STRONG COMMITMENT FOR THE FUTURE…

« CONVERGENCE »An important step forward in the

consolidation of the European naval sector

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STRONG COMMITMENT FOR THE FUTURE…

A MAJOR INDUSTRY INITIATIVE DCN and Thales confirm their commitment to combining their strengths

STRONG POLITICAL SUPPORTToday’s announcement by the French government about closer ties between the naval defence businesses of Thales and DCN signals strong support for the consolidation of our French naval businesses...

A SPRINGBOARD FOR EUROPE… and it is also a springboard for the consolidation of the naval industry at the European level.

A MAJOR INDUSTRY INITIATIVE DCN and Thales confirm their commitment to combining their strengths

STRONG POLITICAL SUPPORTToday’s announcement by the French government about closer ties between the naval defence businesses of Thales and DCN signals strong support for the consolidation of our French naval businesses...

A SPRINGBOARD FOR EUROPE… and it is also a springboard for the consolidation of the naval industry at the European level.

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USA General Dynamics Northrop Grumman Lockheed Martin Raytheon

France DCN THALES

UK BAES VT Group Thales UK

Germany TKMS LürssenAtlas Elektronik

Italy Fincantieri Finmecanicca

Spain Navantia

Armaris

Orrizonte

USA- 4 main players- €11.6 bn / year

Europe- 11 main players-€ 9.1 bn / year

Europe- 11 main players-€ 9.1 bn / year

Asia Daewoo Hyundai

Asia-Pacific- 2 main players- €5 bn / year

COMBINE TO GROW

Closer ties between European industry players are crucial to Europe’s ability to sustain an independent industrial capability to meet its needs over the long term.

Closer ties between European industry players are crucial to Europe’s ability to sustain an independent industrial capability to meet its needs over the long term.

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A CHANGING MARKET

New Navy requirements

Combat systems increasingly integrated with platforms

Requirement expressed in terms of capability

Budget constraints as a trigger for further cooperation

Horizon, F 124/LCF (Frigates Ge/NL), FREMM, PA2/CVF

Stronger, better organised competitors

New players, new products

Fiercer competition

NEW RESPONSE

Offer a comprehensive response in terms of complete warships or defence systems

NEW RESPONSE

Offer a comprehensive response in terms of complete warships or defence systems

COOPERATION

International cooperation can offer better use of available resources (R&D and programme execution)

COOPERATION

International cooperation can offer better use of available resources (R&D and programme execution)

CONSOLIDATION

Consolidation is vital to maintain our strategic independence in Europe

CONSOLIDATION

Consolidation is vital to maintain our strategic independence in Europe

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A SHARED EUROPEAN VISION

Objective: Thales and DCN aim to promote the emergence of a world

leader in naval systems by combining their capabilities with those of European partners who share the same vision.

That world leader will emerge progressively, according to a timetable that suits the various partners.

New milestone: combining the French naval assets of DCN and Thales

Objective: Thales and DCN aim to promote the emergence of a world

leader in naval systems by combining their capabilities with those of European partners who share the same vision.

That world leader will emerge progressively, according to a timetable that suits the various partners.

New milestone: combining the French naval assets of DCN and Thales

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THALES/DCN – SUCCESSFUL COOPERATION

Sawari I & II FremmHorizon

Joint PROGRAMMES

Joint COMPANIES 1990s: Horizon SAS, Eurosysnav, UDSI, SFCS 2002: creation of the joint venture Armaris, with responsibility for prime

contracting and sales for military products in export markets or on cooperative programmes

2005: MOPA2 joint venture for France’s second aircraft carrier

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DCN: A STRONGER PLAYER

TNFArmarisMOPA2

+ Eurotorp partnership

TNFArmarisMOPA2

+ Eurotorp partnership

WARSHIP ENGINEERING

WARSHIP ENGINEERING

Budgeted revenues: approx. €3 bn

Order book: approx. €8 bn

Employees: approx. 13,300*

Shareholders: French State: majority shareholder with

75% Thales, industry stakeholder with 25%

Budgeted revenues: approx. €3 bn

Order book: approx. €8 bn

Employees: approx. 13,300*

Shareholders: French State: majority shareholder with

75% Thales, industry stakeholder with 25%

MANAGEMENT OF ASSEMBLY AND INTEGRATION

YARDS

MANAGEMENT OF ASSEMBLY AND INTEGRATION

YARDS

DESIGN AND INTEGRATION OF

SYSTEMS AND EQUIPMENT

DESIGN AND INTEGRATION OF

SYSTEMS AND EQUIPMENT

SERVICES FOR WARSHIPS AND

SHORE FACILITIES

SERVICES FOR WARSHIPS AND

SHORE FACILITIES

* : direct employment

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DCN CAPITAL OPENED TO THALES

SHAREHOLDERS

STATE75%

STATE75%

THALES25%

THALES25%

Thales to finance its 25% interest in DCN

by transferring assets: Thales Naval France

businesses excl. radars (prime contracting, CS/CMS, services)

its 50% interest in Armaris (incl. subsidiaries)

its 35% interest in MOPA2 its 24% interest in the

Eurotorp partnership by paying an additional cash

contribution

Thales to finance its 25% interest in DCN

by transferring assets: Thales Naval France

businesses excl. radars (prime contracting, CS/CMS, services)

its 50% interest in Armaris (incl. subsidiaries)

its 35% interest in MOPA2 its 24% interest in the

Eurotorp partnership by paying an additional cash

contribution

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THALES AND DCN COMBINE THEIR STRENGTHS

The operation makes the combined company stronger:On its domestic market

stronger positioning as naval systems provider merging of combat systems activities in France optimisation of investments stronger service offering reciprocal access to know-how

On export markets access to Thales’ international marketing and sales network

In Europe greater credibility and legitimacy for subsequent consolidation

operations

Internally Solid industrial partnership

The operation makes the combined company stronger:On its domestic market

stronger positioning as naval systems provider merging of combat systems activities in France optimisation of investments stronger service offering reciprocal access to know-how

On export markets access to Thales’ international marketing and sales network

In Europe greater credibility and legitimacy for subsequent consolidation

operations

Internally Solid industrial partnership

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A FUTURE-ORIENTED PROJECT

AND INDUSTRY PROJECT THAT MAKES BOTH DCN AND THALES STRONGER Strategic unity between two major industry players

Move European consolidation forward Improve positioning in international markets

Industrial and commercial cooperation agreement Optimise bids and improve competitive performance Develop unified offering in France Benefit from complementary R&D Simplify industrial and contractual aspects of major programmes Promote adoption of DCN and Thales equipment provided it is

competitive

A project aimed to build momentum for Europe-wide consolidation in the naval sector

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St Tropez

Undersea warfare

Toulon-Le Mourillon CMS, engineeringToulon

Services

Angoulême - Ruelle Naval equipment

Nantes-Indret

Propulsion

Cherbourg Engineering and submarines

Paris Headquarters

Lorient Engineering and surface ships

Brest

Engineering

Brest

Services

OPERATIONS

Thales Naval France

Bagneux – Engineering and systems

Thales Naval France

Bagneux – Engineering and systems

Long-term future of French facilitiesLong-term future of French facilities

Paris region

Paris regionParis region

UDSI - SophiaUDSI - Sophia

EUROSYSNAV + UDSI + SFCS

Toulon – Combat systems prime

EUROSYSNAV + UDSI + SFCS

Toulon – Combat systems prime

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HUMAN RESOURCES

A future-oriented project with a place for everyone

HR practices are already similar and will be progressively harmonised

Continuation of individual work contracts

Collective agreements maintained during transition

A future-oriented project with a place for everyone

HR practices are already similar and will be progressively harmonised

Continuation of individual work contracts

Collective agreements maintained during transition

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CUSTOMER CONTINUITY

Ongoing programmes Continuation within DCN of contracts awarded to

partners (Thales Naval France, Armaris or MOPA2)

Outlook Major programmes for French Navy (FREMM, PA2,

Barracuda: €10 bn in new orders over the next 10 years)

Export opportunities represent 30% of revenues

Customer benefits Complementary areas of expertise and know-how

Purchasing policy open to competitors

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GOOD VISIBILITY ON WORKLOAD

Ongoing programmes

France FREMM Horizon frigates SSBN Le Terrible BPC Mistral and Tonnerre Overhaul of SSBN Le Téméraire SSN and BS CLS Comprehensive contracts for regular

maintenance on submarines with availability guarantees

Export Agosta Pakistan Scorpène Chile Scorpène Malaysia Scorpène India Formidable frigates for Singapore Combat system for SAN PC corvettes

for South Africa Skjold patrol boats for Norwegian Navy

Future programmes

France Barracuda SSNs

Future heavy torpedo

Overhaul of CDG aircraft carrier

Cooperative programmes PA2/CVF

Numerous export programmes

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BENEFITS OF CONVERGENCE

Fully integrated prime contracting for navies throughout the world

Major ongoing naval programmes

Promising European and world markets

Major player in the future European naval industry

Respect for individuals and corporate cultures

A dynamic of value creation

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TIMELINE

AGREEMENT FINALISATIONAGREEMENT

FINALISATION

Due diligence Shareholders’ agreement Cooperation agreement

Due diligence Shareholders’ agreement Cooperation agreement

3 to 6 months

Ultimately…

construction of a European company

Ultimately…

construction of a European company

Approval by Boards of AdministrationApproval by Boards of Administration

December 2005

PROJECT LAUNCH PROJECT LAUNCH

Information / consultation with employee representative bodies

Continued discussions with European partners

CLOSINGCLOSING

- Integration of companies- Opening of DCN capital

- Integration of companies- Opening of DCN capital

Mid-2006

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EUROPEAN VISION

OBJECTIVE: EUROPEAN NAVAL INDUSTRY CONSOLIDATION

“DCN must take part in the consolidation of the European naval industry.”

“Thales’ role in the capital structure of DCN will help to prepare the future industrial and technological capabilities of the European defence sector.”

Michèle Alliot-Marie

OBJECTIVE: EUROPEAN NAVAL INDUSTRY CONSOLIDATION

“DCN must take part in the consolidation of the European naval industry.”

“Thales’ role in the capital structure of DCN will help to prepare the future industrial and technological capabilities of the European defence sector.”

Michèle Alliot-Marie

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APPENDICESAPPENDICES

CompaniesCompanies

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DCN in brief

The DCN group is Europe’s leading prime contractor for complete warships. The company provides client navies with a broad range of value-added products and services.

DCN is conducting almost all the new construction and through-life support programmes for the French Navy. Rounding out the company’s workload, export contracts account for approximately one-third of revenues. Other DCN businesses include naval equipment, propulsion systems, combat management systems (CMS) and undersea warfare systems.

DCN’s four core areas of expertise are as follows: warship engineering; management of ship assembly and integration yards; development and integration of propulsion systems, combat systems and naval equipment; and through-life support and associated services.

The company has a workforce of 12,700* and generates average annual revenues of some €2.6 bn.

* direct employment

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LAW OF 30 DECEMBER 2004 An amendment to the 2001 Finance Law was needed to

enable DCN to open its capital to a minority shareholder, or to set up subsidiaries by contributing industrial assets or staff.

The law of 30 December 2004 authorises: Minority ownership of DCN capital Creation of subsidiaries to which DCN, as majority shareholder, may

contribute industrial assets and transfer staff

The law stipulates conditions for setting up these subsidiaries.

It guarantees the long-term status of staff transferred to these subsidiaries.

OPENING OF DCN CAPITAL

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THALES in brief

The Thales Group has a strong presence in the naval market; its naval businesses have traditionally focused on the supply and integration of equipment and systems  - radars, optronic equipment, weapon systems, etc. The Group also acts as prime contractor on several naval programmes in France and export markets, and intends to expand its involvement in this area.

Thales enjoys an excellent positioning in the world market, particularly through its equity interests and subsidiaries in the Netherlands and the United Kingdom, but also in Australia, Germany, Korea and South Africa. Major Thales operations in the United Kingdom have made the Group a valued partner of the Royal Navy, as is illustrated by its selection for part of the CVF programme to build two new aircraft carriers.

The Group’s naval businesses employ 6,000 people and generate revenues of €2 bn.

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Armaris in brief

The Armaris group was set up in August 2002.

Today, Armaris is prime contractor on the submarine programmes for India and Malaysia, the Skjold patrol boat programme in Norway (with partners KDA and UMOE), the Franco-Italian Horizon frigate programme and the Franco-Italian multi-mission frigate programme with Italian partner Orizzonte Sistemi Navali.

A joint subsidiary of Thales and DCN, Armaris has responsibility for warship and naval systems sales and overall prime contracting in export markets and on international cooperative programmes in which France is participating.

Armaris employs 200 people and generates revenues of €460 m.