Defence firm Thales eyes profit growth after cyber expansion

PARIS :Defence and technology company Thales promised investors growth in revenue and profits on Thursday, as global arms spending rises and Thales reaps benefits from a decade of investments in cybersecurity.

Europe's largest defence technology company, which has quadrupled cybersecurity revenues through acquisitions in recent years, said it aimed for 5 per cent to 7 per cent average annual growth to reach more than 25 billion euros ($26.40 billion) in revenue by 2028.

CEO Patrice Caine told reporters global defence spending is likely to rise for the next 10 years, while cyberattacks and privacy demands would propel cybersecurity, where Thales says it is already among the global top five.

"It is evident that the world has entered a cycle of higher investments in defence," Caine said.

He said it was too early to judge the impact of U.S. elections on Thales' broad portfolio from defence to civil aircraft. European nations are widely expected to boost defence spending while some civil markets face potential disruption from hawkish signals on sanctions from President-elect Donald Trump.

"If Europe wants to take a bigger role in (defence), it is more of an advantage than a risk for Thales," Caine said. "It is unlikely the (security) risks are going to be lower tomorrow".

Thales targets an operating margin of 13 per cent to 14 per cent in 2028, up from 11.6 per cent in 2023 and the 11.7 per cent to 11.8 per cent it expects this year.

Thales held its first investor day since 2019, a period that has seen margins resume growth after dipping during the pandemic.

But shares in the France-based company gave up early gains to fall 1.5 per cent, as some analysts said the forecasts, while broadly in line with expectations, were not bold enough.

Thales' military and civil products range from sub-hunting sonars to biometric identity systems for banks, and from satellites to seat-back entertainment systems for airlines.

Under Caine, who next month marks 10 years as CEO, Thales has shifted away from areas such as rail signalling to forge a leading role in cybersecurity after buying chipmaker Gemalto in 2019 and U.S. cybersecurity company Imperva in 2023.

SPACE 'RECOVERY MODE'

Caine set out a strategy to focus on customers prepared to pay a premium for high-grade data security such as banks and critical sectors such as energy, with relatively high margins.

Following its Imperva acquisition, Thales said it has the means to combine its traditional data-encryption toolbox with preventive measures to sniff out vulnerabilities in a network.

That puts it in competition with IT companies such as IBM, while some defence rivals have taken a different tack. U.S. arms firm RTX sold its cybersecurity unit last year.

Some analysts said Thales should deliver faster growth in revenue as well as the higher margins it is promising investors, given geopolitical uncertainty.

"What European defence is about now is volume and capacity, rather than margins, which should follow the increasing volumes," said Agency Partners analyst Sash Tusa.

Thales argues its weapon systems such as French fighter radars, or a Talios targeting pod that it demonstrated to analysts on Thursday, follow longer-term patterns rather than the spike in demand for munitions seen since the Ukraine war began.

One headache remains Europe's satellite market, squeezed by Elon Musk's rapidly growing Starlink constellation.

Caine said the space business was in "recovery mode" as Thales predicted annual sales growth of 2 per cent by 2028, compared to 6 per cent to 7 per cent for defence or cyber and digital.

Confirming discussions over possible European consolidation for the first time, Caine said they were exploratory. Industry sources have said Thales and its partner Leonardo are looking at a satellites tie-up with Airbus.

($1 = 0.9470 euros)