Thales Group SWOT and PESTLE analysis
ID : 52315753 | Dec 2017COMPANY PROFILE - Thales Group
Business Sector : Aerospace and Defense
Operating Geography : France, Global
About Thales Group : Thales Group, a multinational French company that designs and delivers high technology solutions in the key areas of aerospace, space, ground transportation, defense and security. It is headquartered in La Defense, Paris with 64000 employees and presence in 56 countries. Thales is a key player which provides world class technology to keep the public safe and secure, protecting national interests of countries around the globe.
Thales Group Revenue : € 14.88 billion (FY ending Dec 2016)
Competitive Analysis of Thales Group
| 1. R&D Focus on Technology and Innovation 2. Global Brand Recognition 3. Personnel Skill Development 4. Strong Financial Performance 5. International Value Chain | 1. Dependency on govt. policies 2. Cost to customers |
| 1. Emerging and new markets 2. Futuristic Technology 3. Industry growth rate 4. Entering New Sectors | 1. Falling order intake in mature market. 2. Corruption Charges |
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Strength
1. R&D Focus on Technology and Innovation: Innovation has always been part of Thales Group. It has huge investments in innovation with over 25000 employees directly involved in research and development. It represents 3 Billion Euros in revenues and accounts for about 700 million in R&D. At least 300 start-ups were approached by Thales in last 3 years. Thales has 20 joint research labs with institutional partners and 50 partnership agreements with public research institutes and universities. It has been ranked among the world’s top 100 innovators for 4 times and has 16500 patents in its portfolio.
2. Global Brand Recognition: Thales has presence in 50 countries and has connected with 3500 customers from 120 countries via online. Its recent major order intakes include UAV for British Army, Security systems of Netherlands defense locations, military satellite for Middle East customer, Rafael Jets for Indian Army, In-flight entertainment systems for Emirates Boeing Aircraft, orders from European Space Agency, modernization of military traffic management across Bolivia, 1000 Hawkei vehicles for Australian Army. This depth and breadth of contracts shows global brand presence Thales commands through its solutions and services.
3. Personnel Skill Development: Thales has its own in-house university which was established 30 years ago. It supports employee at all key stages of their careers. This helps in keeping them abreast with modern skills necessary for career progression. Employees are exposed to a variety of projects hand-on which helps them develop their interest in an informed way. SimLeads, Design Center and e-learning are some of the methods for assisting employees in their continuous learning and development.
4. Strong Financial Performance: At FY ending 31 Dec 2016, the free operating cash flow remained high at €954 million, due to EBIT growth and advanced payments. Net cash stood at €2366 million, up from €1978 million at end of 2015. Equity also remained steady Y-o-Y at €4640 million as compared to €4646 million (2015). Dividend increased by 18% to €1.60 per share which boosted investor confidence.
5. International Value Chain: The value chain is strong based on meeting international demand and requirements. The R&D unit works closely with universities and helps in developing product portfolio. Thales either directly provides system integration for total solution or delivers it to prime contractor for e.g. another Thales company or a shipyard like Damen Shipyards Group. The suppliers, both local and global of sub-parts are used in production of solutions. When the solution is complete, installation, testing, training, life cycle services are all provided by Thales Group itself to the customer.
Weakness
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Opportunity
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Threat
1. Falling order intake in mature market: Order intake in mature markets (Australia, Europe, New Zealand, North America) dropped by 20% from €12,701 million in 2015 to €10,138 million in 2016. The book-to-bill ratio also decreased from 1.34 to 1.11. With Brexit, there is uncertainty in European Aerospace and Defense Sector. UK’s budget spending has been flat since 2015. The number of A&D Merger Acquisition deals also decreased from 235 in 2015 to 188 in 2016. Despite growing order intakes in mature markets overall, Thales’ performance is alarming with respect to its global competitors.
2. Corruption Charges: Thales group has a history of controversies and corruption charges. In 2004, World Bank had blacklisted Thales from its projects for one year because of fraudulent practices in contract for supply and maintenance of motorcycles in Cambodia. There have been other charges like centralized Slush Fund, bribery in Zimbabwe, Taiwanese Naval Order controversy. Also recently in Aug 2017, France indicted Philippe Japiot, former chairman of French Naval Dockyard unit and Jean Perrier, former chief executive of Thales in the Malaysian submarine graft case. To have fulfilling business relationships in future, Thales cannot afford to be in more such accusations.
| 1. Geo-Political Tensions 2. Growing populist sentiments | 1. Defense Budgets 2. Brexit and Currency Volatility |
| 1. Growing urbanisation and smarter cities 2. Aviation Demand in emerging markets 3. New Work Force | 1. Innovation for Differentiation Advantage 2. Development in cross-over technologies |
| 1. Revised Quality Management regulations 2. Intellectual Property rights | 1. Shift toward renewable energy sources 2. Innovative solutions to fight climate change |
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Political
1. Geo-Political Tensions: The modern world security is affected by regional political conflicts coupled with international terrorism. Governments now don’t depend on developing national capability in all areas of defense. Now they are looking forward to reduce cost of maintenance through privatization, engaging in international defense equipments trade and forming strategic alliances. This has allowed companies like Thales to devise more expansionary strategies and penetrating new markets never explored before, as well as increasing footing in emerging markets like India. Middle East and Africa.
2. Growing Populist Sentiments: Brexit and election of Donald Trump clearly showed that there is steady rise in protectionism and anti-globalization sentiments across the world. The other European countries like France and Germany have also seen growing presence of such ideas and political parties. This has impacted M&A deals which were down 41% in second quarter of 2016. Slowdown in global trade is now in its fifth year with last five quarters showing negative growth in exports and imports. This can discourage national governments from having more foreign deals and instead develop domestic companies to allay the fears of its citizens.
Economic
1. Defense Budgets: In traditional markets like USA Europe, defense spending has tightened. Thus defense contractors, most of which have roots in US and Western Europe, are looking forward to new market places and customers. For example, unlike familiar territories like NATO allies, the new growth markets are Saudi Arabia, UAE, India, South Korea and Japan. By 2018, India’s defense budget is projected to increase to $56.5 Bn. India signed 15 contracts worth $10Bn with foreign vendors in 2016. The Middle East saw a booming growth of 64.5% in defense expenditure over 2009-2014 with high oil prices. Even with slowdown in prices pose a challenge to companies, the ongoing conflicts will maintain a strong order flow.
2. Brexit and Currency Volatility: US equity indices signal a positive stimulus in demand, while reduction in taxes will boost corporate profits. A higher inflation expectation and increasing yields have caused upward movement of US Dollar. The US dollar has been rising against major global currencies, including those from emerging markets. With US Federal Reserve’s tightened monetary policy, US exports are likely to become costlier. Thus US A&D exports can experience increased competition from Russia and China for military equipment exports. Due to uncertainty after Brexit, UK domestic currency is depreciating. This will boost their A&D exports due to improved export competitiveness.
Social
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Technological
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Legal
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Environmental
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Thales Group SWOT and PESTLE analysis has been conducted by Abhijit Kumar and reviewed by senior analysts from Barakaat Consulting.
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