of dollar based suppliers

� Industrial plan (Vendôme/Singapore)

Launching a genuine product policy

� Based on our customers’ long term needs

� Product line roadmap definition

� Develop standardisation and reuse

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Business profile in civil aerospace

Time(40 – 50 years)

Selection Production & support Support

Cumulated Cash-FlowSelf-funded

development

Cumulated Revenues

(Not at scale)

Risk-sharing model

0

100

200

Growing revenues

Reference 100 in 2005

Avionics Linefit Avionics Support

2005 2015

+50%

+70%

2005 2015

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Vision for the future

� Increase customer base and maximise synergies between the civil and militarydomains

� Presence on a wider number of aircraft will lead to an increase of service revenues

� Heavy involvement in the SESAR, Clean Sky and Corac initiatives will help finance rigorous and innovative product policy

� Presence on ground and air components (ATM, Avionics and space) is a key asset for Thales

A new organisation to capture growthBlaise Jaeger, SVP InternationalInvestor Day – 2 June 2010

2

1. Key market drivers

2. Capture growth

3. Our country focus

Agenda

This presentation may contain forward-looking state ments. Such forward-looking statements are trends o r objectives, as the case may be,and shall not be construed as constituting forecast s regarding the Company’s results or any other perf ormance indicator. These statements are by nature subject to risks and uncer tainties as described in the Company’s registration document ("Document de référence") filed with AMF. These statements do not therefore reflect future performance of the Compan y, which may be materially different.

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2. Capture growth


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Global market trends

World population is increasingly…� …mobile, urban and interconnected

� …but also more vulnerable

Increasing budget pressures in Europe

Asia drives world growth

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5GDP growth

High growth: BRICs, Asia

Sou

rce:

Jan

e's

USA 2010 : 1.5 % 2014 : 2.6 %

South Korea2010 : 1.2 % 2014 : 4.8 %

Singapore2009 : 4 % 2010 : 4.2 %

UAE2010 : 4.9 % 2012 : 6.2 %

India 2010 : 7.0 % 2014 : 7.4 %

Saudi Arabia 2010 : 2.8 % 2014 : 4.6 %

China2010 : 10.1 % 2014 : 9.1 %

Russia2010 : 1.5 % 2014 : 2.9 %

Australia2010 : 1.4 % 2014 : 3.4 %

Brazil 2010 : 3.9 % 2014 : 4.5 %

Spain 2010 : -1.1 % 2014 : 2.2 %

Italy2010 : 0.4 % 2014 : 1.6 %

Germany2010 : 1.2 % 2014 : 1.9 %

UK2010 : 0.5 % 2014 : 2.9 %

France2010 : 0.7 % 2014 : 2.7 %

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Increased defence budgetsin India, Korea, Russia, Brazil, Saudi Arabia

6Defence budgets and public debt

USA2010 : 6652014 : 639

Singapore2009 : 82010 : 8

U.A.E. 2009 : 72010 : 8

India 2010 : 322014 : 44

Saudi Arabia2010 : 342014 : 41

China 2010 : 902014 : 141

Australia2010 : 202014 : 20

Brazil2010 : 352014 : 45

Spain 2010 : 162014 : 18

Italy2010 : 272014 : 26

Germany 2010 : 432014 : 41

UK 2010 : 65 2014 : 63

France 2010 : 612014 : 61

2010 : 94% 2011 : 105%

2008 : 99% 2009 : 118%

2009 : 47%2010 : 43% 2010 : 86%

2011 : 86%

2008 : 18 % 2009 : 14%

2010 : 22% 2011 : 23%

2010 : 11% 2011 : 13%

2010 : 41% 2011 : 40%

2010 : 66% 2011 : 72%

2010 : 117%2011 : 117%

2010 : 80% 2011 : 81%

2010 : 82% 2011 : 88%

2010 : 83% 2011 : 86%

South Korea 2010 : 222014 : 25

2010 : 30% 2011 : 32%

Russia 2010 : 352014 : 41

2010 : 13% 2011 : 15%

Defence budgetin US$ bn

Public debtas a % of GDP

Sou

rce:

Jan

e's.

Eur

osta

t, R

abob

ank,

BIS

, Bus

ines

s M

onito

r, R

ussi

an M

oF

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Revenues by origin - 1999

France71%

Rest of Europe

13%

Asia-Pac1%

UK9%

RoW1%

N America5%

Revenues by origin - 2009

France48%

Rest of Europe

21%

N America9%

UK13%

Asia-Pacific7%

Middle East2%

Thales revenues by origin – 1999 vs. today

€6,889m total revenues €12,881m total revenues

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Proforma key figures as per new organisation

in €m Area A Area B France Others

Order intake 3,797 3,019 7,110 0

Order book at year-end 8,441 4,393 11,897 2

Revenues 4,135 2,591 6,154 2

EBIT (*) 192 230 (213) (58)

in % of revenues 4.6% 8.9% -3.5%

(*) Before impact of ‘PPA’ (Purchase Price Allocati on)

Area A = Australia, US, Canada, UK, Netherlands, Nor way

Northern and Central Europe, Northern Asia

Area B = Germany, Austria, Switzerland, Italy, Spai n, Singapore

Rest of Europe, Middle East, Africa, South Asia, Lati n America

Full P&L responsibility

Note: all figures by country of origin

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2. Capture growth


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Capturing the growth where it is

A customer-centric organisation

Developing our local footprint

Export: a key growth driver

Empowering country managersto increase business capture capabilities

11

A customer-centric organisation

Managing local customer relationships � Order intake and customer satisfaction

� Promotion of the full Thales portfolio

Strengthened regional and country sales forces� Key Account Management

� Strengthening our commercial presence

Improved answer to customer expectations� Better understanding of requirements

� Better identification of all opportunities

� More effective programme management and delivery

Key Account Management = Customer Proximity

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Developing our local footprint

Key Industrial Partners

Optimising resources� Shared resources

� Streamlined processes

� More versatile teams

Programme management

An organisation aligned with customer expectations

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Export: a key growth driver

Fostering export sales of solutions and products produced in our domestic countries

Optimising export business� Export activity leveraged more efficiently

� Local KAM's to better tailor product and solutions offerings to local customers

G-to-G export support from our various internationa l centres of excellence

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2. Capture growth


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Developing our international reach and depth

Europe, North America� Consolidate our domestic presence

Asia, Latin America and Middle-East� Develop a dynamic mix of partnerships and local facilities

� in the BRICs� Brazil: strong growth prospects in civil and defence markets

� Russia: solid positions in civil avionics and space

� India: strong growth opportunities in both civil and defence markets

� China: focus on civil opportunities, especially in rail signalling

� Beyond the BRICs – key countries for growth� Saudi Arabia and Gulf countries

� South Korea, Singapore

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Some key target countries

TurkeySpace, Naval, Air Defence

SingaporeTransportation and security systems

South KoreaATM, Air Defence

USAGround Transportation, Simulation, Avionics, IFE, Naval, ATM, Air Defence, Space

BrazilATM, Naval, Security systems,Rafale

Saudi ArabiaRafale, Space, Signalling. Security systems

AustraliaLand systems, Naval, ATM

IndiaM2000 upgrade, ATM, Naval, Ground transportation

Gulf CountriesAir Defence, Naval, Simulation, Security systems, IFE, Ground transportation

RussiaSpace, Avionics

Morocco/Algeria/ LibyaGround transportation, Protection systems, Air Defence, Rafale, Naval

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Concluding remarks

Pressure on the country organisations to deliver gr owth targets and quality program delivery

More agility throughout the organisation

Increased cost efficiency

Research & Innovation Marko ErmanSenior Vice President, Research & TechnologyInvestor Day – 2 June 2010

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Mission

�Optimise the efficiency of R&D

�Reduce risk by a better anticipation

�Master strategic technologies

�Optimise Group R&D resources

�Accelerate insertion of new technologies

�Take advantage of technologies’ transverse nature

�Boost innovation through partnerships

�Protect technological assets of the Group

Create value in a sustainable way

3

Priorities

Complex systems� From software-dominant systems to heterogeneous systems,

� From hard-real time to web services systems

� Taking into account performance, safety and security constraints

Sensors� Radars, sonars, cameras, optronics sensors

� Innovative and powerful algorithms

Key technologies� Supply chain

� In-house mastering if-needed

Innovation

Competitiveness and attractiveness

4

R&D staffing

France 13,100

Engineering

R&T

UK 3,100

Rest of Europe

1,250

Italy 1,250

Germany850

Netherlands700

Australia800

Canada 600

USA 400

RoW 650

Asia 450

A worldwide presence

5

Building solutions

� Solution is specific and tuned to a particular market & customer

� Technologies may be more generic

Technologies

Sub-systems

Systems

Solution

Concept of package modular solutions

Make / Team / Buy analysis

6

Transverse topics

Technologies

Sub-systems

Systems

A potential for levering R&T across the Group

Solution

Business areas

Common technologies & building blocks

Common processes

& tools

� Different solutions for different business lines,

� But many commonalities in technologies and processes

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Key Technical Domains

Processing•• Signal processing Signal processing •• Information analysis & Information analysis &

decisiondecision•• Decision aidDecision aid

Hardware•• AnalogueAnalogue•• DigitalDigital•• Mechanics & thermalMechanics & thermal

•• Specific areasSpecific areas

Software•• SOASOA•• MiddlewareMiddleware•• ModellingModelling•• ComputingComputing

Technologies

ArchitectureArchitecture

ModellingModellingSimulationSimulationPrototypingPrototyping

Operational Operational Analysis &Analysis &

requirementsrequirementsCognitive Cognitive

Engineering & Engineering & Human Human FactorsFactors

DomainDomainFunctionalFunctional

requirementsrequirements

NonNon --FunctionalFunctional

requirementsrequirements

Validation & Validation & certificationcertification

System

The Group transversal dimension

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Inventing tomorrow’s products

1980 1990 2000 2010 2020

QWIPtechnology

Materials

GaAs

MulticoreProcessing

GaN

High Powerlasers

Catherine XP & MP infrared cameras

Sonar

RBE2Rafale

Hard-real timeImage processing

Future Radars

Laserweapon

Key factors : Long-term Vision, Independence

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Software

Adapting dual technologies to defence & security con straints

Hard real time & embedded software

Dual technologies & distributed software

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Processing

Key business differentiators

Intelligent sensors

Decision aid

Human factors

11

Systems

Radio Combat systemCritical

infrastructure protection

Mastering complexity

ISAF GalileoATMNCW

Equipments Systems of systems

Autonomy

Multi-customer

Integrated systems

Interconnection

CameraRadar

Weapon systems

Submarine autonomous

system

12

The open innovation model

OpenOpenInnovationInnovation

Market

Research Development Commercialisation

Closed Closed R&D modelR&D model Market

External ideas& technologies

Spin in Spin out

New revenues

Products in / out

13

Thales Research & Innovation

The Thales innovation hub

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A lever for innovation

Key R&T Partners

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100

150

200

250

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350

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Intellectual Property : A key asset

�12,000 patents in portfolio

�More than 400 initial filings per year

Wordwide positionInitial filings [2002-2006]

Within Thales domain

Outside Thales domain

Thales = base 100

Protect our market shares

Strategy and outlookLuc Vigneron, Chairman & CEOInvestor Day – 2 June 2010

2

Underlying strengths of the business

Solid balance sheet, low debt

Good visibility: order book worth almost two years of reve nues

Long-term customers: governments, infrastructure operators, major aircraft manufacturers

60%60%25%25%

10%10%5%5%

•Infrastructure•operators

•(15% public sector)

•Civilaerospace

•Enterprise•and Industry

•Defence and Government

~75%

•Public sector

3

Major challenges

Budget pressures in our domestic markets in Europe

Persistently unfavourable climate for our civil businesses

Stronger price pressure in international markets

4

Our strategy

Improve project management to guarantee customersatisfaction and boost financial performance

Seek out growth opportunities wherever they exist:� expand operations in international markets

� build on installed base of systems and equipment to grow services business

Increase competitiveness through Probasis, a five-yea rperformance plan

Leverage dual nature (defence/civil) of the Group’s act ivitiesto share technologies and innovations more effectively

5

Defence & Security

Central role of Thales in newrequirements� Force protection

� Overseas operations

� Urgent Operational Requirements

� Interoperability

� Services

Strong growth in demand forsecurity

Export opportunities in military aerospace

6

Defence & Security

Strengthen commercial presence in Middle East, Asia, Lat inAmerica and United States� Dynamic partnership policy

Develop our R&D partnerships

Launch new products to meet customer requirements� Software radio� Lightweight multi-role

missile � Range of surface radars� Information systems

security� Control & supervision

systems� UAV solutions

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Aerospace & Transport

Space� growing demand from institutional customers (observation,

intelligence, secure telecoms, etc.)

Avionics� strong positioning on all new programmes (A350, A380, B787, etc.)

despite current uncertainties

Transportation systems� A growing segment, particularly rail signalling systems

Opportunities from national stimulus plans

8

Aerospace & Transport

Space� Pursue strategic partnerships in United States and Russia

� Grow exports of dual-use telecom and observation satellites

Avionics� Return to profitable growth

� Expand partnerships with major aircraft manufacturers

� Promote local service delivery

� Prepare for future transformational programmes

Transportation systems� Build presence in emerging markets

� Promote complete solutions

� Grow services business

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Q&A

Pres Investor Day 2 06 10 - Thales Group · Investor Day – 2 June 2010. 2 ... A lean, experienced...

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