Thales CEO: European Defence Spending to Drive Growth

Thales, a leading global defence and aerospace company, has expressed confidence in its ability to generate profitable growth in the defence sector, driven by increased European defence spending. The company's CEO, Patrice Caine, attributed this optimism to a strong order book and increased production capacity.

In an interview, Caine stated, "We are starting 2025 with confidence and determination and a positive outlook for the vast majority of our activities. Thales presented its new strategic roadmap in November 2024. By drawing on its unique leadership positions serving growing markets and its ability to innovate and anticipate technological breakthroughs, the Group affirms its ambition to deliver accelerated, profitable and sustainable growth over the coming years, starting in 2025."

Thales' 2024 full-year results demonstrate the company's ability to generate profitable growth, with an increase in EBIT in absolute terms and as a percentage, reflecting the strength of its operating leverage. The company also generated free operating cash flow of more than €2 billion, indicating its financial strength and growth prospects.

The increased defence spending and procurement, coupled with the need to replace aging military equipment, is driving demand for defence products and services. This growth in demand is expected to benefit defence companies like Thales. The European aerospace & defence sector recorded revenues of $108.48 billion in 2023, representing a compound annual growth rate (CAGR) of 2.1% between 2018 and 2023.

The Thales CEO's optimism regarding the future of European defence spending is driven by several specific factors:

1. Increased European defence spending: The Thales CEO expects European defence spending to rise from 1.7% of GDP in 2023 to 2.4% by 2029 and 2.8% by 2032. This increase is catalyzed by President Donald Trump's push for NATO allies to spend 3% of GDP on defence, which could drive substantial increases in defence spending.
2. NATO's 2% GDP defence spending target: NATO's 2% GDP defence spending target has long been a benchmark, but it is inadequate after decades of underinvestment. Trump's push for NATO allies to spend 3% of GDP and more recently up to 5% could drive substantial increases in defence spending.
3. Ukraine conflict and defence procurement: The ongoing conflict in Ukraine has led to increased defence procurement, with countries like the UK and France announcing significant orders for defence equipment. For instance, the UK placed a £1.6 billion order with Thales for surface-to-air missiles for Ukraine, which is expected to create 200 new jobs and support hundreds more in the UK.
4. Growing demand for defence products and services: The increased defence spending and procurement, coupled with the need to replace aging military equipment, is driving demand for defence products and services. This growth in demand is expected to benefit defence companies like Thales.

In conclusion, Thales' CEO, Patrice Caine, expressed confidence in the company's ability to generate profitable growth in the defence sector, driven by increased European defence spending and a strong order book. The company's financial performance and growth prospects are supported by the growing demand for defence products and services, as well as the need to replace aging military equipment. As the European defence sector continues to grow, Thales is well-positioned to capitalise on these opportunities and deliver accelerated, profitable, and sustainable growth.