Thales SA

PAR:HO

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, good morning, and thank you for standing by. Welcome to the today's Thales Conference Q1 2021 Order Intake and Sales. [Operator Instructions] I must advise you that this conference is being recorded today, and I would now like to hand the conference over to your speaker today, Mr. Bertrand Delcaire, VP, Head of Investor Relations. Please go ahead, sir.

[Bertrand Delcaire, Head of Investor Relations & VP]

Yes. Hello. Good morning, and welcome, and thank you for joining us for the presentation of Thales' Q1 2021 order intake and sales. I'm Bertrand Delcaire, the Head of Investor Relations at Thales. With me today is Pascal Bouchiat, our CFO. As usual, the presentation is audio webcast live on our website at thalesgroup.com, where the slides and press release are also available for download. A replay of the call will be available right after the call. With that, I would like to turn over the call to Pascal Bouchiat.

[Pascal Bouchiat]

Thank you, Bertrand, and good morning, everyone. Before moving on to the numbers, as usual, I wanted to highlight a few recent events. I'm now on Slide 2. First is Aerospace. As all of you remember, this business faced a couple of difficult years on the back of the softness of the telco markets. In the full year results presentation, Patrice mentioned the successes we had last year in Earth observation and space explorations. As you will see later in more details, Q1 is confirming these good dynamics in term of commercial activity. Sales improved strongly, and we expect the positive trends to continue over the rest of 2021 and beyond. The second important point I wanted to stress, as I'm sure you have immediately notice from our announcement this morning, is that sales were already back to growth in the quarter. In other words, in Q1, we were already able to offset the downturn in civil aero and biometrics and, to a lower extent, the cyclical headwinds in banking accounts. Of course, I will come back on this point in greater detail in the next slides. Last topic I wanted to highlight is how we keep investing on the topic of sustainability. The universal registration documents, which we disclosed mid-April and integrated report, which was released this morning ahead of the AGM this afternoon, describe our progress and action plans in many areas of sustainability. A powerful move in which I strongly believe was a decision we took earlier this year to include quantitative CSR KPIs in the remunerations of the majority of the team. This CSR component applies to all employees who benefit from a variable remuneration. More than 54,000, i.e., more than 2/3 of Thales employees, from ExCom members to managers all across our businesses. This year, it is focused on the achievements on quantitative targets in 4 priority areas: climate change, gender diversity, frequency rate of accident at work and anticorruptions training. Also, we have now set the date for the ESG Investor event that is announced during our full year results. It will be held on the 5th of October in the afternoon, most probably in a virtual format. So let's now have a look at Q1 headline numbers. I'm now on Slide 4. New orders amounted to EUR 3.4 billion, up 28% on a reported basis and even up by 31% on an organic basis. As you will see in a minute, this performance was driven by strong commercial dynamics in defense and in space. Sales came to EUR 3.9 billion, up 1.9% on a margin basis and up by 0.5% on a reported basis, i.e., including the negative currency impact. Trends were quite different in our 4 operating segments, and I will explain this in the next few slides. Looking into details at our order intake. I'm now on Slide 5. So as you can see, the strong reported growth of plus 28% is mostly coming from additional large orders above EUR 100 million, 4 in total in Q1 2021 versus only 1 last year, so 2 Rafale orders for Greece and France; the new generation of some the Franco-Italian ground-based air defense system; and on the civil side, our Indonesian customer, a consortium led by PSM, finalized the financing of Satria, this -- the HTS alliance designed to provide connectivity to 90,000 schools, 40,000 hospitals and public buildings across Indonesia. On top of these 4 contracts above EUR 100 million, let me mention that we have also booked the first tranche of the Galileo contract for value that was just below EUR 100 million, this contributing to the strong order intake performance in the EUR 10 million to EUR 100 million bracket. The remaining part of this project will be booked later during the year for a full value around EUR 750 million in total. Orders below EUR 10 million were, of course, affected by the pre-COVID comps in civil aero. However, excluding avionics and IFE, they were actually up 4%. Turning now to Slide 6, looking at sales growth. As mentioned before, it's really great to see that sales were already back to positive organic growth in Q1. As you remember, the impact of COVID-19 was still limited in Q1 2020, around EUR 200 million, since disruptions only became really material from mid-March 2020. The biggest drivers behind the positive organic growth were twofold: first, the recovery of sales in space on the back of the commercial successes we have recorded in 2020, as mentioned earlier; and second, a continuous, robust scenario in Defence & Security with double-digit organic growth versus the same period of last year. Turning to the geographical perspective. Let me just point out that the decline in emerging market sales was driven by the end of some projects like in Transport and the consequences of delays at finalizing contracts in the Middle East during 2020. Now looking briefly at each segment one by one. I'm now on Slide 7 for Aerospace. Orders were clearly up, as you can see, by 31% organically, thanks to a dynamic start of the year for the Space business. Avionics order were still down as Q1 2020 was almost a normal quarter for this business until mid-March, but the decline was lower than in Q3 and in Q4 2020. Sales were only down by 8.7% organically. The drop in Aeronautics revenues was still material, a little less than 30%, but it was smaller than in previous quarters. Importantly, a large part of this decline was offset by the strong recovery of Space with sales up by an impressive 24%. Turning now to Slide 8 with Transport. Order intake was up by 66% from EUR 156 million to EUR 259 million, thanks to a catch-up effect on delays at finalizing contracts in 2020 as well as easy comps. Sales were slightly up, plus 0.5% organically, thanks to growth in our mainline business and, despite ongoing travel restrictions, still disrupting progress in some projects. Turning now to Slide 9. Looking at the Defence & Security segment. Higher order intake, up by 58% versus Q1 2020, was an illustration of the natural volatility of large contracting natures. Only 1 was signed in Q1 2020 versus 3 in Q1 2021. Organic sales growth was also clearly solid, plus 12%, so continuing on a very positive trend across most business lines. Among the faster-growing areas in the quarter, I can mention surface radars, cybersecurity and also the naval domain on the back of our recent lab successes such as F126 in Germany, which, by the way, is the new official name of MKS 180. Also, T31 in the U.K. are also the second phase of the MMCM project in France and in the U.K. Turning now to Slide 10, looking at our last segment, DIS, Digital Identity & Security. As mentioned previously, order intake at DIS is structurally aligned with sales from most businesses as they operate on short cycles. Hence, no need for me to comment. At EUR 636 million, sales were down by 7.4% on an organic basis. The decrease was mainly due to high comps in smart cards. As a reminder, we had a peak in smart card sales during H1 2020, which was a bit unexpected and the consequence of the beginning of the pandemic. In addition, biometrics remain depressed with less demand for passport and border-control systems. This weakness will, of course, last as long as continental travel is severely restricted. On the other hand, cybersecurity and IoT showed strong growth, close to double digits, which brings me to Slide 12, which is just a reminder of our financial objectives. All in all, Q1 is in line with our expectations, which naturally leads us to confirm our financial objective for 2021. So this concludes my brief presentation. Many thanks for your attentions, and I will now be pleased to take your questions.

[Operator]

[Operator Instructions] Our first question this morning comes from the line of George Zhao from Bernstein.

[George Zhao, Research Analyst]

Just first question, given all the orders you had in Space from last year, I guess what is a sustainable rate of revenue growth for that business this year and in the medium term? And secondly, on the Aeronautics, you highlighted smaller revenue and order declines. Is that a function of easier comps? Or are you seeing better demand from customers as they look for ramp-up in traffic over the back half of the year?

[Pascal Bouchiat]

Okay. So first, on Space, I mean overall, I mean, first, I'm quite happy with, I mean, the profile of our order intake, and it has started on second half of 2020 with various swings that we've commented in particular -- that gives successes and also some successes last year more on exploration, on moon explorations -- I mean projects. So it continued, as you have seen, in Q1 with -- on top of this VHTS satellite for Indonesia, which have been finally booked in Q1. What I take is more, I mean, the Galileo project that we have announced a few weeks ago with the first tranche that we booked in Q1 2021, but more to come. And I mentioned that in total, for 2021, we expect a level of order intake for Galileo that should be around EUR 750 million. So all of that is driving, I mean, revenue growth. Today, probably a good rule of thumb is to consider that, I mean, high single-digit or low double-digit top line growth for Space in 2021 revenues is probably, I mean, a good guidance for you guys, considering that it should continue the next years to come. And I don't want to say that it's going to be at this level for the next few years, but what I can confirm is that, in a few years, in probably 3, 4 years, I mean, getting a level of revenues that should be around EUR 2.5 billion for this business is something that is really at reach. So quite positive in this math. And the second question was about...

[Bertrand Delcaire, Head of Investor Relations & VP]

Aeronautics growth in the following quarters. I mean if you want to...

[Pascal Bouchiat]

Yes. If you want to be a bit more -- I mean, George, on the second question. Was it about small orders in civil aero?

[George Zhao, Research Analyst]

Yes. Like you highlighted the revenue, and order decline was smaller in Q1 than the prior quarters. I mean are you seeing sequentially better demand from customers as they look for better traffic in the back half of the year?

[Pascal Bouchiat]

No. I mean it's true that Q4 2020 for civil aero was especially low and probably lower than what we have anticipated. It was, by the way, not just in Thales. We have seen all our peers in this industry have reported Q4 2020, which was pretty low. Now we've seen and the situation is improving little by little in Q1 2021. So overall, I mean, what I've mentioned for Q1, minus 30%, I guess, Q1 of 2020, so sequentially better than the minus 40% that we have reported in Q4 2020. And what is even more positive is that sequentially, we're seeing, in particular March, March being better than January and February. So I mean we expect this, I mean, to keep progressing in the next few months. Now at which pace, at this point, it's clearly a question mark. So sequentially, yes, probably now, I mean, in term of growth rate, at this point, I'm still a bit cautious. Once again, I mean, in this industry, I mean, what I can share with you is probably what our peers have shared with you in the last few weeks. We're seeing, in particular, the single-body platform at Airbus in term of level of demand pretty much in line with our expectation, a bit above 40 aircraft per month in term of level of demand. And we see in term of aftermarket and situation in March slightly better than what we have seen in January and February, so expecting this to continue, of course, all of that being driven by the progressive -- this lift of travel restrictions, which will be, of course, I mean, the key driver for the aftermarket, I mean, to resume in term of level of demand.

[Operator]

And your next question comes from the line of Olivier Brochet from Credit Suisse.

[Olivier Brochet, Research Analyst]

Two questions. The first one on comments that you've made earlier this morning around semiconductors. Could you give us a bit of color on the impact in Q1 and what you would expect in Q2, Q3, either indirectly through auto production, for instance, or directly in the production of cards? That's the first question. And the second one is on the -- in Australia and the nuclear submarines, could you update us on the situation of that program and what we should see going forward, please?

[Pascal Bouchiat]

Okay. So the first question about shortage of components. First, I mean, the positive change is that in term of impact for Q1, quite limited, I mean, almost immaterial in term of missed revenues because of that. As you mentioned and what I can confirm is that at this point, I mean, this has an impact on our digital security business and, in particular, on the smart cards, which is, of course, a number of chips, of course. So Q1, quite a limited impact, even though we have seen these tensions to continue. And we expect this, I mean, to continue over Q2, Q3, most likely, I mean, once again, driven by this temporary shortage and mismatch between order and demand and supply. And despite the fact that we see, I mean, all of those foundries, I mean, investing a lot massively, I guess, you have seen, in particular, the Taiwanese foundries, I mean, having announced massive investments. It's, of course, a lead time, which means that we know that the situation will continue to be pretty under tension for the rest of 2021 at least. Now it's true that we expect, I mean, a level of impact that should be a bit more material in Q2 for smart card businesses in term of tension, a bit more than what we have seen in Q1. Last point, I mean, what we can do from that. That's a point that I've already discussed in previous calls. We have, at Thales, which is quite positive, an internal chips design center capabilities, which makes, I mean, the qualifications of alternative suppliers probably easier than other players or other industries. And it's what we are striving to do today is, really, I mean, to get qualifications of alternative suppliers in order to implement this supply. So to make a long story short, so immaterial effect at this point, probably a bit more in Q2. But overall situation, which is, at this point, really well under control. But we need to remain vigilant and of course, to keep working hard to have, I mean, alternative suppliers being able to bring more production to Thales needs. Your questions about Australia. So I mean it's, I mean, predominantly another growth, I mean, of course, a contract, a large size with the competitions of a quite important phase, which is underway today and never goes, finalizing this design, I mean, a step in the design phase of this alliance and, at this point, negotiating with its customers in the Common Wealth in the next phase. And this should be finalized in the next few months, I mean, moving this -- which is preliminary is on phase to a more detailed business phase, which should start probably mid-2021. Now for our Thales points, I mean, as you know, I mean, we won the most part of the sonars of the acoustic suite for this program through our British entities and, in particular, on what we call the flank arrays, which are, by far, the largest part of this acoustic suite. So I mean don't expect, I mean, a significant -- I mean, one shot, I mean order intake. I mean this will spread on various -- in a few years. But I mean this is quite a significant win for Thales and, in particular, for our U.K. entity. So all of that is really positive

[Olivier Brochet, Research Analyst]

And Pascal, in terms of revenues for this activity in Australia, should we think of it as starting as well in mid-2021? Or has it already started?

[Pascal Bouchiat]

Yes. But Olivier, it's going to be, I would say, not that significant in 2021, and this will grow slightly and progressively in the next few years to come. So all of that is really, I mean, take it more as an additional driver for us to deliver on overall mid-single-digit guidance for this Defence & Security business. I mean some are in project -- program in Australia. It's really, I mean, a project that in term of design and build is going to be executed in the next, let's say, probably 20 years. So of course, I mean it is positive. It is externally positive that Thales and not just Naval Group but Thales start this program and volumes for us, I mean, joined product, which is, I mean, sonar suite and, in particular, on what we call, I mean, flank arrays, which are, I mean, the largest component of sonar suite for submarine.

[Operator]

And the next question comes from the line of Ben Heelan from Bank of America.

[Benjamin Michael Heelan, Analyst]

I saw some comments this morning, Pascal, that, I think, you might have made around strategic review of the portfolio. And obviously, I think we all saw the headlines around potentially a disposal of Transport. So can you talk a little bit about that? What has driven you to do a strategic review of assets today? And are there any other businesses that are up for review other than just Transport? And then what would be kind of the potential in terms of capital if there are any disposals as a result of a strategic review? Is the aim to kind of reinvest capital and grow? Or would you be looking at capital return? Because I don't really see the balance sheet as particularly stressed. So any kind of color around that would be great.

[Pascal Bouchiat]

Okay. Okay. Okay, Ben. Thank you very much for your questions. I mean what I think is really important to say that, I mean, it has been, in the past few weeks, I mean some rumors about the potential disposal of our Transport divisions. And I was questioned, I mean, yesterday night by a journalist about -- I mean those rumors. So I mean -- first, I mean, what is absolutely objective is that, I mean, it's not the first time that we have heard about rumors about the future of -- for Transport business. And what we commented in any M&A rumors in the past, and of course, I mean, I'm not going to start commenting about any rumors on any specific business combination scenarios, acquisition, disposal, JVs, partnerships or -- no, I mean, when we look at our Transport business, I mean, we share with you, I mean, what in term of strategy we've been implementing over the last few years, which was really, I mean, twofold. I mean, first, I mean, are we to improve the quality of project executions? And this is driving, I mean, a progression of our margin in 2020. Despite the COVID restrictions, we have reported a level of EBIT margin, which was above 5%, significantly above 2019. And I mentioned that we were targeting, and I confirm, and I can confirm, of course, today that we are targeting a level of margin above 8% in the next few years. Also, I mean, we have seen pretty good successes in term of taking advantage of the introduction of digital technologies in this business, in particular, the win of the Stuttgart digitizations infrastructure in Q4 2020 as -- by the way, a pilot of what is going to happen in Germany was probably a good illustration of what we are seeking to do. Now on portfolio management, and it is not something new. I mean we run, at Thales, by the way, as probably many other large companies, we run a yearly strategic exercise in which, of course, I mean, we will view each of our business lines and not just a specific one and each time, for each of our business, asking ourselves about how to best position those businesses for long-term, profitable growth. I mean -- and we are driving, I mean, this yearly strategic exercise as we speak. And once again, it's not something which is new. This is an exercise that we perform on a yearly basis. And this, I mean, doesn't particularly focus on Transport. It applies to each of our business. Now, I mean, it's really, I mean, part of what we do, I mean, at Thales, and it is really our jobs as managers. And in this strategic exercise, of course, we ask ourselves if M&A opportunities of any kind of any nature, whether it's partnership or the JVs, whether it's acquisition, disposal, if this can generate more value for our shareholders. So this is, basically, I mean, where do we stand. So I don't want to make any more specific comments at this point. And of course, I mean, your question about capital use, I mean, no speculation at all, Ben, in this matter. Next question?

[Operator]

The next question comes from the line of Celine Fornaro from UBS.

[Celine Fornaro, Head of EMEA Industrials Research]

I've got a couple of questions. The first one would be regarding the progress that you are doing or you could comment on in Aviation regarding your cost base and because, yes, certainly, maybe there is some sequential improvement in Q1, but the situation seems to be more painful for longer on the wide bodies, which is some of your exposure there. So if you could give us an update on, potentially, the profitability of that business over time and how you're progressing there. And then the second one would be looking at the order intake of Q1, some potential good momentum on Q2. How should we think about cash flow for this year? And how has it been going for the first few months of the year?

[Pascal Bouchiat]

So first, on our Aeronautics business in term of cost today. So as you know, I mean, we have put in place, in 2020, I mean, cost-cutting programs in various countries, in particular, in U.S., in Singapore and also in France. And Singapore and U.S. were almost done end of 2020 with progressing implementation of this program in France. With -- and you probably remind that we have -- when we presented our 2020 figures, we mentioned our structural cost, I mean, targets for 2021 versus 2019 with overall, I mean, direct cost that should be something around minus 37%, down versus 2019; pretty much the same on G&A; a drop in R&D and in sales and marketing that would be more limited, of course, as we need to prepare, I mean, the future. So we're right in line with that. It also means that we are going to keep booking also restructuring in H1 2021, and in particular, on our IFE business, which, as you know, is with a significant exposure on widebody with, I mean, this -- our industrial base in the U.S., we are today putting in place, and it was anticipated end of 2020, that with restarting chance that will be booked in 2021 to grow even further in our cost base reductions in the U.S., in particular, in our IFE business, where, I mean, the level of exposure to widebody is larger than it is in our cockpit avionic business. So on -- your second question was on cash flow. So cash flow, I mean, first, I mean, I can reiterate what I shared with you for 2021. So overall, conversions ratio, underlying conversions ratio should be around 95% with, I mean -- I have also mentioned that, I mean, the continuations of reversal of down payments in our large defense export project. And I remember that I mentioned about EUR 200 million of headwinds coming from the reversal of down payments in Rafale and is driving us to a level of cash flow for the full year that should be EUR 1 billion. Now it's -- of course, it's true that any additional and well-funded export contract will help in delivering figures and one that's delivering is a bit better. But at this point, it's a bit -- probably a bit too early. And Q1, in term of cash flow, was pretty good relative to our traditional sequence of cash flow. As you know, I mean, Celine, we consume cash in H1 and will generate cash in the second half of the year. So this is a typical profile of cash flow at Thales. And what I can share with you, in the first 3 months, our cash flow profile was better than it was a year ago. So I mean pretty positive in term of cash flow profile, which, I mean, reflects, I mean, our continuous focus in this matter. It's quite obvious. So overall positive, giving us confidence on the the guidance that we shared with you a few months ago for the full year 2021.

[Operator]

The next question comes from the line of Andrew Humphrey from Morgan Stanley.

[Andrew Edward Humphrey, Vice President]

A couple of questions from me, please. I wanted to follow up, first of all, on Transport. I mean looking strategically in that business, you've just been through a period of 2 years of fairly lackluster sales growth. Clearly, budgets of metro operators are pressured at the moment, given the low numbers of people who have been taking transport in numbers of markets over the last year or so. How confident would you be that the trading performance of that business reflects its potential long-term value would be my kind of follow-up question on that. And the second question relates to Aerospace. We've obviously seen a sequential improvement in Q1 versus Q4 and Q3. I wanted to ask you how sustainable you see that trend as in IFE and Avionics and also talk about how -- if I could ask a kind of related question to that. How have OE and aftermarket businesses within Aerospace been during the quarter?

[Pascal Bouchiat]

Okay. So first on Transport, I mean, first, I mean, it's true that, I mean, the last 2 years on Transport in term of top line was quite soft. But following a period of exceptional growth from 2015 to 2017, 2018, on the back, in particular, of quite large-sized project in various countries with then tourism that doesn't change, I mean, this, I mean, long-term view of Transport in term of potential for growth. I mean, by the way, it's not just a Thales assessment. I mean it's -- I mean the type of figures that this industry is sharing. So overall, I mean, it's a business that -- where, I mean, market demand is more around low single-digit to mid-single digit depending upon, I mean, the various segments. Now from the COVID, what we see is that we have seen, I mean, some kind of decoupling between mainlines, where we keep seeing quite a strong level of demand in various countries. And behind that, it's really green transport and the willingness of many states, many countries to invest more in their overall mainline infrastructure. I mean quite an obvious example is Germany but also U.K., for instance, example of countries where they want to invest more in mainlines. Urban is a bit more difficult, and this is where we need to see, I mean, how will the COVID, in the midterms, affect, I mean, the level of demand for urban rail transportation. Now when we look at our business, I mean, mainlines is much larger than urban. Second point on Aerospace. Overall, I mean, linefit, and I made a comment on, in particular, at Airbus and our delivery to Airbus, which was our deliveries to Airbus was about -- for the A320 was a bit above 48 aircraft. It was my recollection more, on average, 142 aircraft per month in the first 3 months of 2021. Now in term of sequence, where we see probably as compared to what we have seen in Q4 2020, in particular, is probably sequentially an improvement, even though, at this point, still a bit modest in term of aftermarket for the civil business. So sequentially, better throughout Q1, March being better than February in particular. And this is where -- I mean we are expecting, in the next 3 months, to show still a progressive improvement in terms of demand, once again, very much driven by, I mean, the restorations of traffic, in particular, transcontinental traffic. So we know it will take time. It will take time, of course. But sequentially, we expect in Q2 to be probably better than Q1, even though, I guess, you get from my tone that we remain, of course, cautious because all of that is also dependent upon, I mean, how quickly will we see, I mean, travel restrictions being lifted.

[Operator]

The next question comes from the line of Tristan Sanson from BNP Paribas.

[Tristan Sanson]

Yes. So it's Tristan, still from Exane BNP Paribas, soon from BNP Paribas. Yes. Three quick ones from my side. First question, can you comment on the progress towards finalizing the Telesat order this year and how the funding package of the project is progressing? Second question is on the situation in the Middle East on civil and military markets where the performance was difficult on both orders and sales in Q1. Can you give us a bit of granularity of what's going on there? Which countries are down? Which are the countries that are still supportive? And do you see any sign of possible recovery there if we leave aside, at this stage, the offer order from Egypt as a one-off? And third question would be on the IoT business, actually more broadly on the cyclical activities that are recovering of an inflection in Q1. So you commented on civil aftermarket doing better sequentially. Is it correct to understand that IoT is also reaccelerating? And is there any smaller businesses that is also showing a positive inflection? And I would be interested in knowing.

[Pascal Bouchiat]

Okay. So on Telesat, I mean, of course, I mean, these questions should be probably best addressed by our client, by Telesat. I mean this is a very large-size project, so in total level of CapEx that should be around $5 billion of which, I mean, for Thales and space, something around $3 billion thereafter. So this is quite a large-size project. And I mean it's -- because of that, it's quite obvious, I mean, that putting together a funding package, of course, it takes a bit of time. It was anticipated. It was absolutely anticipated. And it is, in my view, I mean, moving on in line with our own expectations. Now I mean -- we have seen, I mean, Telesat making significant progress. They have announced a few days ago the fact that raised USD 500 million by way of a new bond offering. They have also announced funding agreements -- in March, they announced a funding agreements this time with government of Quebec. And what I think will be quite important for Telesat in order to put together its overall, I mean, a funding package as, I mean, probably quite an important point of their equity injections will be, I mean, the cash that they should get from, I mean, the C-band repurposing in the U.S. and in Canada, where, I mean, my understanding that Telesat is expecting quite a significant amount of cash from these C-band repurposing matter.So it is progressing. Now when will it be completed? At this point, it's probably a bit too early for me to share with you, I mean, what should be, I mean the time line for this funding package to be finalized. I mean, once again, I mean, it's probably a question that should be best addressed by Telesat. As you know, Tristan, of course, I mean, we are not waiting for this funding package to be completed to start working on this project. I mean we signed with Telesat an ATP, authorization to proceed, which allow us to progressively ramp up in term of resources. Of course, I mean, it's not as if this project would be enforced and perhaps being able to work on a full-speed basis. But at least, I mean, we take advantage of this period of time, I mean, to start working and to ramp up resources, in particular, critical resources in order to avoid wasting time. Your point about Middle East. First, maybe in term of revenues and sequence of revenue, as you know, I mean, we are, in 2021, finalizing or completing, I mean, the execution of 2 large-size projects, one being in Doha. There's one being in Dubai. So that's something that you need to have in mind. Now in term of level of demand, I'm putting aside, as you said, I mean, the Egyptians Rafale orders, we manage to book quite a large-size defense project in one large country in the Middle East. Unfortunately, I cannot be more precise at this point, but -- which was quite positive and this being in the air defense matter and which should pave the way for our future development in these areas. In term of level of demand across those various countries, there's nothing specific country-by-country that we can report to you. I mean we see a lot of demand from those various countries. I mean, for us, in UAE, Saudi Arabia, Qatar are quite important countries for us. But I cannot highlight any specific, I mean, level of demands of matter that should be unique to any of those countries. And what we see is a lot of demand. Now it's more about finalizing decisions and contract awards in those countries where we have seen that it takes probably a bit more time than it was in the past. On...

[Tristan Sanson]

So just to be clear, in your mind, there's no change in the level of fundamental demand in the Middle East. It's just delays in finalizing contracts right now.

[Pascal Bouchiat]

Yes. Absolutely. I mean I can tell you that the level of demand, the level of request for proposal is quite strong, yes.Now on businesses where we have seen a drop in demand in 2020 because of the COVID impact, yes, we have mentioned IoT, in particular, for the automotive market. And it's -- and I've highlighted this point in my presentation that we have seen, in Q1, a level of demand in IoT, which has increased quite significantly against last year, which is a positive move and, in particular, from the automotive, but also from the payments markets. So this is really -- even though it's not that large-sized business for Thales, but it's a positive move that I need to report. Where we see still quite sluggish, at this point, level of demand is more in our biometrics and passport, I mean, production which is still suffering from low demand. And here, I mean, for me, and the key drivers will be, I mean, as we will see, I mean, travels resuming, which will drive, of course, I mean, higher demands in biometrics for border-control programs; and also in term of secure documents demand, in particular, passport demands, which have been quite depressed. And we know that there will be a rebound. But at this point, it's not that much that -- it's not as much what we see today, so being a bit patient before seeing a rebounds of the secured documents and biometric, I mean, level of demand.

[Operator]

And the last question comes from the line of Christophe Menard from Deutsche Bank.

[Christophe Menard, Research Analyst]

I had 3. The first one is coming back on the chip shortage. You mentioned DIS. I wanted to understand whether there were any impact on the other divisions because, quite obviously, you're using chips in Defense, Space and Avionics. So whether that is something we should be looking at in the next quarters. The second question was on Defence & Security. You had a very strong Q1 in terms of sales growth. I mean if looking historically, it's probably the second strongest quarter since Q1 '16. So I wanted to understand what -- how we should be looking at the rest of the year in Defence & Security. I mean Q2 should be good because you were minus 15% in Q2 last year. So should we be looking at a very strong year in terms of organic growth in Defence & Security or some kind of slowdown by the end of the year? And the last question is -- a bit linked to this is on your guidance that you're confirming the -- and the sales guidance. Considering the very strong performance in Q1, should we be more looking at a narrow range in terms of sales growth? I mean it seems that the low end of the guidance range in terms of sales is probably -- I mean easily achievable in the light of what we've seen in Q1.

[Pascal Bouchiat]

Okay. So on your first question about chip shortage, no, I mean, the impact is very much focused on DIS, in particular, smart cards. At this point, no specific concern on all the businesses. I mean it's really a question of, first, level of volumes, which has nothing to do -- I mean when we talk about smart cards, we are talking about billions of chips. When we talk about the other businesses, we are not talking about thousands. So it has nothing to do in term of the level of demand. And second point, I mean, smart card is a short-cycle type of business, so very low level of inventories. For the defense and the other businesses at Thales, it's more a long-term project with, of course, a level of inventories, which have nothing to do. So at this point, no specific concern on chip shortage in our other businesses. Second, on Defence & Security. I mean, yes, it's true that Q1 was strong. Now, I mean, as you all know, I mean, we might also have some kind of cutoff from the quarter to the other. So don't draw a conclusion for the full year on the basis just on our Q1 figures. Of course, I mean, it is positive. It's giving us a good confidence on the full year for this business as well. Now, I mean, I'm not changing my view about what we share with you for Defence & Security business for the full year, which is, in my recollection, Bertrand, was around mid-single digits, something like that, in term of top line growth for our Defense & Security business, which, in my view, as we speak, is our best assessments and which is pretty good. Now -- and coming to your third question. Yes, it's true, and we made it clear as we released our 2021 guidance for revenues, I mean, a range which was quite large but also reflecting a number of uncertainties. At this point, probably a bit too early, I mean, to provide you with a more narrow range. That's something that, of course, we will consider as we release our H1 figures end of July, which probably, hopefully, a better view on -- in particular and in travel restrictions and how we will see, I mean, aftermarket, in particular, but in those various businesses, where we suffered quite a lot in 2020 in term of drop in demand, I mentioned biometric as well. So probably in July, probably we'll have a better view in term of resumptions of demand and probably a good timing for you to update you on a more narrow range in term of sales guidance for the full year. This is how healthy the situation is today. Okay. I guess thank you very much, Christophe. I understood it was the last questions.

[Bertrand Delcaire, Head of Investor Relations & VP]

Yes.

[Pascal Bouchiat]

Okay. So if there is no further questions, maybe concluding this call by stressing that, I mean, Q1, yes, is very much in line with our expectations. And of course, we remain focused on the delivering of our financial objectives and the execution of our strategy. You have probably noticed that this afternoon, we are holding AGM. Sadly, I mean, the Paris Air Show will not happen this year, and sadly it is as it is, but I will participate in several virtual events over the coming months. And of course, I mean, please don't hesitate to reach out, Bertrand or Olivier, if you have further questions. Thank you very much for your attention. Have a good day. Bye-bye.

[Operator]

Thank you, ladies and gentlemen. And if you didn't have a chance to ask your question on today's call, please do not hesitate to send your question to Thales Group Investor Relations at [e-mail], and we will get back to you as soon as possible. Thank you all for your participation, and you may now all disconnect.