Corporate Responsibility Brochure

For more information, > go toCorporate website: www.thalesgroup.com> contact Ethics and Corporate Responsibility Department:• Dominique Lamoureux: +33 (0)1 57 77 82 07dominique.lamoureux@thalesgroup.com• Sylvain Masiéro: +33 (0)1 57 77 85 88sylvain.masiero@thalesgroup.comThales45, rue de Villiers92526 Neuilly-sur-Seine CedexFrancePublished by Thales Corporate Communications – 2007 • Getty Images/Jim Franco (cover), Getty Images/Sami Sarkis (p. 2), Getty Images/John Lawrence (p. 4), Getty Images/Jeremy Frechette (p. 18), Getty Images/Franck Krahmer (p. 26), Getty Images/Jean-Louis Batt (p. 18),IFA/Photononstop (p. 8), Gilles Bassignac/Gamma (pp. 4, 7, 10, 11, 12, 26), Daniel Rory/Redlink/Gamma (content, pp. 6, 21), Jean-Luc Luyssen/Gamma(p. 6), Gerardo Somoza/Gamma (p. 8), Zeng Niam/Gamma (p. 14) • Thales, Photopointcom (p. 1) • Design and production: - 7316. and corporate responsibilityThalescontents01 Chairman’s message02 Activities03 Key figures04 THE THALES APPROACH TO CORPORATE RESPONSIBILITYCUSTOMERS AND SUPPLIERS 08EMPLOYEES 12SHAREHOLDERS AND FINANCIAL MARKETS 18THE ENVIRONMENT 22SOCIETY 26TOWARDS:profileSINGAPORE This brochure is a summary of the CorporateResponsibility report available (in French)on the Thales website: www.thalesgroup.comhales is a leading international electronicsand systems group serving defence,aerospace and civil security marketsworldwide, supported by a comprehensiveservices offering. The company’s high-technology civiland military businesses develop in parallel to serve a single objective: the security of people, propertyand nations. Leveraging a global network of 25,000high-level researchers, Thales offers a capabilityunmatched in Europe to develop and deploy criticalinformation systems.TCriteria (min --/max ++) Rating 2006/05 Score 2006/05Human Resources + 58Environment = 35Customers & Suppliers = 39Corporate Governance - 30Community Involvement + 50Human Rights + 65Score scaling: 0 to 100.Vigeo ////////////////////////////Rating: May 2006 - Market sector : Aerospace (companies in panel sector: 10) 10075502501007550250Benchmark: company/industry sectorHumanResourcesEnvironment Customers &SuppliersCorporateGovernanceCommunityInvolvementHuman Rights--- Min - Max (sector) • ThalesThales: a global leader and responsible corporate citizenIn 2006, various rating agencies and other bodies assessed the Thales Group using criteria related to social and environmental responsibility.Other initiatives /////////////////////////////////////////In 2006, Thales won variousawards in recognition of its performance, particularly in export markets:? in the United Kingdom, thecompany won the Deal of theYear 2005 award from TradeFinance for its innovative financ-ing of the contract to supply theavionics suite for Sukhoi’s newRussian Regional Jet;? In France, Thales won theFrench external trade ministry’s2005 trophy for best sponsorshipaction for its backing of theAuverland Company;? the company also received theOECD 2006 prize for best invest-ment in the Middle East and NorthAfrica region for its investmentwith Raytheon in an environment-friendly aquafarm that employswomen in Saudi Arabia;? in May 2006, the Frenchdefence procurement agency(DGA) awarded its quality trophyfor best industrial prime contrac-tor to Thales’s Air Systems divi-sion. On the basis of half-yearlyperformance measurements ofits 42 main industrial suppliers.The DGA also awarded the tro-phy for best programme team tothe consortium formed byThales and Alcatel Alenia Spacefor the Syracuse III programme.1. National Defence Budget ///////////////////////002. State support (Export) /////////////////////////////003. Possible M&A Targets /////////////////////////0004. Dual Applications ///////////////////////////////////0005. Systems Providers /////////////////////////////////0006. IT & Electronics ///////////////////////////////////////0007. Multi Domestic Approach //////////////////0008. Low Dependance on Exportsto Risky Countries //////////////////////////////////////00Qualitative Scoring /////////////////////////////////// 2.63CM-CIC Securities ///////////////Source: “Business as usual – A financial and extra-financial analysis of the aerospace & defense industry”, February 2006Guide : 1. Share of National Defence Budget // 2. Level of State support and/or prevalence of State to State contracts. // 3. Likelytargets for M&A. // 4. Capacity or possibility for reusing defence technologies for civil uses & vice versa. // 5. Share (direct or indirect) of turnover. // 6. Share (direct or indirect) of turnover 1=-10%, 2= 10 – 20%, 3=20%+ // 7. Repartition of turnover & sites. //8.Share of turnover from regions or zones with current or potential high level of political instability.Qualitative Scoring: 3= 50%+, 2= 20-50%, 1= below 20%.< 1Chairman’s message“ ”We operate in an environment that requires full compliance with increasingly stringent standards.The complex globalenvironment inwhich we operaterequires companiesto comply with increasinglystringent standards and assumea growing responsibility fortheir business practices.I personally attach the utmostimportance to ethical behav-iour and compliance withethical standards, and thisapplies equally to our cus-tomers, suppliers, share-holders, financial markets andemployees, as well as to civilsociety and the environment.At Thales, we have taken a number of steps to meetthese requirements, and a whole range of differentmeasures are now in placethanks to the unflaggingcommitment of thousands of company employees. As a result, Thales aims to win the acknowledgementof customers and partnersalike as a responsible worldmarket leader. This report provides a briefdescription of the measuresalready in place. We fullyrecognise that a permanenteffort is required to sustainthis commitment to corpo-rate social responsibility. We are constantly striving to improve our proceduresand internal control meas-ures, and to ensure thateach and every employeefully understands the impli-cations of this responsibilityand assumes ownership of the associated risks. We act on any instances ofnon-compliance to furtherrefine our rules and the wayswe operate. The entire company is com-mitted to this process ofcontinuous improvement.Indeed, we believe it is theonly way to build the long-term trust-based relation-ships that are central to the concept of corporatesocial responsibility, andthat underpin our futuregrowth and development.Denis Ranque> Naval Major naval industry credentials.Strengthened partnership with ship-builder DCNS at the heart of Europeanconsolidation moves. Capabilities• Prime contracting and systems integration• Above-water systems and equipment• Underwater systems and equipment• Services (fleet support and MCO)Some references• Future aircraft carriers CVF (UK) andPA2 (France)• FREMM (Franco-Italian multimissionfrigates)• Horizon and LCF frigates• MINREM strategic intelligencevessel (France)• Scorpene submarines (India, Chile,Malaysia)• Sawari II frigates (Saudi Arabia)• SAN PC frigates (South Africa)• FFG7 Mine hunters (Australia)• Intelligence, command and end-to-end communications systems (C4ISR)systems for joint and network centricoperations• Communications and optronicsequipment for air, land and naval forcesReferencesLand• Cooperative fighting system : BOA demonstrator (France) • Soldier modernisation programmes :FIST (UK), Normans (Norway), IdZ (Germany), D2S2 (Netherlands)• More than 25,000 integrated vehiclesystems in service of 150 differenttypes.• CYTOON program (South Africa) to deliver land battalion with ISTARcapabilities • 500,000 tactical radios in 100 countries, 30,000 infra-red cameras in 40 countriesJoint operations• 200 Electro-Optic Recce and lasers pods• Naval communications, informationand command systems : DestroyersT45 (UK), RIFAN (France), SEA 1442(Australia), SIC 21 (France)• Syracuse III (France) satellitecommunications ground segment• Delivery of communications servicesfor NATO forces in Afghanistan> Air SystemsComplete airspace security andsurveillance solutions, both civil and military.Capabilities• Weapon, surveillance and detectionsystems• Radar, command & control and battlefield radar solutions via JVThalesRaytheonSystems• Air traffic management solutionsSome references• European anti-missile defenceprogrammes FSAF, PAAMS and SAAM• Crotale and Shahine short-rangemissiles• Starstreak very short-range missile• ACCS LOC-1, NATO Air Commandand Control Systems• Cobra counter-battery radar• Air traffic management systems forAustralia and China> Land & Joint SystemsSupport Land Warfare TransformationDeliver Forces operational superioritythrough information dominanceCapabilities• Complete range of land systemssolutions : from large cooperativesystems, soldier/vehicle systems tokey equipment and services2 > ThalesBusinesses2 > Thales> SpaceProvision of end-to-end space-basedsolutions from systems to servicesthrough Thales Alenia Space (67% stake)and Telespazio (33%). Capabilities• European leader for space systems and services in the field of commercial Telecoms, Navigation, Radar & OpticalObservation, Meteorology andOceanography, Defense Communicationsand Observation, Science• Strong positions in Orbital infrastructuresand TransportationsSome references• Commercial telecommunication satellites W2A (Eutelsat, Mobile TV),Globalstar (48 constellation for mobiletelephony)• France’s Syracuse, Italian Sicral,German Satcom BW, Korean Koreasatdefense telecommunication satellites• Defense observation programs Helios & Pleïades (France), COSMO-SkyMed (Italy) and Sar Lupe (Germany)• EGNOS and Galileo navigation programs• GMES (Global Monitoring forEnvironment and Security), MSG(Meteosat Second Generation)• Huygens, Herschel Planck, ExoMarsscientific programs• International Space Station> AerospaceOnboard all major civil and militaryaerospace programmes.Capabilities • Aeronautical equipment• Mission electronics for combat aircraft• Airborne surveillance and mission systemsSome references• Watchkeeper UAV-based ISTARprogramme • A380, A400M and B787 aircraft• Rafale & Mirage 2000 fighters• S76d, Lynx, Future Lynx, Tiger, NH90 helicopters• Meltem maritime patrol programme(Turkey)• Regional aircraft (Bombardier, Sukhoi)• In-flight entertainment systems forinternational airlinesAEROSPACE DÉFENSEThales is a world leader in mission-critical information systems for the aerospace, defence and security markets. With operations in 50 countriesand revenues of 12.6 billion euros, the company draws on an extensive palette of civil and military technologies to meet the needs of its customers,working as a programme prime contractor and developing and delivering a full range of equipment, systems and services.Thales < 3> Security Solutions & ServicesSolutions to meet safety and securityneeds, an extensive services offering andcutting-edge simulation technologies. Capabilities• Ground transportation solutions• Critical infrastructure security systems• Enterprise services; defence and aerospace• Simulation solutions and servicesSome references• Nationwide secure e-ticketing system(Netherlands, Denmark)• Metro (London, Hong Kong, Dubai, Madrid,Beijing, Shanghai, Turin, New York) & peoplemovers systems (Las Vegas)• Rail Signalling (Austria, Finland, France,Germany, Hungary, Latvia, Portugal,Romania, Spain, Switzerland)• Oil and gas pipeline security (Russia,Algeria, Kazakhstan, Mexico, Pakistan),airport security (Dubai, Qatar) and sensitivesite security (France)• Secure government communications (US, UK)• Secure ID documents (France, Morocco)• Crisis management system (Mecca) • French tax portal and procedures • Tornado GR4 flight training centre (UK)• Logistics and data systems (Airbus, Embraer) • Paris ethnic art museum facility managementSÉCURITÉ > Alliances with Alcatel-Lucent and DCNSMajor milestones in the development of ThalesThe agreements signed with Alcatel-Lucent at the end of 2006 and DCNS in early 2007 are crucial milestones in Thales's growth strategy. They make the company bigger and stronger, enhancing its capabilities and expandingits international dimension.Agreement with Alcatel-Lucent bringsstrategic businesses to ThalesThe arrival of Alcatel-Lucent's transport,security and space businesses signifi-cantly strengthens Thales's Europeanleadership and its place among theworld's top three players in most of the markets for integration of mission-critical electronic systems for aerospace,defence and security.With this operation, the company's outlookfor growth has further improved and itsportfolio of businesses is more balancedbetween civil and military markets.The alliance with Alcatel-Lucent isfully in line with the three main pillars of the Thales strategy:• Span the entire value chain: Thales provides all the capabilities its cus-tomers require, from equipment andsystems to comprehensive supportservices, as well as prime contractingon large-scale programmes. Throughthis operation, Thales has achieved aunique positioning across the valuechain and strengthened its core capa-bilities in mission-critical systems. • Optimise synergies between civil and military technologies: Thales solutionsdraw on an exceptional platform oftechnologies with applications across the company's whole range of businesses.The organisation actively cross-pollinatescivil and military technologies to serve a single objective: the security of people,property and nations. The arrival of the Alcatel-Lucent businesses has established a closer balance between the defence and non-defence businessesin the company's portfolio.• Leverage the company's multido-mestic operations to remain as closeas possible to its customers. As a resultof its multidomestic strategy, Thales is recognised as a fully fledged localplayer in each of its target markets and can anticipate and meet local customer requirements more effectively.The strategy is a resounding success:Thales is the leading French supplier to the Pentagon, the largest defencecontractor in Australia, Korea and the Netherlands, and the second-largestcontractor to the UK Ministry of Defence.The agreement also provides for closer cooperation with Alcatel-Lucent.It establishes a genuine win-win partnership between the two organisations by:• Clarifying the respective areas of business of Thales and Alcatel-Lucent.The new businesses make Thales oneof the global leaders in mission-criticalsystems for safety and securitymarkets in the civil sector. In turn,Alcatel-Lucent can now focus on itscore business of telecommunicationswhile benefiting from Thales'sexceptional position in defence andsecurity markets and making greateruse of dual technologies to grow salesof telecommunications solutions.• Consolidating their industrial and technological cooperation in optics, system architectures,advanced software and components.Although very different, the productsoffered by Alcatel-Lucent and Thalesincorporate the same core technologies.The two companies have already set up a joint research laboratory dedicatedto optoelectronic and microelectroniccomponents based on III-V semicon-ductor technologies for applications intelecommunications, defence, securityand space.• Extending this cooperation to marketing and sales so each partnercan benefit from the other's internationalpresence.Agreement with DCNS spawns a champion of the naval defenceindustryIn early 2007, Thales became DCNS's industrial partner and shareholder with a 25% interest in the naval defencecompany. As part of the same operation,Thales contributed its French-basednaval operations, with the exclusion of its equipment businesses.The alliance significantly strengthensThales's involvement in naval markets,which now represent 2 billion euros in business, and its European rankingsin the naval sector.The merger consolidates the Frenchnaval defence industry as a first steptowards broader consolidation at theEuropean level. 4 > Thalesand corporateresponsibilityBRISTOL, UKWHAT DOES CORPORATE RESPONSIBILITYMEAN FOR THALES?As an electronics specialist serving defence, aerospace and security marketsworldwide, Thales and its business activities are intimately connected withthe geopolitical context. The deep-seated geopolitical changes occurringtoday are affecting the company’s markets and are directly impacting its management processes and business models, making it crucial to reinforce its approach to corporate responsibility.NEW RESPONSIBILITIES IN THE GLOBAL MARKETPLACEChanging regulatory contextInternational bodies and national administrationsare exerting increasing regulatory pressure.Globalisation is contributing to this trend, and particularly to the growing consensus that tradeshould be easier but more transparent and that alltransactions must be traceable.At the same time, the development of “soft law” isreflected in such initiatives as the United NationsGlobal Compact on human rights, labour stan-dards and environmental protection, and theworldwide fight against corruption. Thales hassigned up to the Global Compact as a baseline forfurther consolidation of its ethical compliancesystem and business models.Security and fair tradeThe rise in global terrorism and the proliferationof weapons of mass destruction and other threatsunderscores the importance for Thales to exercisethe strictest controls over the end uses of theequipment it sells.The company has proactively deployed a rigorousset of internal procedures to combat any illicittransfer of sensitive goods or technologies.These measures ensure that the company not onlycomplies with national and international regula-tions on export sales, but also meets the moststringent standards of ethical conduct.“Thales strives constantly to improve best practices by incorporating the moststringent professional standards and byplaying a proactive role in the developmentof an international frame of reference.”Bernard RétatChairman of the Ethics and Corporate Responsibility Committee,Honorary Vice Chairman of ThalesThales has on occasion been named in allegedirregularities and failures to comply withinternational legislation and national laws. When it has considered these allegations to beunfounded and false, the company has filed officialcomplaints. In all cases, it has cooperated fullywith the national legal authorities. Recently, in a number of legal proceedings overseas, nocharges were brought against the Group. In the fewisolated cases where the suspected irregularitieswere found to be true, the company responded intwo ways: it sanctioned the employees responsiblefor breaking the law and contravening its internalrules; and it tightened the procedures already in place. Steps are also being taken to strengtheninternal control procedures, including theappointment of Compliance Officers at all majorentities across the company and the creation of a Risk and Internal Control Committee at corporatelevel. Measures are also being introduced to makethe procedures for delegating responsibilitieswithin the organisation both clearer and stricter.Focus< 56 > In a sector where contracts can represent consid-erable amounts of money, Thales has reinforcedits internal procedures to combat any attempts atcorruption as effectively as possible.THE MAINSTAYS OF THALES’S CORPORATE RESPONSIBILITY POLICYAn ethical approach based on shared valuesThe Thales’s corporate responsibility policy is basedon a transverse approach covering trade, environ-mental and social issues. Consequently, Thales iscommitted to taking concrete measures to enhanceits ethical compliance and ensure that the core val-ues of ethical conduct are upheld throughout theorganisation. The company also endeavours todevelop responsible commercial relationships withits customers and suppliers, and is constantly mind-ful of the need to fight corruption and provide a clearprocedural underpinning for its ethical practices.Thales’s objective is to ensure that its employeesperform effectively in an environment that is con-ducive to their personal and professional develop-ment. The company’s corporate governance prac-tices and internal control procedures, combined witha policy of open and transparent communication,send a powerful signal to employees, shareholdersand financial markets about the strength of its com-mitment to ethical business practices. It is also tak-ing steps to achieve measurable reductions in theenvironmental impact of its activities. By the sametoken, the notion of social responsibility is one of theguiding principles for Thales’s research and develop-ment activities. For instance, the company is com-mitted to making its technological know-how avail-able to improve the quality of life, serve socially use-ful projects or support local development. Ethical compliance systemThales has put in place an ethical compliance systembased on a Code of Ethics and a dedicated organisationto ensure that the Code is applied. The Thales CodeThe Ethics and Corporate Responsibility CommitteeChairman:• Bernard Rétat,Honorary Vice Chairman, ThalesSecretary:• Dominique Lamoureux,Vice President, Ethics and Corporate ResponsibilityMembers:• Sandrine Bouttier-Stref,Environmental Affairs Manager• Didier Brugère,Vice President, Defence Marketing and Sales France• Sylvie Dumaine,Senior Vice President, Communications• John Howe,Vice Chairman, Thales UK• Alexandre de Juniac,Senior Vice President, Air Systems Division• Jean-Paul Lepeytre,Deputy Senior Vice President, Security Solutions & Services Division• Sylvie Lucot,Vice President, Investor Relations• Anne de Ravaran,Vice President, Legal and HR Ethics• Veronique Silverman,Vice President, HR and Corporate Affairs, Thales North America, Inc.Focusof Ethics was drafted in 2001 as the baseline for theprofessional conduct of the company’s employeeswith respect to its various stakeholders. Issued to allemployees in various languages (Dutch, English,French, German, Spanish, etc.), the Code sets forththe company’s values and clearly demonstrates itscommitment to compliance with well-defined princi-ples of ethical business conduct.Dedicated training planDeployment of the Code of Ethics is supported by a spe-cific training plan. The in-house training institute, ThalesUniversité, has incorporated a module devoted to ethicalissues into its core training programmes. Ethical issuesand the broader principles of corporate responsibilityare systematically covered in all transverse manage-ment training courses. In addition, dedicated e-learningmodules are being developed to ensure that all employ-ees are aware of the importance of ethical practices.A dedicated organisationAn Ethics and Corporate Responsibility Department is incharge of implementing this ethical compliance systemand coordinating measures across the Thales organisa-tion. To perform these roles, the department’s six staffmembers work first and foremost with the company’sfunctional and operational departments, but also withlocal structures in the main countries of operation.In line with the priorities set by the Ethics andCorporate Responsibility Committee, the depart-ment’s main roles are as follows:? contribute to the definition and deployment of bestpractice? set Group-wide standards with respect to ethicalbusiness practices? recommend awareness and communication actions? help to create a culture of corporate responsibility? contribute to efforts to monitor changes in regula-tions and standards.< 7On 31 January 1999, former United NationsSecretary General Kofi Annan set out the principles of the Global Compact in an addressto the World Economic Forum in Davos. The Global Compact’s operational phase waslaunched at UN Headquarters in New York on 26 July 2000. The Secretary General invitedbusiness leaders to join this internationalinitiative, which aims to rally companies, UN agencies, professional organisations andcivil society around ten universal principlesrelating to human rights, labour standards,environmental protection and the fight againstcorruption.By encouraging companiesto incorporate these princi-ples into their strategies andbusiness models, the GlobalCompact seeks to promotetransparency and responsi-ble corporate citizenship to ensure that the business community playsits rightful role in meeting the challenges of globalisation. By applying these principles, the private sector – in partnership with other players in society – can make a tangible contribution to realising the SecretaryGeneral’s vision of a more viable and openglobal economy.Through a letter of commitment fromChairman & CEO Denis Ranque, Thales signedup to the Global Compact in 2003 and hasadopted the ten universal principles. Thecompany renews its commitment on a regularbasis, particularly by providing Communicationson Progress (COPs) for the organisation’sdatabase.Focus8 > customers and suppliersCLARKSBURG, USAResponsibilitytowardsRIGOROUS CONTROL OF SALES AND MARKETING OPERATIONSGiven the nature of Thales’s businesses, guaranteeing the integrity of its sales and marketing operations is a crucial part of its corporateresponsibility.END USER CONTROLIn the current geopolitical turmoil, Thales recog-nises its duty to rigorously control the sale andtransfer of its equipment and technologies.As well as complying with national, European andinternational regulations, the company has adopt-ed a proactive stance by implementing its ownexport control system.For an international group such as Thales, whosefinished products virtually all incorporate sub-assemblies, components and technologiessourced from multiple industrialised countries,including the United States, the obligation to com-ply with established procedures goes well beyondnational regulatory frameworks.Thales’s internal control system comprises threekey elements:? Best practiceThales is applying a set of “best practice” standardsto progressively bring all its operating units up to thehighest level of maturity. Internal audit programmesand a major ongoing effort to train employees andraise awareness support this process.? Export compliance committeeThis committee defines export control policy toguarantee compliance, in the broadest sense, withinternational rules and legislation, and to ensurethat Thales units in each country of operationmeet local legal obligations with respect to thetransfer of goods and technologies.? Committee for exports to “sensitive countries”This committee examines all projects involvingcountries identified as sensitive, whether or notthey are covered by domestic controls, to decidewhether an export complies with the internationalcommitments made by the company as part of itsglobal approach to responsible export control.PREVENTING CORRUPTIONRecognising that all of its activities must be conduct-ed in strict compliance with a set of principles ofbusiness ethics incorporated into its corporate val-ues, Thales attaches particular importance to thefight against corruption.Dedicated procedures and organisationsNo operating unit may independently enter into acontractual relationship with any agent or exter-nal service provider for the purposes of an inter-national commercial transaction.All the resources made available to support theexport sales and marketing efforts of operating< 9“To support the increasingly global nature of its business activities, Thales maintains close contact with majornational and international institutions. The results of this dialogue are sharedacross the organisation to foster a genuine culture of responsibility.”Dominique LamoureuxVice President, Ethics and Corporate Responsibility10 > units are managed by dedicated organisations,including Thales International.These dedicated organisations are the only onesrecognised by the company for their specialisedexpertise in this area. This policy not only makesThales’s sales and marketing efforts more effi-cient, but also guarantees strict control over thecompliance of its international commercial trans-actions.Permanent exchange of best practicesThales aims to be a global leader in each of itscore business areas by combining growth andvalue creation.To achieve this ambition, a number of internalmeasures have been taken, including the intro-duction of the corporate reference system to helpdrive a process of continuous improvement with-in its procedures, guidelines and organisation.This commitment to continuous improvement,based on the principles of transparency andglobal compliance, also relies on the constantexchange of best practices with industry part-ners. This process is implemented through closecooperation with various professional bodiesincluding the French employers’ organisationMedef, the Confederation of British Industry(CBI), the Organisation for Economic Cooperationand Development (OECD), particularly itsBusiness and Industry Advisory Committee(BIAC), the International Chamber of Commerce(ICC), the AeroSpace and Defence IndustriesAssociation of Europe (ASD) and the Observatoirede la Responsabilité Sociétale des Entreprises(ORSE). Internal control mechanisms have alsobeen improved by committing greater resourcesto Internal Control and extending its mandate.Training and awareness campaigns have beenimplemented at the same time, and specificonline training modules are being developed tosustain the learning process. All these initiativesare monitored and overseen by the Ethics andCorporate Responsibility Committee.Specific awareness and training programmeThales is pursuing a major effort to raise emplo-yee awareness and provide training on issuesrelated to all forms of corruption. The companyhas issued a Reference Guide on the Ethics in International Trade and a behaviour guide onEthics in International Trade, both notably devotedto the fight against corruption.All the main Thales Université training coursesrelated to sales and marketing also include modulesspecifically devoted to the fight against corruption.Defence Industry Initiative (DII)In 1986, the major American defencecontractors embarked on a proactiveindustry-wide initiative to establish andpromote the principles of ethical businessconduct. On the basis of these principles,professional standards have been developed,many of them more stringent than the legalobligations currently in force, as well as bestpractices that each member company agreesto implement. Through its US subsidiaryThales North America, Thales was the firstnon-US company to sign the Defence IndustryInitiative (in 2002), committing the company to a set of principles of self-governance forplayers in the US market. Thales North America is actively contributing to the ongoing work of the DII.FocusRESPONSIBLE SUPPLIER RELATIONSHIPSMutual cooperationThales is committed to applying competitive pur-chasing procedures and methods with its suppli-ers, in strict compliance with the notion of cooper-ative relationships based on mutual good faith, aslaid down in its Code of Ethics.This type of cooperation involves selecting themost appropriate suppliers for each market on the basis of certain principles: selecting suppliers fairly, defining and meeting mutualcommitments, defining and sharing risks andresponsibilities, keeping supplier informationconfidential and protecting suppliers’ intellectualproperty rights.Purchasing policyThales is developing a purchasing policy thatstrengthens the contribution of suppliers and sub-contractors to the overall performance of eachprogramme. Teams of decision-makers and purchasers analyse key requirements, definestandards applicable to the entire company andidentify the suppliers to be included in its portfolioof target suppliers.Action plans to support the continuous improve-ment of supplier performance are overseen bymultidisciplinary teams working closely with sup-plier relations managers. This process continuesthroughout the life cycle of each product, systemor service.> More than 2,000 sales and marketing managers have completedThales’s Business Ethics training coursesince it was launched in 2000.> With €5.4 billion in procure-ments from outside the company eachyear, Thales is establishing a select portfolio of reliable, high-performancesuppliers and subcontractors with ademonstrated commitment to compliancewith international legislation and standards.< 1112 > employeesResponsibilitytowardsTHALES UNIVERSITÉ, JOUY-EN-JOSAS, FRANCETHE THALES WAY: A DIFFERENTAPPROACH TO HUMAN RESOURCESTo ensure that its employees perform effectively in anenvironment that is conducive to their professionaldevelopment, Thales has introduced a humanresources management strategy at international level.Built around common processes, this strategy is aprime illustration of “the Thales way”. The guidingprinciple is that individual employees are responsi-ble for their performance and drive their own careerdevelopment. Underpinning the Thales way is acompany-wide culture of continuous professionaltraining, which is the key to individual and collectivesuccess. The integrity of this system hinges on thevalues of transparency, accessibility and clearcommunication of performance targets. The Thalesway is a holistic approach that incorporates thecompany’s values and behaviour, its trust-basedrelations with each employee and its company-widehuman resources management processes.DEVELOPING PEOPLE: THE KEY TO PERFORMANCEShaped by the international scope of the company’s opera-tions and the high level of qualification of its employees,Thales’s human resources policy hinges on mobility, trainingand recognition of performance.“Thales’s human resources policy is resolutely international in scope. Its prime objective is to help employees to map out their individual career paths, with a strong focus on mobility and knowledge sharing through Thales Université.”Yves BarouSenior Vice President, Human Resources< 13? Number of employees in each countryof operationincluding all joint venture staffCanada 1,100United Kingdom 8,800France 35,200Spain 2,600Australia 3,300Korea 1,300United States 2,900South America 600? Others : Poland 110, Portugal 160, Austria 170, Singapore 170, Norway 230, Switzerland 280, China 300, South Africa 330, Saudi Arabia 530Netherlands 2,000Germany 4,700Belgium 1,000Italy 2,60014 > Professional development discussionFor Thales, this annual appraisal is an fundamentalopportunity to review the career progress of eachindividual employee and prepare for the future.The objectives of the professional developmentdiscussion are to identify the skills that employeeshave acquired or need to develop, clarify theircareer aspirations and consider the best way toachieve them.A safe and healthy workplaceGuaranteeing safety in the workplace is a majorconcern for Thales. A reference guide available onthe corporate intranet lays down the practicesand procedures applicable in this area anddefines a risk management and security processfor the entire organisation. A specific directivecovers international travel. The terrorist attacksof 11 September 2001 underscored the impor-tance of a rigorous policy to protect people andproperty. A corporate crisis management centrecan be activated at any time in response to anyserious situation or event that could adverselyaffect the company. Business continuity plans arebeing developed at all companies across theorganisation.In France, an agreement on working hours wassigned in July 2000. Since then, employees inFrance have worked 35 hours per week (averagedover the year). Depending on their level of auton-omy, executives have been offered various waysto benefit from more free time. In the UnitedKingdom, employees work an average of 37 hoursper week. In the Netherlands, the average work-ing week is 40 hours.Managing job families and specialistsAt Thales, jobs are organised into job families,adding an important operational dimension to theway human resources are managed and devel-oped. This organisational model helps the compa-ny to anticipate future requirements by providinggreater visibility on developments and trendswithin each broad job type.Thales has introduced an innovative dual careerladder as a way of recognising the value of spe-cialists in each job family and at all levels ofresponsibility. With this dual ladder, managersand specialists at equivalent levels of responsibil-ity are managed in exactly the same way.Constructive dialogueThe Thales Code of Ethics includes a clear com-mitment to cooperation with employees andemployee representatives. In particular, the com-pany undertakes to provide employees with high-quality information on issues of common interestand to ensure that trade union organisations havethe resources they need to pursue constructivedialogue with the company.Under French labour law, group-wide agreementsnow have the same validity as agreements withindividual companies. Since 2005, Thales has beennegotiating group-level agreements that aredirectly applicable to all companies within theirscope. Since 1999, Thales has also recognised theIntercentres organisations, which are dedicatedstructures set up to interface with corporate man-agement, identify issues of common concern andproactively prevent labour disputes.In France, Thales operates a central works Councilcomprising representatives of all its French sub-sidiaries. At European level, its European worksCouncil now has significantly extended responsi-bilities, following a 2002 amendment to the origi-nal 1993 agreement.Overcoming discrimination in the workplaceThales is committed to overcoming all forms ofdiscrimination in the workplace. These objectivesare formally expressed in its Code of Ethics.Ensuring equal opportunities at work for men andwomen is extremely important to Thales. A comp-any-wide framework agreement on equal oppor-tunities was signed on 13 January 2004 and is nowin effect at companies across the organisation.Illustrating this commitment, Thales employeeCécile Dubrovin received the 2006 Excellenciafemale high-tech engineer trophy from theFrench minister for social cohesion and equalopportunities at a ceremony in May.Job mobilityIn an increasingly competitive marketplace, jobmobility and professional development enhance acompany’s capacity to adapt and respond to change.Job mobility is therefore one of the top priorities ofthe Thales human resources policy.Since 2004, the company has provided employees inFrance with a comprehensive guide describing thecompany’s 62 job families and the pathways thatmake it possible to move from one family to another.Teams of specialists are also on hand to providesupport on issues related to professional develop-ment, retraining, enterprise creation, relocationand new employment opportunities in areasaffected by shifts in industrial activityGeographic mobilityTo organise mobility to ensure geographic proxim-ity and meet local requirements more effectively,Thales has created seven employment areas inFrance and six in the United Kingdom. Variable compensation package for engineers and executivesThe Group’s social policy is founded on the princi-ples of performance management and profession-al development. These principles have translatedinto a variable compensation package for engi-neers and executives worldwide. The variable por-tion of the compensation package is based on thelevel of responsibility of the post occupied andlinked in equal proportions to financial results andindividual performance. EMPLOYEES DRIVING THEIR OWN PROFESSIONALDEVELOPMENTSharing knowledgeBeing an employer of choice with a strong focus on training and professional development is a keyprinciple for Thales. The Thales training policyis designed to meet the company’s requirementsby developing its skills base, while takingemployees’ individual aspirations fully intoconsideration.Founded in 1988, Thales Université is recognisedas one of the very best corporate universities. Itsmission is to foster a shared corporate culture andadapt individual and collective skills to operationalrequirements in pursuit of the company’sstrategic priorities.Its training programmes cover all the company’skey competencies under four main workstreams:Management, Business Administration andProgramme Management, Engineering andProduct Development, and Transverse Processes.Two other programmes, Career Guidance Reviewand Career Review, specifically addressemployees’ questions about their professionaldevelopment.Thales managers and experts are closely involvedin defining Thales Université’s training objectivesand course content, as well as in teaching. Thisinvolvement ensures that the training programmesmatch the specific skills development requirementsof company employees. In-house teaching staffwork alongside external experts, consultants anduniversity lecturers.In late 2006, Thales and the bodies repre-senting its French employees signed threestrategic agreements in the areas offorward planning, innovation and labourrelations.• The first agreement provides Thales witha method foranticipating employment needsmore effectively and offering employees a more diverse range of career options.- First, through better forward planning ineach job family. This entails continuousdialogue with the best experts on thefuture of the Group’s core businessesand the quantitative and qualitativechanges they anticipate; making theresults of this analysis available to allemployees so that they can get the mostout of their annual professional develop-ment discussions; sharing this informa-tion with trade union organisations via aGroup-level forward-planning commit-tee; and putting training plans in place to provide the necessary solutions. - Second, by avoiding conventional redun-dancy schemes wherever possible andinstead addressing employment issuesthrough the Proactive ResourceManagement programme, based on transparency, voluntary participationand personalised support. - And third, through continuous employ-ment management,supported in the nearterm by early retirement measures. • The second agreement harmonises the social provisions applicable to Groupemployees. The agreement brings the1995 social convention up to date andaddresses the issues raised by lowerstate funding of health and insurancebenefits. By harmonising the variousprovisions applicable to different employeecategories on a Group-wide basis, theagreement creates a common baselinethat strengthens cohesion and facilitatesmobility. The harmonised approach willgenerate economies of scale and create a win-win situation, ensuring betterprotection at lower cost for employeeswhile maintaining a balanced cost structure for the company.• The third agreement concerns labourrelations and union membership. Thalesis committed to open dialogue and seeksto facilitate employee representation, fullyrecognising trade union organisations andguaranteeing employees’ rights of associ-ation. The Group acknowledges unionactivity as a service to the broadercommunity and makes every effort topromote transparency and avoid any formof discrimination. Thales seeks to achievethe broadest possible consensus and willcontinue to act on majority agreementonly. Agreements signed by majority votereflect this commitment to majorityparticipation and responsibility. In addi-tion, Thales encourages employees to exercise their full civic responsibilitiesduring the various elections that takeplace within the Group, thereby ensuringthat their elected members are as representative as possible. < 15Innovative employee agreements in FranceFocus16 > Company savings planSince 1998, Thales has operated a company-widesavings plan. This plan regularly incorporatesshares issued under share offers reserved foremployees. Open since 2002 to international sub-sidiaries in countries where the company has asignificant presence, the savings plan was over-hauled in 2004 to give employees more scope tomanage their investments. The company savingsplan now comprises the employee share owner-ship fund invested in company shares, plus fourdiversified funds. Employees can invest the pro-ceeds of profit sharing and incentive plans, andcan also make voluntary payments.At 31 December 2005, about 50,000 employeeshad signed up to the company savings plan.Employee share ownershipThales is committed to promoting employee shareownership as one of its corporate values.Further to the various employee share ownershipoperations proposed, more than 42,000 employeesthroughout the world now hold shares in the com-pany. At 31 December 2005, Thales employeesheld 4.6% of the company’s share capital.REDEPLOYMENT SUPPORT Capitalising on professional experienceThales Missions & Conseil (TM&C) was set up tohelp senior managers at key stages in theircareers to apply their professional experience byprogressing to consultancy roles within the com-pany. TM&C has since gained recognition not onlyfor its services to the company, but also for thesuccess of its external consultancy assignments.To encourage these employees’ professionaldevelopment, Thales offers an innovative careeroption involving training in consultancy followed byan 18-month detachment leading to a more per-manent position within the company. In the last fiveyears, TM&C has arranged 250 assignments, 95%within the company, with 65 consultants. Some 106posts have been secured, 75% within the company.Supporting restructuringIn France, Thales also assumes its social respon-sibility by implementing a job protection plan andoffering tailored solutions for individual employ-ees affected by restructuring measures.The company pursues an active policy of internalmobility with a strong focus of professional reassignment and retraining.The professional reassignment programme relieson an active network of employment managers ledby the company’s Opportunities Forum and actingwithin its main employment areas. The Opportuni-ties Forum supports employees throughoutrestructuring operations.For restructuring measures in the United Kingdom,Thales provides a dedicated task force to helpemployees with the process of professional reas-signment. These measures include career devel-opment seminars, early retirement seminars,mobility workshops and financial consultancyservices.In the Netherlands, Thales works closely with there-employment agency SMEO, which the companyhelped to set up in the 1990s. All employeesaffected by redundancy receive support fromSMEO. The type and duration of the support pro-vided are determined by the job protection plan.SMEO has an 80% success rate in finding new jobsfor affected employees.In Germany, dialogue with employee representa-tive institutions is central to any restructuringmeasures.In Australia, internal reassignment options areconsidered as a priority and may include retrain-ing opportunities.International careers for young graduates and professionalsThales has developed Career1st to help recentlyhired staff progress rapidly along internationalcareer paths. Since 2005, the programme hasfocused on Asia, aiming to recruit Asian gradu-ates in Europe or Asia. Known as AsianCareer1st,the programme includes training on how Thalesteams operate in Europe. After two to four years’experience, candidates are offered positionswith Thales in Asia.Focus2004 2005 Scope 2005RESEARCH & DEVELOPMENTGroup R&D budget/revenues 17.9% 18.5% WorldEMPLOYEESTotal Group employees at 31 Dec. 2005 59,842 57,810 WorldCountry employees/total Group employees:- France 53.9% 54.9% World- United Kingdom 16.7% 15.7% World- Germany 5.6% 5.2% World- Netherlands 4.0% 3.9% World- Other Europe 5.2% 5.1% World- Rest of the world 14.4% 15.1% WorldNumber of recruitments 775 1,040 FranceProportion of female employees/total 25.8% 27.8% FranceMOBILITYGeographic mobility 1,016 1,023 FranceJob mobility 2,639 3,167 FranceGeographic mobility/recruitments* 2.75 2.18 FranceTRAININGAverage training hours per capita 16.4 16.0 FranceNumber of employees to follow training courses 15,342 15,635 FranceSOCIAL ACTIONNumber of employees with disabilities 1,200 1,300 WorldPROFIT-SHARING AND INCENTIVESProfit share distributed to employees €37.6m €42.8m FranceIncentives paid to employees €9.5m €7.9m FranceProfit share and incentives/gross payroll 3.4% 3.8% FranceSocio-economic indicators >1,500mobility plans completed,78% within the company. 1,500 Thales employ-ees have made use of the Opportunities Forum,the company’s career support and advice centre,since it was created in 2000.>4,170 trainees completed coursesat the Thales Université campus in Jouy-en-Josas, near Paris, in 2005.>2,005people (senior corporate offi-cers, executives, managers, experts, techniciansand key contributors at all levels of the company inaround 20 countries) benefited last year fromThales’s stock option plan, approved on 30 June2005 by the company’s Board of Directors.>3.8% of gross payroll distributedunder profit-sharing and incentive schemes in2005 in respect of FY 2004 (compared with 3.4%in 2004 in respect of 2003).< 17* Excl. recruitment by Thales Services.18 > shareholdersand financial marketsResponsibility towardsResponsibility towardsCORPORATE GOVERNANCE, RISK MANAGEMENT AND HIGH-QUALITY FINANCIAL INFORMATIONAs an international group listed on the single regulated market, Eurolist by Euronext, Thales is committedto pursuing its business activities in strict compliance with the principles of good corporate governance,optimising its risk management and internal control procedures, and providing clear and accurate information concerning its financial situation, strategy and management policies.CORPORATE GOVERNANCE AND BOARD OF DIRECTORS The Thales Board of Directors comprises sixteendirectors, of whom fourteen are appointed by theGeneral Meeting and two are elected by theemployees of the Group’s French companies. Of thefourteen directors appointed by the General Meeting,four are “outside directors” under the terms of theshareholders’ agreement, one represents employeeshareholders and the others are submitted to thevote of the General Meeting by the public sectorand the Industrial Partner. The Board of Directorsreviews the work of an Audit Committee, aNomination and Remuneration Committee and aStrategy Committee. Since 2003, the Board ofDirectors has published a report on the company’srisk exposure, in compliance with the French cor-porate governance act (NRE) of 15 May 2001.Each year, the Chairman publishes a report onBoard administration, internal control proceduresand possible restrictions to the Chief ExecutiveOfficer’s powers, in accordance with the Frenchfinancial security act of 1 August 2003.This report is made available to shareholders,included as a reference document in the compa-ny’s annual report and submitted to the Frenchfinancial markets authority AMF.RISK MANAGEMENT AND INTERNAL CONTROLRisk management: priority processesand permanent vigilance Thales conducts a significant part of its businessthrough long-term contracts with a few majorcustomers in each country. In view of the com-plexity involved in negotiating and managing thesecontracts, the company attaches particularimportance to:? long-term strategic processes? optimisation of bid submission procedures? continuous improvement of programme man-agement techniques? optimal management of technical and techno-logical resources? rigorous compliance with the rules of interna-tional trade? high-quality human resources managementIn its sectors of activity, Thales must be perma-nently vigilant to avoid or limit cost or scheduleoverruns on major contracts.All Thales employees with an involvement in riskmanagement are aware of this requirement, andfor many years the company has applied acceptedbest practice in this area. In addition, Thales mapsits risks by sector and updates these risk maps ona regular basis. In particular, it identifies the mainrisks it would incur as a result of any anomaly inthe products it supplies, and takes substantivemeasures to eliminate these risks or reduce themto an absolute minimum.Internal control: dedicated teams, high-performance tools, shared cultureThales’s internal control rules apply to all compa-nies in which the group has a controlling interestor manages operations.< 1920 > To ensure good corporate governance, a numberof key tools have also been developed to supportthe deployment of internal control measures: aCode of Ethics, a Group Risks and Internal ControlCommittee and a reference system. Established in2002, the Internal Audit department draws on anInternal Audit Charter laying down the basic prin-ciples of internal control, the scope and limits ofthe department’s responsibilities and the type ofcontrols it conducts at Thales units. Lastly, anInternal Control Manual serves as a technicalguide to help operating units to analyse risk andidentify and implement measures to reduce it.Reinforced measures in 2006Thales set up a Group Risk and Internal AuditCommittee in 2006. One of the committee’s mainobjectives is to ensure that control and compliancemeasures are properly implemented in all of thecompany’s sectors of activity, and at all its sub-sidiaries in all locations. As part of this process,certain procedures have been updated or re-eval-uated in the light of new regulations and to incor-porate lessons learned and best practices appliedat operating units. This proactive approach alsoaims to systematically strengthen internal controlsystems and the procedures in place for delegatingresponsibilities. To ensure effective implementa-tion, Compliance Officers have been appointed atall the major entities across the organisation.POLICY OF RELIABLE AND TRANSPARENT FINANCIAL DISCLOSURERegular informationThales regularly provides the markets with clearand accurate information concerning its financialsituation, strategy and management policies, incompliance with its Code of Ethics and generallyaccepted rules and practices. This financial dis-closure policy entails regular publication ofmandatory information in legally required jour-nals and as recommended by the market authori-ties, and on the Thales corporate website. Overand above this regulatory compliance, the compa-ny provides more qualitative information, forexample through financial conferences led by theChairman and Chief Financial Officer.IFRS accounting standardsThe accounting data published by Thales is subjectto detailed examination by the statutory auditorsappointed by the General Meeting of shareholders.The auditors statements are published in a specialreport included in the company’s annual report.From financial year 2005, the company’s consolidat-ed financial statements are prepared in accordancewith International Financial Reporting Standards(IFRS), as approved by the European Union.“Given the nature of our business and the international scope of our operations, it is absolutely vital for Thales to apply the highest possible standards of corporate governance and to disclose reliable, high-quality financial information.”Patrice Durand Senior Vice President, Finance and AdministrationStrategic and budget plansSince these plans indicate Thales’s strategicobjectives and outlook, they draw primarily onthe internal processes managed by the GroupStrategy Department and Finance Department.Each year, the Strategy Department works withthe Finance Department and the operatingunits to prepare a long-term strategic plan,including financial data. This plan identifies themajor developments and trends in the compa-ny’s businesses and financial performance, andserves as a valuable tool for executive manage-ment to support strategic decisions. In addition, each operating unit prepares amore detailed three-year budget plan. The firstyear of this plan serves as the basis for themonthly reports used to monitor the company’sbusiness activities and financial performance.The plan focuses in particular on variations inorder bookings, revenues, income and cash-flow.Thales has issued procedures manuals applica-ble to all units; unit chief financial officers areaccountable for compliance with these proce-dures. Lastly, the monthly reporting system used totrack operational management and the corres-ponding accounting data was modified to meetthe new IFRS accounting standards from theend of the 2004 financial year.Board of Directors*at 1 May 2007• Denis Ranque, Chairman and Chief Executive Officer of Thales • Jean-Paul Barth, former Senior Executive Vice-President of Alcatel • Bruno Bézard, Managing Director, French Government Shareholding Agency (APE)• François Bujon de l’Estang, Ambassador of France• Olivier Costa de Beauregard, Managing Director, Groupe Industriel Marcel Dassault (GIMD)• Charles de Croisset, international advisor to Goldman Sachs International• Marie-Paule Delpierre, director elected by employees• Roger Freeman, Consultant and Chairman of the Advisory Panel ofPriceWaterhouseCoopers, London UK• Didier Gladieu, director elected by employees • Philippe Lépinay, representative of employee shareholders• Didier Lombard, Chairman and Chief Executive Officer of France Telecom• Klaus Naumann, Bundeswehr General (ret.) • Serge Tchuruk, Chairman and Chief Executive Officer of Alcatel-Lucent• Alcatel Participations, represented by Laurent Collet-Billon, advisor to the Chairmanand CEO of Alcatel-Lucent• TSA, represented by Marcel Roulet, former Chairman of Thomson, Thomson-CSF andFrance Telecom * Information concerning the members of the Thales Board of Directors is included in the Reference Document submittedto the French financial markets authority AMF.< 2122 > the environmentResponsibilitytowardsSYDNEY, AUSTRALIAMANAGING THE ENVIRONMENTAL IMPACTOF OUR ACTIVITIESAs a responsible corporate citizen, Thales is committed to protectingthe environment by limiting the environmental impact of its activities,managing any associated health risks, meeting and exceeding applica-ble legal regulations and anticipating future requirements. Since 1997,Thales has pursued a proactive environmental management policy.To limit the risks associated with legionella, Thalesdecided in 2002 to replace spray cooling towers with air-to-air heat exchange systems at all its French sites – a total of 76 towers. The last tower is scheduled forreplacement at the end of 2006.FocusFocused as they are on research and developmentand the testing and integration of electronic equip-ment and systems, Thales’s current activities gen-erally have a limited environmental impact. Thereare exceptions, however, with areas such aspyrotechnics and the manufacture of mechanicalparts and components having greater implicationsfor the environment.THE THALES APPROACH TO ENVIRONMENTAL MANAGEMENTSince 1997, Thales has pursued a proactive environ-mental management policy deployed on three levels:sites (property), manufacturing and products.SitesThales has launched a programme of action toensure the continued compliance of all premisesand related technical installations while providingits industrial operations with the means to expandat the same time as managing risks and limitingtheir environmental impact.In France, the company has embarked on a pro-gramme involving the systematic removal ofasbestos as part of any refurbishments (over andabove legal obligations), inspection and upgrading ofwastewater systems, replacement of spray coolingtowers, and soil testing. In addition, environmentalfactors are automatically taken into consideration inconstruction, renovation and demolition projects.ManufacturingSince 2000, Thales has progressively introducedmeasures whereby all its production unitsthroughout the world systematically take environ-mental factors into account, in accordance with amulti-year plan defined and monitored by a steer-ing committee. The main objectives of the plan areas follows:? Ensure that all facilities and activities complywith statutory and technical regulations? Limit energy consumption and the use of naturalresources? Conduct environmental audits to identify andquantify the impact of each activity? Implement an environmental management sys-tem tailored to the specific characteristics andconstraints of each activityThese environmental management systemsensure that all units comply with local regulations.ProductsSince 2002, Thales has been working closely withits main subcontractors and suppliers to identifythe most appropriate substitute technologies incompliance with the RoHS Directive restricting theuse of certain hazardous substances in electricaland electronic equipment. Thales products andequipment have to guarantee extremely high lev-els of reliability over very long lifespans and inharsh operating conditions. As a result, substitutetechnologies will be adopted as soon as they areshown to provide the required levels of systemsafety and reliability.< 2324 > RISK MANAGEMENTIn 2003, Thales launched an environmental risk-mapping programme covering all its sites throughoutthe world. Initially concentrating on risk identification(areas of administrative and technical non-compliance,potential pollution risks, asbestos, legionella, etc.), the programme has now progressed to the riskcharacterisation phase. This involves detailed analysisand a broad range of measures to limit risks oreliminate them completely. CONTINUOUS IMPROVEMENT PROGRAMMEThe company’s continuous improvement programmeapplies to all processes and products. It is based on:? Impact analysis? Risk mapping and associated action plans? Performance measurement, leading to the defini-tion of local objectives in line with the company’senvironmental commitments.The overall objectives of this approach are:? Limit energy consumption and the use of naturalresources? Limit waste production and promote wasterecovery and recycling? Manage emissions and effluent discharges? Incorporate health risk management into contin-uous improvement plans.PERFORMANCE MEASUREMENTSince 2002, Thales has adopted a continuous improve-ment approach to environmental reporting with a viewto extending its geographic scope and improving theaccuracy and reliability of the information provided. In2005, performance metrics for water consumptionand waste treatment were applied to Group compa-nies, along with multi-year improvement targets insuch areas as energy consumption, waste production,atmospheric emissions and hazardous substances.A RESPONSIVE ORGANISATIONThe Thales environmental organisation is based onthree areas: ? A central structure reporting directly to the company’sOperations Department and responsible for supervisingenvironmental risks and managing and coordinatingactions at international level. This structure defines anddeploys corporate strategy and continuous improve-ment initiatives, and analyses performance. ? Country/site structures with managers responsi-ble for applying company policy, coordinating localactions and collecting the information needed tomeet reporting requirements. ? Correspondents at operational entities, respon-sible for implementing the various measures atprocess and product level. “Risks have changed. Today,while managing the company’sindustrial past, we also havea responsibility to anticipateand prevent the environmentalrisks of the future.” Sandrine Bouttier-Stref Environment ManagerThe company’s environmental managementsystem classifies each site in one of threecategories:? Category A: industrial sites with facilitiesthat have a potential environmental impact(waste from surface treatment, mechanicalprocesses, etc.). ISO 14001 certification ismandatory.? Category B: sites where electronic equipmentand systems are tested and integrated. ISO 14001 certification is recommended.Alternatively, a specific environmental manage-ment system is put in place.? Category C: sites involved exclusively inservice provision. An environmental manage-ment system focusing on energy and waterconsumption and waste management is putin place.Focus> Almost 60% of group companies have an environmental management system in place.>44% of company employees work at a company withISO 14001 certification.> Water consumption:2.5 million m3.> Energy consumption:156,000 TOE (tonne oil equivalent).> Non-hazardous waste generated:20,750 tonnes.> Hazardous waste generated:2,650 tonnes.Units 2004 2005 Scope 2005ENERGY AND EMISSIONSElectrical energy consumption TOE (1) 149,176 129,092 84%Electrical energy consumption per capita TOE/cap. 2.99 2.63 84%Fossil energy consumption TOE 23,857(2) 27,081(3) 84%Fossil energy consumption per capita TOE/cap. 0.48(2) 0.5(3) 84%Total energy consumption TOE 173,033 156,173 84%Total energy consumption per capita TOE/cap. 3.5 3.18 84%WATERWater consumption m3 2,850,893 2,495,293 84%Water consumption per capita m3/cap. 57.3 50.9 84%WASTEProduction of non-hazardous waste t 19,144 20,753 84%Production of non-hazardous waste per capita kg/cap. 380 420 84%Percentage of non-hazardous waste recycled(4) % 50 52 84%Production of hazardous waste t 2,914(5) 2,648 84%Production of hazardous waste per capita kg 58 53 84%Percentage of hazardous waste recycled(4) % ND 79 84%MISCELLANEOUSSites with an environmental management system in place % 55 100%Manufacturing sites with ISO 14001 certification % 44 100%Environmental indicators(1) TOE= tonne oil equivalent.(2) Gas and fuel oil. (3) Gas: 14% - Coal: 2% - Fuel oil: 1% - Steam: 1%. (4) Not incinerated or otherwise discarded without energy recovery. (5) Adjusted value (annual figure excluding hazardous waste generated in the exceptional case of a site decontamination in Australia).< 2526 > 26 >societyResponsibilitytowardsREADING LABORATORY, UKEMPLOYMENT SUPPORTDeveloping the local economic fabricIn France, Thales has a specialised organisationcalled Géris that helps to support local developmentand revitalise local economies.In 2005, 120 projects to launch start-up companiesor turn around existing businesses were submittedto Géris. Of these, 30 projects have materialised.Géris also works locally to facilitate the divestmentof non-strategic assets, help employees get back towork after restructuring measures and revitalisethe local economic fabric in affected areas.Opportunities for young jobseekersIn France, Thales supports the government’syouth employment policy through two appren-ticeship training centres, one specialising ininformation technology, and the other, set upwith Air France, promoting careers in aviation. Inthe United Kingdom, Thales finances grants fortechnology students and young people seeking totrain as pilots. In the Netherlands, Thales isdeveloping a network of graduate employeesthrough the YES programme (Young EmployeesSociety). Pioneering the employment of peoplewith disabilitiesThales has championed the cause of disabled people in the workplace, signing a corporateagreement in 1992 to increase job opportunitiesand support their professional development. Theproportion of people with disabilities employed bythe company has risen steadily from 2.91% in 1992to 5.98% at 31 December 2005.Among the initiatives undertaken by Thales in thisarea, perhaps the most remarkable is the devel-opment of special tools incorporating proprietarytechnologies to support the integration of peoplewith disabilities in the workplace.For example, for people with impaired hearing,Thales has developed a CD-Rom for learningFrench sign language and cued speech.The Soundflyer system enables visually-impairedpilots to fly aircraft by giving them direct access toflight data. The Portanum system helps peoplewith impaired vision to read wall and flip charts.On 30 June 2005, Thales was awarded the Medef(French business confederation) prize for its sup-port for young people with disabilities, in particu-lar its successful efforts to facilitate the integra-tion of a blind student at an engineering school.The company worked with the Garches HospitalInstitute to develop a solution for people who needto change careers after suffering an injury ordeveloping a vision or hearing impairment.Operational since late 2004, the Access Learningplatform provides totally individualised distancelearning over the internet. In 2005, around 100people used the platform, either directly over theinternet, or at the Raymond-Poincaré Hospital atGarches, outside Paris.RESPONSIBLE CORPORATE CITIZENSHIPAs a major player in economies around the world, Thales seeks toparticipate fully in each local community. The company demonstratesthis commitment through initiatives to create employment, a proac-tive policy of partnerships with the academic and scientific communi-ties, and an active sponsorship programme.< 27“Our Technology for Education and Youth sponsorship programme is a perfect illustration of the Thales way and our commitment to the community. It is an international programme hinging on advanced technologies and our core value of knowledge sharing.” Sylvie Dumaine Senior Vice President, Corporate Communications28 > R&D: OPENNESS AND KNOWLEDGE SHARINGThe principle of technology partnershipsThales’s R&D activity is based on technology part-nerships and driven by a commitment to corporatecitizenship. For several years, Thales has takensteps to share its know-how with the researchcommunity and to keep the channels of communi-cation open with some of the most prestigiouspublic and private research centres and universi-ties. This approach has translated into coopera-tion agreements with France’s leading researchinstitutes, engineering schools and numerousother research bodies across Europe and aroundthe world. Thales is also closely involved in a num-ber of major European military and civil R&D pro-grammes.In addition, the company locates its R&D opera-tions as close to its partners as possible. Forexample, its research centres in France, theNetherlands and Singapore are now located at theÉcole Polytechnique campus, Delft University andNanyang Technological University, respectively.Connecting with the teaching communityTo further develop its capacity to innovate, Thalesmaintains permanent contact with higher educa-tion establishments.In France, the company specifically targetedaround 20 major engineering schools in 2005 andforged links with three top business schools.In the United Kingdom, Thales is contributing tovarious high-profile programmes, including SETNET(Science Engineering & Technology Network).In the Netherlands, Thales has long-standing linkswith Twente University and Saxion College.In Australia, the company has developed partner-ships with universities across the country, as wellas with Engineers Australia and the AustralianInstitute of Project Management.SPONSORSHIP: A GROUND-BREAKING PROGRAMMEAs part of its international sponsorship pro-gramme, Technology for Education and Youth,Thales has launched a ground-breaking scholar-ship programme under an agreement with theFrench foreign affairs ministry and various busi-ness and engineering schools to host and supportoverseas graduate science students in France.For 2006/2007, some 30 students from China, Indiaand Russia will be taking part in the programme.They are studying at French business or engi-neering schools and are benefiting from a ThalesAcademia grant of around €10,000 per student peryear, personalised mentoring and managementtrainings at Thales Université. On completion of theirmasters degrees, they will be offered internshipswith the company.LOCAL INITIATIVES THROUGHOUTTHE WORLDIn each country of operation, Thales pursues itsbusiness activities in close partnership with thelocal community. In the United Kingdom, Thalescompanies support many local initiatives andsponsor charity work to promote young peopleand technology through the Thales CharitableTrust. In the Netherlands, Thales is engaged innumerous efforts to promote employment andsponsor cultural, social and sporting initiatives. InGermany, company employees took part in theFrankfurt JP Morgan Run, a cross-country race toraise money for the underprivileged. Thales sub-sidiaries in the United States support a range ofcharitable initiatives, particularly to help regionalchildren’s hospitals and educational programmesin schools and universities, while its Australiancompanies are working to promote long-termemployment.Responding to crisis situationsThales and its employees came to the aid of victims of the tsunami that hit southeastAsia in late 2004, providing help throughlocal organisations and donations to UNICEF (United Nations Children’s Fund).In September 2005, the company respondedrapidly to the devastation caused by Hurricane Katrina in the southern United States by providing rescue teamswith GPS systems and waterproof commu-nication equipment. Thales also made asignificant donation to the fund set up bythe American Red Cross.Focuscontents01 Chairman’s message02 Activities03 Key figures04 THE THALES APPROACH TO CORPORATE RESPONSIBILITYCUSTOMERS AND SUPPLIERS 08EMPLOYEES 12SHAREHOLDERS AND FINANCIAL MARKETS 18THE ENVIRONMENT 22SOCIETY 26TOWARDS:profileSINGAPORE This brochure is a summary of the CorporateResponsibility report available (in French)on the Thales website: www.thalesgroup.comhales is a leading international electronicsand systems group serving defence,aerospace and civil security marketsworldwide, supported by a comprehensiveservices offering. The company’s high-technology civiland military businesses develop in parallel to serve a single objective: the security of people, propertyand nations. Leveraging a global network of 25,000high-level researchers, Thales offers a capabilityunmatched in Europe to develop and deploy criticalinformation systems.TCriteria (min --/max ++) Rating 2006/05 Score 2006/05Human Resources + 58Environment = 35Customers & Suppliers = 39Corporate Governance - 30Community Involvement + 50Human Rights + 65Score scaling: 0 to 100.Vigeo ////////////////////////////Rating: May 2006 - Market sector : Aerospace (companies in panel sector: 10) 10075502501007550250Benchmark: company/industry sectorHumanResourcesEnvironment Customers &SuppliersCorporateGovernanceCommunityInvolvementHuman Rights--- Min - Max (sector) • ThalesThales: a global leader and responsible corporate citizenIn 2006, various rating agencies and other bodies assessed the Thales Group using criteria related to social and environmental responsibility.Other initiatives /////////////////////////////////////////In 2006, Thales won variousawards in recognition of its performance, particularly in export markets:? in the United Kingdom, thecompany won the Deal of theYear 2005 award from TradeFinance for its innovative financ-ing of the contract to supply theavionics suite for Sukhoi’s newRussian Regional Jet;? In France, Thales won theFrench external trade ministry’s2005 trophy for best sponsorshipaction for its backing of theAuverland Company;? the company also received theOECD 2006 prize for best invest-ment in the Middle East and NorthAfrica region for its investmentwith Raytheon in an environment-friendly aquafarm that employswomen in Saudi Arabia;? in May 2006, the Frenchdefence procurement agency(DGA) awarded its quality trophyfor best industrial prime contrac-tor to Thales’s Air Systems divi-sion. On the basis of half-yearlyperformance measurements ofits 42 main industrial suppliers.The DGA also awarded the tro-phy for best programme team tothe consortium formed byThales and Alcatel Alenia Spacefor the Syracuse III programme.1. National Defence Budget ///////////////////////002. State support (Export) /////////////////////////////003. Possible M&A Targets /////////////////////////0004. Dual Applications ///////////////////////////////////0005. Systems Providers /////////////////////////////////0006. IT & Electronics ///////////////////////////////////////0007. Multi Domestic Approach //////////////////0008. Low Dependance on Exportsto Risky Countries //////////////////////////////////////00Qualitative Scoring /////////////////////////////////// 2.63CM-CIC Securities ///////////////Source: “Business as usual – A financial and extra-financial analysis of the aerospace & defense industry”, February 2006Guide : 1. Share of National Defence Budget // 2. Level of State support and/or prevalence of State to State contracts. // 3. Likelytargets for M&A. // 4. Capacity or possibility for reusing defence technologies for civil uses & vice versa. // 5. Share (direct or indirect) of turnover. // 6. Share (direct or indirect) of turnover 1=-10%, 2= 10 – 20%, 3=20%+ // 7. Repartition of turnover & sites. //8.Share of turnover from regions or zones with current or potential high level of political instability.Qualitative Scoring: 3= 50%+, 2= 20-50%, 1= below 20%.For more information, > go toCorporate website: www.thalesgroup.com> contact Ethics and Corporate Responsibility Department:• Dominique Lamoureux: +33 (0)1 57 77 82 07dominique.lamoureux@thalesgroup.com• Sylvain Masiéro: +33 (0)1 57 77 85 88sylvain.masiero@thalesgroup.comThales45, rue de Villiers92526 Neuilly-sur-Seine CedexFrancePublished by Thales Corporate Communications – 2007 • Getty Images/Jim Franco (cover), Getty Images/Sami Sarkis (p. 2), Getty Images/John Lawrence (p. 4), Getty Images/Jeremy Frechette (p. 18), Getty Images/Franck Krahmer (p. 26), Getty Images/Jean-Louis Batt (p. 18),IFA/Photononstop (p. 8), Gilles Bassignac/Gamma (pp. 4, 7, 10, 11, 12, 26), Daniel Rory/Redlink/Gamma (content, pp. 6, 21), Jean-Luc Luyssen/Gamma(p. 6), Gerardo Somoza/Gamma (p. 8), Zeng Niam/Gamma (p. 14) • Thales, Photopointcom (p. 1) • Design and production: - 7316. Thalesand corporate responsibility