THE CONTRIBUTION of THALES to the UK ECONOMY MARCH 2019 Thales’S Digital Signalling Has Helped Increase Capacity Across London Underground

THE CONTRIBUTION OF THALES TO THE UK ECONOMY MARCH 2019 Thales’s digital signalling has helped increase capacity across London Underground. The contribution of Thales to the UK economy

TABLE OF CONTENTS

Foreword 4

Executive summary 8

1. Introduction 10

2. The direct impact of Thales in the UK 14 2.1 Direct contribution to employment and skills 14 2.2 Direct contribution to GDP 20 2.3 Direct contribution to tax 21

3. Multiplier impacts 22 3.1 Supply chain impacts 22 3.2 Worker spending impacts 26

4. The total economic impact of Thales in the UK 28 4.1 National-level impacts 28 4.2 Regional impacts 30

5. Thales’s economic impact by business area 32 5.1 Defence business 32 5.2 Civil business 35

6. The ‘catalytic impacts’ of Thales on the UK economy 36 6.1 Research and innovation 36 6.2 Supporting productivity in other sectors 38 6.3 Wider skills initiatives 40

7. Conclusion 44

Appendix 46

This report is confidential to Thales Group and may not be published or distributed without its prior written permission. Images are published with kind permission of Thales Group and Thales Alenia Space.

The modelling and results presented here are based on information provided by third parties, upon which Oxford Economics has relied in producing its report and forecasts in good faith. Any subsequent revision or update of those data will affect the assessments and projections shown.

Contains public sector information licensed under the Open Government Licence v3.0.

3 FOREWORD

Thales in the UK is a key part of a global We pride ourselves on delivering the most technology company that employs 65,000 demanding programmes and capabilities to people worldwide. We have a proud heritage our customers across key markets – defence, in the UK, stretching back more than 130 years, aerospace, transport, digital security and space. along with a presence in nearly every region of All these activities are underpinned by a strong the country. Combining a unique diversity of focus on research and innovation. Our £130 expertise, skills and talents, our 6,500 people million of R&D in 2017, both self-funded and in the UK deliver extraordinarily complex and funded by customers and partners, ensures technological solutions to our broad range of we remain at the cutting edge of technology domestic and export customers. in all our markets. Critical to this continued leadership is our relationship with academia, We took the decision to commission Oxford where we support and promote the research Economics to better assess Thales’s economic capability that generates new ideas and impact in the UK and to quantify the value we nurtures the talent of the future. bring to the nation and local economies. While the benefits that we bring to ‘UK Plc’ This report shows that, in 2017, Thales are clear from this report, it is the experience contributed over £1.7 billion to the UK’s GDP. of our employees that I believe best tells the I am particularly proud that Thales’s labour story of Thales in the UK. Our apprenticeship productivity was approximately 40 per cent and graduate programmes continue to develop higher than the national average. We spent and deliver a stream of diverse young people £700 million with UK suppliers, and a third of into our business who are passionate advocates our UK business’s domestic procurement was for STEM and next generation technologies. with small and medium enterprises (SMEs). Likewise, our smart working approach focuses With this extensive UK supply chain, Thales on both the wellbeing of our people and the supports 27,200 jobs across the country, a productivity of our teams and, I believe, sets multiple of 4.2 of our direct employment, the standard for future working practices. helping to underpin the prosperity, as well as the safety and security of the UK.

Thales facility in Glasgow. This report demonstrates our economic impact in the UK and our commitment to the development of the skills, R&D and innovation that will continue to support our UK activities into the future. As we look to that future, I am ambitious for Thales to expand and grow our activities in the UK, so that we continue to lead in key technologies, such as digital security, autonomy and big data analytics, which will deliver the security and prosperity of tomorrow.

Victor Chavez Chief Executive, Thales UK

FEBRUARY 2019 THE SCALE AND The contribution of Thales to the UK economy INFLUENCE OF THALES ACROSS THE UK

UK CAPABILITIES REGIONAL IMPACTS

Aerospace Space Defence • Air traffic management • Satellite propulsion • Surface ship, mine hunting & submarine sonar • Cockpit communications • Satellite payloads • Advanced weapon systems Total GDP contribution • Cabin connectivity • Earth observation • Mission systems integration • In-flight entertainment services • Space exploration • Managed services • Digital services • Satellite navigation • Intelligence, surveillance & reconnaissance £120 m 710 Direct employment • Training and simulation • Electronic warfare & countermeasures • Maritime, land & airborne optronics systems Transport Security • Avionics Glasgow • Rail signalling systems • Digital security systems • Queen Elizabeth-class aircraft carrier • Rail traffic management • Critical infrastructure • Unmanned aerial vehicles • Road information services protection • Radio communications • Driverless systems • Secure communications • Air traffic management • Predictive maintenance • Platform self-protection £30 m • Digital services • Autonomous systems £60 m 20 510 £120 m

UK EMPLOYEES 500 £70 m In 2017, Thales Engineering Customer Bid & project Business Belfast directly employed & R&D support management support 200 Doncaster 6,500 3,400 1,200 700 1,200 Cheadle UK workers Cambridge 50 m £60 m

120 £170 m 60 £70 m Bury St Edmunds TOTAL ECONOMIC IMPACT The average productivity 280 of a Thales worker is Aberporth 130 Direct Indirect Induced

Thales’s total contribution Total jobs supported £77,400 Ebbw Vale £320 m to GDP in 2017 was 40% above the * 2,370 630 27, 200 national average £1.7 billion Bristol 6,500 £210 m £460 m London £600 m £600 m Total tax £500 m £130 m 1,010 11,200 contribution Crawley £140 m Templecombe 9,400 £450 £180 m Reading million Plymouth *Total does not sum due to rounding

6 THE SCALE AND The contribution of Thales to the UK economy INFLUENCE OF THALES ACROSS THE UK

UK CAPABILITIES REGIONAL IMPACTS

120 £170 m 60 £70 m Bury St Edmunds TOTAL ECONOMIC IMPACT The average productivity 280 of a Thales worker is Aberporth 130 Direct Indirect Induced

7 The contribution of Thales to the UK economy

EXECUTIVE SUMMARY

Thales Group is a major aerospace, space, defence, ground transport and security company, which generated global revenues of £14 billion in 2017. With links in the UK dating back billion to the 19th century Thales has a long-established track record £1.7 of producing high-tech products and associated services for the Total contribution armed forces and private sector. to UK GDP by Thales Group in 2017. This report examines several dimensions through which Thales’s activities deliver important benefits to the UK economy. Our assessment covers the operational activities Of this, over £500 million of Thales in the UK; the purchases made by UK and overseas was directly contributed by Thales entities with UK suppliers; the spending of workers Thales’s UK operations. employed by Thales in the UK and of those employed in the Group’s UK supply chains. In addition, this report outlines how Thales contributes to the long-term competitiveness of the UK economy through technological innovation, and initiatives to upskill both its workforce and the wider community.

CORE ECONOMIC IMPACTS

We calculate that Thales’s aggregate GDP contribution to the UK reached over £1.7 billion in 2017. Of this headline figure, Thales’s direct activities contributed over £500 million to UK GDP. Thales Group procurement spending with UK suppliers was £700 million in 2017. These supply chain purchases contributed £620 million to GDP. A third of spending by Thales’s UK operations was with small and medium-sized enterprises. Spending by employees of both Thales in the UK and the Group’s UK supply chains supported a further £610 million of 27, 200 economic activity. UK jobs supported by Thales’s activities We find that Thales Group supported 27,200 jobs in the UK in in 2017, including 2017. As well as the company’s 6,500 direct employees, its supply via its supply chain chain spending supported 11,200 jobs, and workers’ spending and consumer supported a further 9,400 positions. This underlines how the spending impacts. company’s impact reaches far beyond its own operations.

Thales demonstrates a high level of productivity relative to Of these, more than 6,500 the UK manufacturing sector and the economy as a whole. We workers were directly employed calculate that the company’s average output per worker stood by Thales’s UK operations. at £77,400 in 2017—above the manufacturing sector average of £71,400 and far exceeding the UK average of £55,500.

8 The contribution of Thales to the UK economy

In 2017, Thales’s total tax contribution to the UK reached over £450 million–sufficient to cover the gross annual salaries of 12,600 secondary school teachers. Nearly £130 million of this tax contribution came directly from Thales in the UK, with million the majority in the form of employment-related taxes such as £130 National Insurance Contributions and workers’ income taxes. Value of R&D work carried out by Thales Thales’s UK export sales rose at an average annual rate of in the UK in 2017. 22 percent between 2015 and 2017. The company’s exports totalled £390 million in 2017. This contributes to the UK government’s R&D spending INVESTMENT IN R&D AND TRAINING target of 2.4 percent of GDP.

Thales carried out £130 million of research and development (R&D) in the UK in 2017. This includes self-funded research, as well as that funded by industry partners and customers. Innovation is an important factor in driving the productivity growth necessary for long-term increases in living standards, and the UK government has set a target of raising total UK R&D spending to 2.4 percent of GDP by 2027.

Thales research creates products that help to boost the efficiency of the economy. For example, system improvements help to increase the passenger capacity of London Underground lines and the Manchester tram network.

In addition to its financial contributions, Thales enhances the UK’s innovative capacity through its involvement in a range of initiatives–including contributing to Engineering and Physical Sciences Research Council projects, sponsoring 45 PhD students to date, and maintaining strategic relationships with universities across the UK.

Training programmes and contributions to community outreach schemes underline how Thales is helping to boost the skills of the UK’s workforce. The company employs 279 apprentices working towards accreditations from BTEC to Master’s level, as well as 160 graduates in a training scheme recognised by the major UK engineering institutes. Thales makes a wider contribution by sending STEM (science, technology, engineering and maths) Ambassadors to schools to encourage take-up of these subjects, and by hosting an annual competition for university students to design an innovative solution to an engineering problem in Thales Group’s markets.

9 The contribution of Thales to the UK economy

1. INTRODUCTION

Thales Group is a major global forces. Thales’s UK operations those in the Group’s UK supply technology company operating continue to expand, including chains. (For more details of in the aerospace, space, through the acquisition of XPI our methodology, see the defence, security and ground Simulation, which develops introduction to our Economic transport sectors. The company technology used in driving Impact Analysis, overleaf.) achieved global sales of £14 simulators, in 2013, and billion in 2017 and employs Aveillant, a radar technology On top of these quantitative more than 65,000 people in company, in 2017. metrics, there are many other 56 countries. Some 25,000 of channels through which Thales these employees are engaged Thales has asked Oxford activities contribute to the in technical operations, such Economics to undertake a UK economy. The company as research and engineering, comprehensive assessment boosts the UK’s capacity for enabling Thales to design and of its contribution to the UK innovation through in-house deploy equipment, systems economy. In this report, we R&D, and by engaging with and services to meet complex demonstrate how Thales numerous universities and customer requirements all directly contributes economic the Engineering and Physical over the world. The Group value to the country in terms Sciences Research Council. spent £797 million globally on of annual GDP generated, It enhances the skills of the research and development in employment supported, current UK workforce both by 2017. and tax revenues raised. In training its own workers, and addition, we consider the role through initiatives to promote Thales has considerable of UK supply chain spending the take-up of STEM subjects heritage in the UK, having by Thales’s UK and overseas and careers among school and operated here for 130 years— businesses, and the impact university students. most notably as a major of wage-related spending by supplier to the UK’s armed Thales’s UK employees and

Astute-class submarine equipped with Thales sonar, communications, optronics and electronics warfare systems.

10 The contribution of Thales to the UK economy

These are just some of the perspectives through which the importance of Thales to the UK economy can be assessed. For this report, we have structured our analysis as follows: • Chapter 2 calculates the • Chapter 5 summarises “direct impact” of Thales this economic impact by in the UK on employment, business area; GDP and taxes in 2017; • Chapter 6 assesses the • Chapter 3 quantifies the wider “catalytic” impacts of “indirect” and “induced” Thales on the UK, including impacts of Thales Group on through its investment in the UK economy in 2017; R&D and training; and • Chapter 4 brings together • Chapter 7 provides all these impacts to concluding remarks. calculate the total economic impact of Thales on the UK in 2017, at both a national and regional level;

11 The contribution of Thales to the UK economy

INTRODUCTION TO OUR ECONOMIC IMPACT ANALYSIS

The full impact of Thales on the UK Alongside these core economic impacts, we economy is assessed using a standard also consider the wider “catalytic” economic means of analysis called an economic impacts through which Thales contributes impact assessment. This involves quantifying to the UK’s long-term prosperity. These the company’s total impact on the UK across catalytic effects correspond to a number of three “core” channels: the themes identified in recent government publications, such as export growth, skills Direct impact encompasses the economic • development, and building future capabilities activity, taxes and employment supported through R&D. directly by Thales’s operations in the UK; • Indirect impact encapsulates the economic The modelling upon which this report is activity, taxes and employment supported based computes the economic footprint in the UK supply chains of both Thales’s UK of Thales in the UK for 2017. Our approach and international operations, as a result of uses financial data for that year from Thales’s their procurement of goods and services own accounts, plus the latest economic data from other firms. Note: this channel available at the time of writing. We show includes the impact of Thales’s UK capital the economic contribution made to the investments, such as on new facilities and national economy by Thales, as well as its IT equipment, as well as that of its day-to- employment and gross value added impacts day purchases; at a regional level. Fig. 1 (overleaf) presents a schematic diagram of the Economic Impact Induced impact comprises the wider • Analysis model. Additional information on economic benefits that arise when Thales’s our modelling approach is provided in this UK employees, and those in the Group’s report’s appendix. UK supply chains, spend their earnings— for example, in local retail and leisure establishments.

This approach enables us to build a picture of Thales’s overall contribution to the UK economy across three key metrics: • GDP, or more specifically, Thales’s “gross value added” (GVA) contribution to GDP. GVA in simple terms is the sum of a company’s profits, employee compensation costs and taxes incurred directly in production, such as business rates. For brevity we refer to this as the “contribution to GDP” throughout the report; • Employment, measured on an employment headcount basis; • Government revenues, including VAT, income tax, corporation tax, business rates and National Insurance contributions.

12 The contribution of Thales to the UK economy

Fig. 1: The five channels of economic impact in our model

A company or sector employs lots of DIRECT sta. Its operations generate GDP IMPACT and tax for the authorities.

It also spends money with suppliers who employ sta, generate GDP and pay taxes. They use other suppliers in turn.

INDIRECT IMPACT

It also invests in capital expenditure, which means more suppliers are engaged, sustaining jobs, generating GDP and raising tax revenues. These capital suppliers use other suppliers, in turn. CAPITAL IMPACT

Employees (including of the suppliers) spend their wages in the wider economy, generating more GDP, jobs and tax revenues. INDUCED IMPACT

Added together, these three eects—direct, indirect, induced—comprise the total economic impact of the company or sector. TOTAL IMPACT

In addition, a company or sector’s activities and services have wider eects, boosting activity CATALYTIC elsewhere in the economy. These—such as R&D IMPACT spillovers or training—represent the wider beneﬁts that governments, consumers and society derive.

13 The contribution of Thales to the UK economy

2. THE DIRECT IMPACT OF THALES IN THE UK This chapter describes 2.1 DIRECT CONTRIBUTION TO EMPLOYMENT AND SKILLS the impact of Thales’s UK operations on the economy in 2.1.1 Direct employment Much of Thales’s UK workforce 2017. We start off by calculating is located in the south of In 2017, Thales directly the company’s impact on the England, with just over one- employed around 6,500 labour market through both third (36 percent) in the people in the UK.1 The majority its employment at UK sites South East, at the company’s (3,400 workers) worked and its investment in training, two major sites in Crawley and in R&D and engineering, then go on to consider Thales’s Reading. A further 15 percent including IT, cybersecurity and contribution to GDP and tax are based in the South West, systems engineering (Fig. 2). revenue that year. and 10 percent in London. A further 1,200 worked in Scotland and Northern Ireland customer support services also have significant numbers and nearly 700 in bid and of Thales employees, with project management, with over 700 and 500 workers the remainder being business respectively. We set out the support roles such as HR company’s main activities in and finance. each part of the UK overleaf.

Fig. 2: Thales’s UK direct employment by job type, 2017

3% 4% 6% nineerin

7% ustomer suort serices i roect manaement

10% inancerocurement 52% ealanaement alesmaretinstratey 18% ther

ource Thales

1 This total of 6,500 does not include contract staff, who operate as semi-permanent Thales employees. These workers are counted 14 as part of supply chain spending for the purposes of this report. The contribution of Thales to the UK economy

Fig. 3: Regional breakdown of Thales’s direct employment, A new Reading site was opened by place of work, 2017 in 2017 following a £23m capital investment, bringing together several business units and serving as Thales’s new UK headquarters, as well as housing Thales’s UK Digital Security business and Land & Air Key Thales sites Systems defence business.

mloyees South West Templecombe is the primary site in the South West, established in the 1960s and now housing part of Thales’s UK Maritime and Air Operations businesses. Over 750 workers are based at Templecombe, focusing on sonar technology; they manufacture specialist systems for naval fleets around the world, including the Royal Navy.

Thales designed the Queen Elizabeth-class aircraft carriers at the site in Bristol, as well as leading on delivering the power and propulsion elements and the communication systems. Although the manufacturing and commissioning of the vessels takes place in Scotland, much of the skilled workforce is sourced from the Bristol office. Bristol is also home to the main UK design development capabilities for Thales Alenia Space.

South East In addition, a new site in Thales employs nearly 2,400 location base for training and Plymouth was opened in employees in the South East, simulation. This site is home late 2018, following a capital located across two main sites. to several Thales capabilities investment of over £1 million. Crawley is the largest office including military training This waterfront facility at and production facility and has and simulation, electronic Turnchapel Wharf will provide delivered equipment to the warfare for land and maritime, access to trials areas for Ministry of Defence since 1964, Unmanned Air Systems and developing autonomous as well as acting as the main advance communications. maritime systems.

15 The contribution of Thales to the UK economy

Scotland updates on delays and journey and Protection business also Glasgow is the main site for planning information. In has a presence in Cheadle, Thales in Scotland, with over addition, Thales’s predictive supporting digital and physical 700 workers. The company’s maintenance service supports security at critical national Glasgow links date back to transport providers by infrastructure sites across the 1888, making this the oldest optimising maintenance UK. Thales has been active part of the company in the schedules and reducing in the Manchester area since UK, including acting as the downtime through a network 1949, with collaboration sole supplier of submarine of sensors attached to between Thales’s predecessor, periscopes to the Royal Navy infrastructure components. Ferranti, and Manchester since 1917. The establishment in University to develop one of 2013 of an Armoured Vehicle Northern Ireland the world’s first computers. Centre of Excellence at the The Thales Belfast site is a Glasgow site built on Thales’s centre for Thales’s advanced The Thales Doncaster site decades of experience in weapons systems for air delivers connectivity to the delivering complex military defence and surface attack, government public services vehicles. spanning precision short-range network, as well as supporting missiles and the integration internal Thales IT services. Thales employees also work of weapons on to land, sea on the Queen Elizabeth- and air platforms. In addition, East of England class aircraft carriers at the the Belfast site is home to Cambridge is home to Thales Rosyth Dockyard, and provide the company’s Space Electric e-Security, a specialist in the RAF with jet training at Propulsion Integration Centre, digital trust and cryptography RAF Lossiemouth. opened in 2016 by astronaut for both public and private Tim Peake following a capital sector clients. London investment of £6 million from London is the main base Thales Alenia Space. The With a history dating back to for workers in Thales’s UK company began working in the the First World War, the Thales transport business, with over Northern Irish capital in 1936 facility in Bury St. Edmunds 600 employees split between as Shorts & Harland, one of the employs 60 engineers and a site next to Tower Bridge and first companies in the world to project support personnel an office shared with Transport undertake volume production who work for the company’s for London in Stratford. The of an aircraft. Optronics business. Thales company’s current projects manufactures next-generation include working with London North of England threat warning sensors and Underground to modernise Thales’s Cheadle site intelligent countermeasure and increase capacity on the specialises in naval sonar and dispenser systems for both Circle, District, Hammersmith communications systems, fixed and rotary wing aircraft. & City and Metropolitan tube as well as hosting a large Bury is also home to Thales’s lines, and Thales signalling team working for the UK airborne reconnaissance technology has been in use on transportation business. systems designed for a wide the Docklands Light Railway Thales’s Tram Management range of applications including since 1994. System for Manchester defence, wide area surveillance Metrolink was introduced and infrastructure protection. Thales in London operates to boost tram passenger the “Darwin” real-time train numbers and take five information system for million car journeys off local the National Rail network, roads each year. The Thales providing customers with Secure Communications

16 The contribution of Thales to the UK economy

Wales Thales in the UK since 2002 has established a new National Aberporth, where Thales and is located in the largest Digital Exploitation Centre in employs 60 people, is a site area of segregated airspace Ebbw Vale. The £20 million specialising in unmanned for UAV operations in Europe. site will be used for digital and aerial vehicles (UAVs), cyber security training and including the Watchkeeper In 2019, working alongside research facilities, providing lab surveillance UAV programme. Blaenau Gwent Council, the space for multinationals, SMEs The facility has received £10 Welsh Assembly and the and microbusinesses to test million of investment from University of Cardiff, Thales and develop digital concepts.

BELFAST SPACE PROPULSION RESEARCH

Thales Belfast’s journey into space began Design, which completed the tooling for the 10 years ago, as a bid to offer its industrial propulsion system. Some 30 firms have now expertise to a new set of customers. set up ADS Northern Ireland’s Space Special Initially, this involved the production of Interest Group to grow the space sector in chemical propulsion thrusters for satellites in Northern Ireland–and Dr Leslie Orr, head of partnership with Aerojet RocketDyne, before ADS Northern Ireland, believes the potential evolving into a relationship with Thales benefits could be even wider, commenting: Alenia Space (TAS), which began in 2015. “Through Thales setting up a space division Thales Belfast is now the industrial hub for in Northern Ireland, we see the nucleus of the manufacture of TAS’ Xenon Propulsion (the) very early stages of a space industry.” System, which powers the Spacebus Neo satellite–designed to bring internet coverage Thales Belfast’s interest in space is also to isolated regions across the globe. TAS’s having an impact on Northern Ireland’s selection of the Belfast site was because education sector. Along with Bombardier, it of the availability of high-specification played a significant role in developing the engineering skills among the Thales Belfast curriculum for the space science qualification workforce and is the first time that work had for 14-to-16 year olds in Northern Ireland. The been moved from France, Thales’s home company also sponsors the Northern Ireland country, to the UK. element of the Youth Rocketry Challenge for 11-to-18 year olds to design, construct Since the initiation of the project in 2015, £6 and successfully launch a rocket. As Michael million has been invested at the Castlereagh Polson of Invest NI notes, the space sector site to develop and manufacture the helps to get schoolchildren involved in propulsion system–spread across R&D, science and engineering: “Space still excites capital investment, and upskilling existing people. It’s a way of getting young people and new employees. interested in STEM, and I think that’s one of the benefits [of] having one of our big As the first manufacturing prime contractor players located centrally in Belfast doing this moving into the space arena in Northern stuff.” As its space centre becomes more Ireland, Thales Belfast has acted as a catalyst established, Thales Belfast sees potential to promote the development of space for future collaborations with its local capability among local suppliers–most of universities, Queen’s University Belfast and them SMEs such as Lisburn-based Datum the University of Ulster.

17 The contribution of Thales to the UK economy

2.1.2 Skills development Thales offers UK graduate Thales contributes to the training programmes for both government’s Apprenticeship Thales invested £2.8 million in business and engineering, Levy and runs apprenticeship over 75,000 hours for training with 160 university graduates schemes in engineering and UK employees in 2017—an on the programme. The technology, as well as business average of roughly £430 per business scheme provides and finance. Engineering direct employee. As Fig. 4 direct entry into a business apprenticeships are offered at illustrates, around 30 percent function such as commercial, Advanced, Higher and Degree (£840,000) of this spending project management or sales, levels, with the potential focused on building capability while engineering graduates for Master’s qualifications. in research and development. start by rotating around the Typically, these last from two Another £460,000 (16 company for two years to to four years, while business percent) was for employees’ gain broad experience. The and finance apprenticeships personal development and Thales graduate engineering are offered at Higher level, to enhance leadership and programme is recognised and cover subjects such as management skills. by many UK technical HR, procurement, and project establishments, including the planning. Thales currently Thales runs dedicated Institution of Engineering and employs 279 apprentices and structured schemes Technology and the Institution in the UK, including 97 new for providing continuous of Mechanical Engineers, starters in 2018. development and upskilling for leading to chartered its employees throughout their engineer status. careers. As well as helping to ensure that the company has a good source of senior engineers and leaders in the years ahead, these schemes contribute to the overall skills base of the UK.

Fig. 4: Thales’s total UK training spend by category, 2017 3%

5% afety security 10% enironment 41% ersonal eeloment 11% ther

eaershi manaement

nineerin T 30% business systems

ource Thales

18 The contribution of Thales to the UK economy

DEVELOPING TALENT AND FOSTERING INNOVATION

Thales invests in technical and business Encouraging young people to study apprentices, giving them a strong engineering-related subjects in this way foundation to progress in the industry— helps to ensure the UK has a supply of the both inside and outside the company. skills likely to be needed in the advanced For example, Nadia Johnson is a software economies of the future. engineer apprentice at the Cheadle site, currently working on sonar processing for Nadia gives regular presentations at local Astute-class submarines. She has made schools about apprenticeships and women significant career progress while working in engineering, and has met with MPs from at Thales, developing a new automated test the Education, Skills and the Economy system and producing a series of videos sub-committee to discuss the impact of explaining how to use this technology. apprenticeship schemes. In recognition of her achievements, Nadia was nominated as As well as these technical accomplishments, a finalist for the 2016 Institute of Engineering Nadia has worked with her fellow 2015 and Technology Young Woman Engineer of cohort apprentice Jessica Wong to create the Year Awards. an online engineering outreach programme, delivered through YouTube videos and Thales has been accompanying packs. Having identified both a gap for this type of material online and the very“ supportive of our resources available from Thales for outreach opportunities, Jess and Nadia presented their work on the campaign, idea to the company. Thales subsequently understanding if we need provided funding for photographic equipment to get the project started, for travel, and for to work on it during office the trademarking process. time if we have meetings Nadia and Jessica said “Thales has been very with stakeholders. supportive of our work on the campaign, understanding if we need to work on it ” during office time if we have meetings with stakeholders. John Peachey, our head of software at the time, was immensely helpful, advising on operational decisions as they came up.”

Thales continues to connect the pair with opportunities to showcase the campaign— they have already been involved with BBC North West, the Institution of Engineering and Technology, and the Manchester Museum of Science and Industry.

19 The contribution of Thales to the UK economy

2.2 DIRECT CONTRIBUTION TO GDP

In 2017, Thales’s UK Fig. 5: Thales’s UK revenue from domestic sources and exports, operations earned £1.3 billion 2015 to 2017 in revenue, split between around £900 million in domestic sales and nearly omestic reenue orts £400 million in exports. Although the bulk of the sales revenue came from domestic customers, export demand has 392 driven growth over the past three years. Annual export 264 335 revenue rose by 21.9 percent on average between 2015 and 2017, compared to 5.9 percent for domestic sales. 908 809 800

ource Thales

FOCUS ON EXPORTS: STATE-OF-THE-ART SONAR

One product helping to drive Thales and UK the Department for International Trade— export growth is the state-of-the-art Sonar enabled a carefully coordinated campaign, 2087. This anti-submarine warfare (ASW) demonstrating the power of a collaborative sonar was demonstrated in March 2018 approach. This success will deliver a on HMS Sutherland, a Royal Navy Type 23 positive economic impact for Thales sites frigate, and Thales reports that it was one in Templecombe and Cheadle, supporting of the key differentiators which resulted jobs and innovation over the lifetime of the in Australia awarding the significant SEA programme. 5000 contract to the UK Type 26 platform. The Thales system will be installed in the As the UK and Australia continue to develop coming years on the Royal Australian Navy’s their strategic ASW partnership, Thales will new Hunter Class ASW frigate. further develop this capability with both the UK and Australia’s involvement. The aim is to This competition was hotly contested on a have a single strategy designed to meet both global stage. Close cooperation between partners’ future needs, and which is delivered industry and across government—involving by companies in both the UK and Australia. the Royal Navy, the Ministry of Defence, and

20 The contribution of Thales to the UK economy

We calculate that Thales’s UK The largest component of 2.3 DIRECT CONTRIBUTION activity directly contributed Thales’s direct contribution TO TAX over £500 million to UK GDP to UK GDP comes from in 2017. This is determined compensation of employees, In 2017, the operations of using the “income approach” with much of the rest coming Thales directly contributed method of GDP estimation, from the company’s EBITDA. £130 million to the which is the sum of: UK Exchequer. The majority Combining the direct impacts came from worker income the income generated • on GDP and employment, tax and National Insurance by the company for its as stated in this chapter, contributions, with the shareholders, measured in suggests that each of Thales’s remainder from business rates. terms of earnings before UK workers contributed an interest, tax, depreciation average of £77,400 to the UK and amortisation (EBITDA); economy in 2017. This means • the income paid as employee that, on average, Thales’s UK compensation, including labour productivity in 2017 gross wages, and employer was eight percent higher than National Insurance and the average for the entire UK pension contributions; and manufacturing sector, and roughly 40 percent higher the income paid to the • than for the UK economy as a UK government as taxes whole (see Fig. 6). Thales’s UK directly on production, productivity is also 27 percent in the form of Thales’s UK higher than for the overall UK business rates bill. defence industry, which was estimated at £61,000 for 2016.2

Fig. 6: Average estimated output per worker, selected sectors, 2017

T consultancy ata serices 84,800

Thales in the UK 77,400

erosace manufacturin 76,100

ll manufacturin 71,400

UK aerae 55,500

onstruction 51,800

ource for conomics

2 ADS UK Defence Outlook Report 2017 21 The contribution of Thales to the UK economy

3. MULTIPLIER IMPACTS

In this chapter, we analyse 3.1 SUPPLY CHAIN IMPACTS the “indirect” and “induced” impacts of Thales on the UK To produce final goods and 3.1.1 Procurement expenditures economy. To do this, we assess services for sale, Thales In 2017, Thales Group spent the full effect of spending purchases many inputs from around £700 million with UK with UK suppliers by Thales’s the UK market. Through suppliers. Nearly two-thirds UK and overseas operations, this procurement activity, of this (62 percent) came plus the impact of consumer Thales therefore “indirectly” from the current and capital spending by staff employed supports economic output and expenditures of Thales’s UK directly by Thales in the UK employment across the UK. operations. The UK purchases and within all the Group’s UK made by overseas Thales supply chains, during 2017. Our study considers the Group entities comprised the impact of both current and remaining 38 percent, largely capital expenditures by reflecting purchases made by Thales’s UK operations in Thales Alenia Space. Thales’s 2017. However, this report’s major UK capital expenditures ultimate objective is to in 2017 included the fit-out estimate the total impact of of newly-occupied sites in Thales on the UK economy— Reading, Cambridge, and which means we must also Plymouth, as well as investment assess the impact of supply in new IT equipment. chain spending in the UK in 2017 by Thales Group entities Thales estimates that just over based outside the UK. The 30 percent of its UK business’s full breakdown of this indirect supply chain purchases are (supply chain) spending is with small and medium sized illustrated in Fig. 7. enterprises (SMEs).

Fig. 7: Thales supply chain spending in the UK by source, 2017

Thales in the UK 38% current eeniture

Thales in the UK 56% caital eeniture

erseas Thales rou senin 7%

Totals may not sum ue to rounin ource Thales

22 The contribution of Thales to the UK economy

INVESTING IN THE SOUTH WEST

Thales’s connection with the Royal Navy (RN) development and evaluation cycles promoted stretches back more than a century. During by the facility is to enable international this time, Thales has supplied the periscope autonomous vehicle demonstration events and optronics mast to every RN submarine; such as Unmanned Warrior to take place built a strong partnership on naval electronic every month, instead of every few years. warfare; played a leading role in delivering the Queen Elizabeth-class carriers; and helped Thales points out that Plymouth is an ideal the UK maintain operational advantages in location for developing world-leading the underwater battlespace. maritime autonomous systems. It has a unique mix of academics, regional organisations The October 2018 opening of Thales’s like the South Coast Marine Cluster, major Maritime Autonomy Centre, an important prime contractors, and highly skilled SMEs, new research and development facility in including Thales’s partner M Subs. This local Plymouth, represents the next step in this company is installing a system of cameras, relationship. The new site at Turnchapel radars, and other sensors around Plymouth Wharf is a £1 million capital investment in the Sound, to provide situational awareness and local area and creates 20 new, highly-skilled communications with the unmanned vehicles jobs, with the aim of furthering the joint operating out of the city’s harbour. UK-France Maritime Mine Counter Measures (MMCM) venture. The MMCM programme Local councillor Tudor Evans said: “We were will allow the RN to fundamentally change chuffed to see one of the world’s leading its approach to mine warfare, following the marine and air autonomous research and First Sea Lord’s 2017 announcement of a manufacturing companies join us here, and challenge to industry to see an unmanned set up facilities on land that was formerly capability for mine countermeasures in UK a defence site. Our team worked behind waters within two years. the scenes to ensure the land at the former marine base at Turnchapel was maintained The Turnchapel Wharf facility’s location for marine and employment use. Their move provides trials teams access to both shallow here represents the direction we have been and deep water, enabling progressive taking as Britain’s Ocean City, playing to testing to be done from sheltered bays to and building on our economic strength and open sea. The ambition of the fast-fail, rapid experience in the marine sector.”

Halcyon autonomous surface vessel for mine countermeasures.

23 The contribution of Thales to the UK economy

3.1.2 Supply chain spending impact on the UK economy We estimate that, in 2017, To calculate the total employment impact is London, Thales Group’s total spending number of UK jobs that were with over 2,400 jobs supported in the UK supply chain supported by Thales Group’s in Thales Group’s supply chain. indirectly supported a GDP supply chain spending in The South East and East of contribution of around £620 2017, we combine the GDP England see the next most million. Of this, the largest impacts presented above significant effects, with 2,100 impact was in the professional with estimates of productivity and 1,700 jobs supported services sector, where Thales for each sector. We find that respectively (Fig. 9). supported £230 million of Thales Group supply chain economic activity, driven spending in the UK indirectly by significant procurement supported 11,200 jobs around spending on engineering the country in 2017. contractors and services and management consultancy We can then use information fees (see Fig. 8). The next- provided by Thales on the largest impact was nearly £170 geographical distribution of million in the manufacturing its supply chain spending to sector, due to purchases such estimate how these indirect as space equipment and jobs are spread around the optronics, as well as repair country. This suggests that the and maintenance. region with the largest indirect

Fig. 8: Contribution to UK GDP of Thales Group supply chain spending by sector, 2017

rofessional serices 230

anufacturin 170

nfo communications 70

ministratie serices 40

etail holesale 40

ther 30

Transort storae 20

inancial serices 20

onstruction 10

ource for conomics

24 The contribution of Thales to the UK economy

Fig. 9: Jobs supported around the UK by Thales Group supply chain spending in the UK, 2017

onon 2,400

outh ast 2,100

ast of nlan 1,700

outh est 1,300

orth est 900

cotlan 600

orshire umber 500

est ilans 500

ales 500

ast ilans 400

orth ast 200

orthern relan 200

ource for conomics

LEADING COLLABORATIONS WITH UK SMES

As well as the purchases it makes directly The BSCS Delivery Team was recognised from other UK companies, Thales is also in 2017 with a Minister for Defence proactive in leading consortia of companies Procurement Acquisition Award by Harriett to jointly deliver major client contracts, Baldwin MP. One of the system’s most particularly for the Ministry of Defence. innovative features is its central lab: state-of- This approach enables partner companies the-art microbiology safety cabinets house to contribute to large contracts, in turn the sample identification system, providing a supporting further supply chain activity safe analysis environment for operators. This among their suppliers. is a unique UK capability which is attracting significant interest from export customers One example is Thales’s Biological around the world. Surveillance and Collector System (BSCS), designed to protect UK armed forces The major involvement of the UK SME overseas from chemical, biological, community in developing this unique radiological and nuclear attacks by detecting capability has demonstrated the incoming harmful particles in the air. The effectiveness of this partnership approach system is manufactured by a Thales-led when delivering specialist technology to consortium comprising 30 organisations, of protect the UK armed forces. which 26 are UK-based and 18 are UK SMEs.

25 The contribution of Thales to the UK economy

We also calculate that Fig. 10: Breakdown of estimated UK tax contribution Thales Group’s supply chain supported by Thales Group supply chain spending, 2017 spending in the UK indirectly contributed an estimated 9 ncome ta £140 million in revenues for 9 the Treasury in 2017. Of this, mloyer s an estimated £106 million 48 came from employment- 16 mloyee s related taxes such as income tax and National Insurance ororation ta Contributions at Thales’s suppliers (see Fig. 10). The 25 Taes on roucts from remainder was generated by rocurement suppliers’ corporation tax, 33 taxes on production such as Taes on rouction business rates, and taxes on products such as VAT and import duties. ource for conomics

3.2 WORKER SPENDING IMPACTS

The wages paid to Thales’s Fig. 11. Economic impact of worker spending in the UK, 2017 UK direct employees, plus those paid to workers in all of Thales Group’s UK supply chains, support further 9,400 economic activity, in the form of consumer spending on a wide range of goods and services from UK businesses. 610 This is known as the “induced” impact of Thales Group on the economy. We calculate that in 2017, this induced impact supported a £610 million 180 contribution to UK GDP, 9,400 jobs, and £180 million in Ta mloyment tax revenues (Fig. 11). ource for conomics

26 The contribution of Thales to the UK economy

CASE STUDY: SCIENTIFIC MANAGEMENT INTERNATIONAL

Scientific Management International Thales staff with experience of the (SMI) specialises in cable harness systems programme worked with SMI, enabling it to for hostile environments, supplying the gain accreditation much more quickly and aerospace, marine, alternative energy efficiently than if the company had been (including tidal and wind turbines) and working on its own. SMI holds “bronze” transport sectors from bases in the UK, accreditation within the SC21 programme, France, Canada and Australia. which the company reports has helped raise its profile across the Thales business, Thales was SMI’s first customer when the and the aerospace and defence industry as business was founded around 25 years ago, a whole, creating the potential for a larger and over time the relationship has developed customer base. into a collaborative partnership, with the companies working together in the UK, France, and Australia. SMI products currently Thales has supported feed into several Thales products, including sonar systems in Royal Navy submarines– SMI“ in gaining accreditation SMI are the only company worldwide to have held a Ministry of Defence Capability to the Supply Chains for Certificate continuously for 23 years. the 21st Century Thales has supported SMI in gaining improvement programme accreditation to the “Supply Chains for the 21st Century” (SC21) improvement programme for the Aerospace and for the Aerospace and Defence Industry. This Defence Industry. scheme is based on the principle of continuous improvement, and provides a framework for ” businesses to identify and realise efficiencies SMI also states that it has benefitted across their organisations. Businesses from knowledge through its collaborative can submit themselves for assessment in relationship with Thales. For example, Thales’s categories such as delivery and quality, with knowledge of the Australian market played those scoring highly awarded bronze, silver, an important role in enabling SMI to develop or gold status, highlighting that company’s export sales to that part of the world. commitment to an efficient supply chain. Thales is the largest supporter of the SC21 programme, sponsoring 49 companies in 2017.

27 The contribution of Thales to the UK economy

4. THE TOTAL ECONOMIC IMPACT OF THALES IN THE UK This chapter brings together 4.1 NATIONAL-LEVEL IMPACTS all three core economic impacts of Thales on the UK, We calculate that, overall, We find that Thales supported enabling us to estimate the Thales’s activities in the UK a total GDP contribution of company’s overall contribution supported a total of 27,200 over £1.7 billion in 2017. The to jobs, GDP, and tax revenues jobs in 2017. Just over 40 company’s direct contribution in 2017—at both a national and percent of these jobs were stood at roughly 30 percent regional level. supported by Thales Group’s of the total (£510 million), with purchases from UK suppliers; indirect and induced effects a further 34 percent were contributing over £600 million supported by workers’ each (Fig. 13). spending; and the remainder was made up of Thales’s own UK employees (see Fig. 12).

Fig. 12: Breakdown of jobs supported by Thales’s activity in the UK, 2017 27,200 9,400 9,400

11,200 11,200

6,500 6,500 irect nirect nuce Total

ource Thales for conomics Totals may not sum ue to rounin

Fig. 13: Breakdown of Thales’s total impact on UK GDP, 2017 1,740 610 610

620 620

510 510 irect nirect nuce Total

ource Thales for conomics Totals may not sum ue to rounin

28 HMS Queen Elizabeth aircraft carrier, designed by Thales and built in partnership with the Aircraft Carrier Alliance. The contribution of Thales to the UK economy

Thales’s activities in the Fig. 14: Breakdown of total tax contribution supported by UK also supported a total Thales activity in the UK, 2017 tax contribution of over £450 million in 2017. For scale and context, this would be 450 sufficient to cover the median salaries of around 12,600 secondary school teachers.3 The largest share of this, 180 180 £180 million, was generated through the induced impact of spending by Thales workers and those in the Group’s 140 140 supply chains. The induced tax contribution is boosted by the fact that much consumer spending attracts more VAT 130 130 and other duties than the intermediate purchases made irect nirect nuce Total by supply chain companies and Thales itself. ource Thales for conomics Totals may not sum ue to rounin

4.2 REGIONAL IMPACTS

In Section 2.1, we presented jobs directly, and through the Furthermore, Thales supported information on the number induced channel as workers at a total of 2,000 or more jobs of people directly employed these sites spend their wages in in each of the South West, by Thales in each UK region. the local economy. East of England, and the North Using information on the West. company’s supply chain The largest indirect spending, plus the value of contribution to employment Along similar lines, we can also wages paid to Thales’s UK is recorded in London, where estimate how Thales’s total employees in each region, we Thales Group’s supply chain GDP contribution is distributed can estimate the indirect and purchases supported around across the UK. Once again, the induced effects accruing to 2,400 jobs. London has the largest contribution is found to each part of the UK. largest share of Thales’s have accrued within the South procurement spending, East, where Thales supported This confirms that through particularly in systems and a GDP contribution of more the direct, indirect and software engineering. When than £400 million in 2017 (see induced channels, Thales combined with those directly Fig. 16). supports economic activity in employed by Thales, and the every UK region. The largest London jobs supported by concentration of jobs is workers’ spending, Thales estimated to be in the South is found to have sustained East, where Thales’s large sites almost 4,000 jobs in the in Crawley and Reading support capital in 2017 (see Fig. 15).

3 Secondary education teaching professionals’ median annual salary was £35,763 in 2017, according to the ONS Annual Survey of 30 Hours and Earnings. The contribution of Thales to the UK economy

Fig. 15: Total jobs supported by Thales activity in the UK, 2017

outh ast 6,300

onon 3,900

outh est 3,600

ast of nlan 3,000

orth est 2,100

cotlan 1,900

orshire an The umber 1,300

est ilans 1,300

orthern relan 1,200

ast ilans 1,100

ales 1,100 irect nirect nuce

orth ast 500

ource for conomics

Fig. 16: Thales’s impact on GDP by UK country and region, 2017

outh ast 460

onon 320

outh est 210

ast of nlan 170

orth est 120

cotlan 120

orshire an The umber 70

est ilans 70

orthern relan 60

ast ilans 60

ales 50 irect nirect nuce

orth ast 30

ource for conomics

31 The contribution of Thales to the UK economy

5. THALES’S ECONOMIC IMPACT BY BUSINESS AREA In this chapter, we analyse the 5.1 DEFENCE BUSINESS effects of Thales’s civil and military businesses separately, Thales’s defence business On top of this direct activity, and provide estimates for each in the UK directly employed UK supply chain spending of their contributions to UK nearly 5,000 staff in 2017— associated with Thales Group’s GDP and employment in 2017. roughly three-quarters of defence business is found to Thales’s total direct UK have supported 4,600 jobs in This analysis is based partly employment that year. 2017. A further 5,300 jobs were on additional data specific to supported by the employee each section of the business, We calculate that the spending of Thales’s defence and partly on assumptions work carried out by these business and its supply chain. based on the best-available staff directly contributed knowledge. For instance, £380 million to UK GDP in In total, we calculate that we have information on the 2017. Again, this is roughly Thales’s defence activities number of employees and three-quarters of Thales’s supported nearly 15,000 jobs value of wages in each part of total contribution to UK GDP across the UK in 2017 (see the business, but we do not that year. Fig. 17). have a breakdown of profits. We therefore estimate the Fig. 17: Jobs supported by Thales’s defence activity in the UK, direct GDP contribution based 2017 on the respective proportion of total gross wage bill for Thales in the UK. Thales’s UK supply chain 14,800 spending data were provided with an identifier showing 5,300 5,300 whether each line item relates to the civil or military business. Less detail is available for spending in the UK by 4,600 4,600 overseas Thales Group entities: a high-level split was applied in that case, with the majority 4,900 4,900 relating to the civil business.

Thales’s UK capital expenditure was assumed to be split irect nirect nuce Total between the two businesses ource Thales for conomics Totals may not sum ue to rounin along the same lines as worker headcount, reflecting that much of the capital spending relates to fit-out costs for the premises which accommodate Thales staff.

32 Thales’s Biological Surveillance and Collector System (BSCS). The contribution of Thales to the UK economy

Taking into account the Fig. 18: GDP contributed by Thales defence activity in the UK, indirect supply chain effects 2017 and induced worker spending impacts, we calculate that Thales’s defence activities contributed just under £1 980 billion in GDP to the UK economy in 2017 (Fig. 18). 340 340

250 250

380 380

irect nirect nuce Total

ource Thales for conomics Totals may not sum ue to rounin

PROSPERITY THROUGH SOVEREIGNTY

Aside from the measured contributions Without the certainty that the defence to employment, exports, and GDP, Thales sector helps to provide, business confidence directly contributes to the land, air, and sea in the UK could not be as strong, reducing defence capabilities of the UK and its allies. the incentive to invest in infrastructure, For example, sonar technologies developed capital, and research, and limiting the long- by Thales provide a key input into the term growth of productivity and living submarines of the Royal Navy in the UK, standards. The sector cannot stand still, so as well as those of allies such as the Royal continued innovation is required to develop Australian Navy, and the French Navy. Thales modern deterrents—and the research that has also aided the UK’s Ministry of Defence Thales carries out contributes significantly (MoD) in addressing new threats, such towards this technological progress. as cyber attacks, providing the MoD with software, hardware, and expertise to combat As well as providing cutting-edge these threats. technologies, Thales business process innovations have contributed cost savings to Thales’s innovation and production therefore the MoD. For example, in 2013, Thales won contributes to a strong UK defence a 10-year, £600 million contract to provide capability. As discussed in a government in-service support for the Royal Navy’s review, Growing the Contribution of Defence major sensor systems. This new agreement to UK Prosperity,4 led by Phillip Dunne MP, allows for efficiencies by combining several the defence industry facilitates national previous contracts, and is expected to deliver security and international order. This in turn around £140 million of savings compared to promotes a stable and safe environment for existing arrangements. trade, investment, and tourism.

34 4 Philip Dunne MP, “Growing the Contribution of Defence to UK Prosperity: A report for the Secretary of State for Defence”, July 2018. The contribution of Thales to the UK economy

5.2 CIVIL BUSINESS

Thales’s civil business in the Fig. 19: Jobs supported by Thales’s civil activity in the UK, 2017 UK directly employed around 1,600 staff in 2017, roughly one-quarter of Thales’s direct 12,400 UK employment. We calculate that the work carried out by these staff directly contributed 4,100 4,100 £120 million to UK GDP in 2017. On top of this direct activity, we find that Thales Group’s civil business supported 6,700 6,700 6,700 UK jobs in its supply chains. A further 4,100 jobs were supported by the consumer spending of Thales and 1,600 1,600 supply chain employees. In total, Thales’s civil activities irect nirect nuce Total are therefore found to have ource Thales for conomics Totals may not sum ue to rounin supported 12,400 jobs in the UK in 2017 (see Fig. 19). Fig. 20: Breakdown of total GDP contributed by Thales’s civil activity in the UK, 2017 Taking into account the indirect supply chain effects and induced wage- related spending impacts, 760 in aggregate we also find that Thales’s civil business activities contributed £760 260 260 million to the UK economy in 2017 (Fig. 20). In Section 6.2, we will outline 370 370 some examples of how the goods and services provided by Thales’s civil business contribute to productivity 120 120 in other sectors of the UK economy. irect nirect nuce Total ource Thales for conomics Totals may not sum ue to rounin

35 The contribution of Thales to the UK economy

6. THE ‘CATALYTIC IMPACTS’ OF THALES ON THE UK ECONOMY Over and above the “core” 6.1 RESEARCH AND INNOVATION economic impacts of Thales outlined in previous chapters, Increasing productivity Nonetheless, the latest figures the company also generates is considered “the only show government funding for a range of broader economic sustainable way of improving defence R&D falling steadily by benefits which contribute living standards in the long 2.5 percent a year, in real terms, to the UK’s longer-term run”.5 The UK government between 2010 and 2016.8 There economic competitiveness and identifies innovation as one of is therefore an increasingly productivity. These benefits the five drivers that can boost important role for private are typically much harder productivity.6 funding to sustain innovation to measure than the core within the defence sector. economic impacts, since they In light of disappointing accrue gradually and may be recent levels of productivity In 2017, Thales carried out dispersed across different growth, the UK government £130 million of R&D activity. sectors of the economy. is particularly keen that R&D This includes self-funded Nonetheless, they form an investment increases in the research and performing R&D important component of years ahead. It has set a target funded by industry partners Thales’s overall economic for the UK public and private and customers. Initially, the contribution to the UK. sectors to invest a combined returns from these investments total of 2.4 percent of GDP would be expected to accrue In this chapter, we focus in domestic R&D by 2027— to Thales and its customers, on the two most important up from 1.7 percent in 2016. but as the knowledge created types of “catalytic impact”. The defence industry has a is shared more widely, the We start by outlining particularly important role in benefits spread into the Thales’s contribution to the helping the UK to achieve this wider economy. UK’s innovative capacity objective, given its long history through its research and of innovating new technologies development initiatives, and and the research expertise, how the resulting goods and networks, and infrastructure services enhance productivity which exist within the sector. among those who use them. Indeed, the government has We then consider how noted that “historically, there Thales contributes to the has been a strong correlation UK’s skills base through its between defence research engagement in a range of and technological advances initiatives to encourage the across society”.7 study of science, technology, engineering and maths (STEM) subjects, and to promote careers in these fields.

5 UK Office for National Statistics, Productivity Handbook, Chapter 3. 6 For example, as laid out in Budget 2005, Chapter 3 Meeting the Productivity Challenge. 36 7 Philip Dunne MP, “Growing the Contribution of Defence to UK Prosperity: A report for the Secretary of State for Defence”, July 2018. 8 ONS data series C3VM from Gross Expenditure on Research and Development release [Accessed January 2019]. The contribution of Thales to the UK economy

ACADEMIC LINKAGES

As well as carrying out R&D work in-house, University of Bristol. This partnership focuses Thales provides significant support and on solving issues associated with running funding to staff and students at universities autonomous vehicles alongside human- and other research institutions. operated equipment, including in the rail industry, and search-and-rescue missions. Thales helps to support projects funded by the Engineering and Physical Sciences In February 2019, Thales has entered into a Research Council (EPSRC), working alongside major five-year strategic partnership with the partners such as NASA on innovative studies University of Southampton, which will help covering topics ranging from autonomous to shape the future of the Royal Navy. The equipment to artificial intelligence and first research project will look at maritime cyber security. To date, Thales has provided autonomous vehicles – a particular area of £7.4 million of contributions in kind such interest for the Royal Navy – to develop the as providing students with access to data, technology, processes and procedures needed facilities, equipment and experts, as well to empower the next generation of unmanned as direct spending on new equipment. surface vessels, submarines and aircraft. In addition, Thales has sponsored 45 PhD students, including 15 at the Centre for Cranfield University is another university that Doctoral Training for Applied Photonics at has an important partnership with Thales. The Heriot Watt University since 2005. company has committed £8 million over 10 years to be invested in the university’s Digital One doctorate student sponsored by Thales Aviation Research & Technology Centre. is Hannah Rose, an Acoustics Engineer who is This project is seeking to improve digital also part of the Acoustics and Materials Team. technology in aviation, to address challenges Hannah is currently studying part-time for a such as greater air-traffic density and the PhD at the University of Glasgow researching integration of drones into civilian airspace. next generation piezoelectric materials and how to use them in future sonar devices. As an Furthermore, Thales has provided support to alumni of the graduate programme Hannah is the UK Rail Research and Innovation Network combining her role at Thales with her studies: (UKRRIN), which will see the development “I find my job fascinating. I’ve worked on many of three new rail Centres for Excellence at interesting projects and this opportunity allows universities around the country: for Digital me to establish work at an internationally Systems (led by the University of Birmingham), competitive level whilst retaining my current for Rolling Stock (led by the University of position. The work I’m carrying out in my PhD Huddersfield), and for Infrastructure (led by maintains links to universities and scientific the University of Southampton). Thales has communities and demonstrates Thales’s committed £1 million to this initiative, alongside commitment to collaboration.” government funding and contributions from other industry partners. UKRRIN aims to offer As well as contributing to EPSRC-funded industry access to purpose-built, world-leading projects and sponsoring doctoral students, facilities and skills, to support innovation in Thales has ongoing global strategic the rail sector and the development of new partnerships with two UK universities, such products and services. The ultimate aim is to as the Thales-Bristol Partnership on Hybrid build UK rail capacity and increase rail sector Autonomous Systems Engineering with the productivity and performance.

37 The contribution of Thales to the UK economy

6.2 SUPPORTING PRODUCTIVITY IN OTHER SECTORS

Thales produces goods and Circle, District, Metropolitan, Road services for a wide range of and Hammersmith and City Thales works with infrastructure clients outside the defence lines in a project known as company Mouchel Group to sector—enabling businesses in “Four Lines Modernisation”. create and operate the new many parts of the economy to The project introduces the National Transport Information operate more efficiently, with new signalling system in Service on behalf of Highways knock-on productivity gains stages and will be complete in England. This £57 million across the UK. In this section, 2023, ultimately increasing the service, based in Birmingham, we focus on two areas where number of trains from 28 to 32 is responsible for providing wider productivity benefits per hour in central London.10 historical, real-time, and are particularly pronounced: predictive traffic and incident transport, and cyber security. In Manchester, Thales (in information to businesses, the partnership with M-Pact) travelling public, and Highways 6.2.1 Transport system delivered the most recent England’s operations. enhancements Metrolink extension. This contract covered design, The system collects real-time Thales’s UK Transport business, construction, and management traffic information from over which has its main centres in responsibilities, as well as 10,000 fixed sites on the London and Manchester, has the implementation of a new motorway and road network, for many years worked closely Thales tram management from electronic loops in the with the country’s transport system. The project is expected road surface and automatic infrastructure providers, to to take five million car journeys number plate recognition increase the capacity and off local roads every year, and cameras at the roadside. This performance of UK transport to increase the number of information is used to inform networks. passenger trips on the network Highways England’s operations, each day from 55,000 to to keep the network flowing Rail 90,000.11 smoothly, and to provide In the capital, Thales has been an important supplier for many years to Transport for London. Thales’s signalling technology has been in service on the Docklands Light Railway since 1994, and in 2007 was upgraded to allow for an increase in passenger capacity of 50 percent.

Thales delivered signalling upgrades on the Jubilee and Northern lines between 2005 and 2012, increasing capacity by 33 percent and 20 percent respectively, and collectively supporting an extra 24,000 passengers per hour.9 Similar work is underway on the Thales tram management system on Manchester Metrolink.

9 https://www.thalesgroup.com/en/united-kingdom/news/keeping-london-safe-secure-and-move 10 https://www.thalesgroup.com/en/worldwide/transportation/press-release/modernisation-tube-closer-ever-after-successful-weekend 38 11 https://www.intelligenttransport.com/transport-news/12561/thales-celebrates-launch-of-new-greater-manchesters-metrolink-line- to-ashton-under-lyne-and-success-at-light-rail-awards/ The contribution of Thales to the UK economy

more accurate information on current conditions and expected journey times to the general public. Improved information on road conditions would be expected to enable road users to plan more effectively and save time.

Air Thales helped to pioneer advanced in-flight communication systems for aircraft, beginning with Racal Avionics developing a single channel system for use on small business aircraft. The success of this led to the MCS3000, for Health and Social Care company could be better the first system for providing estimates the impact on the protected against data threats. telephone communications NHS from 2017’s WannaCry Data and information about to passengers on commercial cyber attack to have been £92 the performance of the cars aircraft while in flight. million in lost output and IT and team are secured through costs.13 As the prevalence of Thales’s cybersecurity service, This project launched the such criminal activity continues to protect the intellectual Thales Avionics business in this to rise, it is increasingly property developed by Williams market. In the UK, it now has important for businesses to Martini. The initial partnership a turnover of more than £200 protect themselves. led to further collaboration with million, and boasts a major Williams Advanced Engineering, share of the global airborne To aid this, Thales Group has the company’s technology arm, connectivity market. The an established worldwide utilising Thales’s expertise in European Aviation Network digital security business. The areas as diverse as biological was launched in 2018, providing company employs 10,000 and chemical warfare 4G in-flight connectivity software developers, 5,000 detection systems. across the EU. This means critical IT and cybersecurity passengers can remain in engineers—including 120 To help prepare the country contact with colleagues and specialists in the UK—and against future threats, Thales access the internet while flying, has five dedicated centres in in January 2019 established enabling them to increase their Europe, Canada, and Hong a new centre for excellence productivity while airborne. Kong. Thales contributes for digital and cybersecurity to the protection of around in Wales; the National Digital 80 percent of all banking Exploitation Centre is based 6.2.2 Cyber security transactions globally, and at Ebbw Vale. Thales will work UK businesses face an supports the data security of with the Welsh Government, increasing threat from online 19 of the 20 largest banks. Blaenau Gwent Council, and attacks, with the number of the University of South Wales incidents rising according to In the UK, Thales worked with to develop the centre, which the National Cyber Security Williams Martini Racing in 2016 will act as a catalyst for digital Centre.12 Cyber attacks damage to identify how this Formula and cyber educational training productivity: the Department One team and engineering and research facilities.

12 https://www.ncsc.gov.uk/news/cyber-summit-launches-report-showing-growing-threat-uk-businesses 13 https://www.gov.uk/government/publications/securing-cyber-resilience-in-health-and-care-october-2018-update 39 The contribution of Thales to the UK economy

6.3 WIDER SKILLS INITIATIVES

In Section 2.1, we outlined the The company has nominated Universities main ways in which Thales 80 STEM Ambassadors, who To help drive innovation at develops the skills of its work with STEMNET, the UK’s university level, Thales created employees. The company’s largest provider of education Project Arduino. This is a contribution to the UK’s stock of and careers support in science, competition that challenges “human capital” is not, however, technology, engineering students to use Arduino, confined to Thales employees. and mathematics. STEM an open-source electronics Thales also participates in and Ambassadors volunteer their prototyping platform, to supports several initiatives to time and energy to encourage build new and innovative promote the development of young people to progress products or services that fit technology and engineering further in these subjects at into one of Thales’s five key skills at an early age, and to school, through careers talks, markets of Aerospace, Space, encourage under-represented mentoring, and classroom Transportation, Defence, and groups to enter the field. activities. For example, one Security. The competition Thales Ambassador, an started in 2014 in the UK, Schools employee at the Bury St expanding to the United States The government has identified Edmonds site, has worked in 2015 and internationally the “need to tackle shortages with a local primary school from 2016. To kick off each of STEM skills, as these skills to create four interactive year’s competition, Thales are important for a range of sessions, teaching children hosts a workshop in various industries, from manufacturing aged five to 11 about the universities, after which the to the arts”.14 Thales is working students are given two weeks universe. In one session, the to help address this shortage, to build something using the children look at aerial pictures partnering with schools to Arduino micro-controller they of the school, gradually encourage pupils to take receive at the workshop. zooming out until space is an interest in scientific and reached; in others, they act mathematical subjects. The students are partnered out solar system dynamics. with Thales engineers who As part of the Teach First train them on how to work Thales also offers school scheme, Thales has appointed with Arduino, providing an children the opportunity to see employee mentor-coaches opportunity for students to support teachers of STEM what working as an engineer to network with Thales’s subjects in participating is really like through its work experts, benefit from inner-city schools across the experience programme. The knowledge transfers, and learn UK. In addition, 10 teachers placement comprises a week teamworking and technical take up summer placements for 12 students from local skills. Previous winners included at Thales’s Crawley and schools to experience the 2016/17’s Team DroneShell from Reading sites each year to gain different business departments the University of Embry-Riddle first-hand experience of how and see how they come in Florida, who developed a STEM skills are applied within together to deliver results. solar-powered drone landing the industries in which the The company’s lead for the platform, designed to service company operates. Thales also programme at the Cheadle site autonomous delivery and gains from this programme, reports that it “shows children reconnaissance drones in as the participating teachers how there is more to STEM remote locations. Their are asked to help develop than engineering alone, and innovation has potential teaching materials which can perhaps shows the industry in applications in the fields of be used across Thales’s various a different light”. smart cities and intelligence, outreach initiatives. surveillance and reconnaissance.

14 UK Government Industrial Strategy, 2017, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/ 40 attachment_data/file/664563/industrial-strategy-white-paper-web-ready-version.pdf The contribution of Thales to the UK economy

FUTURE MARTIANS

As part of an outreach programme in the UK called “Future Martians”, Thales Alenia We need to encourage Space runs the MARSBalloon programme, a and“ nurture an interest hands-on project aimed at school students, designed to encourage them and their in Science, Technology, teachers to learn more about space. Engineering and Pupils create experiments that are housed in Mathematics – the so-called a protective shell and carried by a weather balloon to an altitude of 30km, where the STEM subjects. They are temperature, pressure and radiation of the atmosphere are very similar to the surface of essential for our future, and Mars. Thales Alenia Space’s team launch the with projects like this, we balloon, monitor its progress, and retrieve it once it has landed, returning the experiments can do that and have some to the schools so that pupils can monitor fun at the same time. their results. ” The project is open to any UK primary The Future Martians programme also or secondary school and gives students gives final-year undergraduate students practical experience of designing things to the opportunity to design, construct, and go into space. This demonstrates to students deploy a robotic rover on terrain similar to how fun and diverse careers in engineering that found on the surface of the Moon. This and science can be, but also engages enables them to learn about real-world space them with rigorous scientific thinking and engineering skills, and encourages them to processes—the skills needed to compete in a consider careers in the space industry. As high-tech world. a result of the competition, a number of students have gained internships with Thales MARSBalloon team member and Thales Alenia Space. Space Systems Engineer Chris Hanbury- Williams said: “We need to encourage and nurture an interest in Science, Technology, Engineering and Mathematics – the so-called STEM subjects. They are essential for our future, and with projects like this, we can do that and have some fun at the same time.”

41 The contribution of Thales to the UK economy

THE PRINCE’S TRUST and has recently completed a course on signalling. Ashlyn says: “My journey so far For young adults, Thales has worked with at Thales has been amazing, and I’ve got the Prince’s Trust to deliver the “Get into to work on different projects and with Engineering” programme, to encourage different customers. In the future I can look unemployed but work-ready 16-to-25 year to go national and international with Thales, olds to become engineers. This programme including Manchester, Canada or South Africa.” is based on a voluntary collaboration of UK employers, and aims to tackle youth unemployment through the provision of high-quality vocational training and work experience placements. Thales’s Glasgow site played host to nine manufacturing candidates after a successful Taster Day held at the Prince’s Trust headquarters. The success of the venture is demonstrated by Thales offering six of these nine candidates either permanent or fixed-term roles within the Glasgow site.

One example of a current employee who joined through the Prince’s Trust scheme is Ashlyn, who joined after realising, six months My journey so far at into her aviation degree at Loughborough University, that she wanted a more hands- Thales“ has been amazing, on approach to learning. Ashlyn joined Thales Ground Transportation Systems as and I’ve got to work on an apprentice in 2018, has worked with the different projects and with Connect telecoms team that provides radio communications in the London Underground, different customers.”

Supporting family life through flexible working Women are particularly top of maternity and paternity retirement. For example, Alan under-represented in the packages, Thales’s “smart Rae worked as an external UK’s engineering sector. working” policy allows those stakeholder manager at The country has one of the with caring responsibilities to Thales Glasgow, having joined lowest proportions of female flexibly work from home or the company in 1981. After engineering professionals in at different times of day as reducing his working week to Europe,15 at just 11 percent required, and to compress a four days in the months before in 2017.16 five-day week into four days. his retirement, Alan decided that he would like to remain at To try to address this Thales also recognises the Thales for two or three days a imbalance, Thales has a number importance of the knowledge week. This kind of arrangement of policies and frameworks in built up over peoples’ careers ensures that valuable technical place that allow all employees in the mentoring of those in and organisational skills are to balance their home lives their early careers, and offers retained within the Thales (and and career responsibilities. On flexibility to those reaching UK) workforce for longer.

15 The Women’s Engineering Society, https://www.wes.org.uk/content/wesstatistics 42 16 Women in Science and Engineering (WISE), https://www.wisecampaign.org.uk/statistics/women-in-stem-workforce-2017/

The contribution of Thales to the UK economy

7. CONCLUSION

Thales makes a significant Thales’s products and contribution to the UK services support productivity economy through: across many other parts of the economy—by making its domestic operations; • transport networks more • the UK procurement efficient, and protecting a expenditure of both Thales range of organisations from Group’s UK and overseas cyber attacks, for example. businesses; and Furthermore, Thales’s contribution to the UK’s the wage-related spending • defence capabilities helps to of the company’s maintain the stable and secure employees, and of workers business conditions needed in its supply chain. for economic prosperity. Overall, Thales contributed an estimated £1.7 billion to UK GDP in 2017 and supported 27,200 jobs, as well as generating over £450 million of tax revenue. Of this, Thales directly supported 6,500 UK jobs and over £500 million of economic activity, with the remainder coming from supply chain and worker spending effects.

Thales also contributes to the prosperity of the UK through several other channels. This includes driving innovation through the £130 million of research and development work that Thales performed in 2017, and the strategic partnerships maintained with UK universities and research institutions. Thales’s sponsorship of PhD candidates, apprentice and graduate schemes, and schools outreach programmes helps to ensure the future supply of workers with science, technology, engineering and maths skills.

44 The contribution of Thales to the UK economy

45 The contribution of Thales to the UK economy

APPENDIX

ECONOMIC IMPACT MODELLING

Economic impact modelling Fig. 21: Calculating the total economic impact through the is a standard tool used three channels to quantify the economic contribution of an investment Direct Induced Total or a company. Impact impact impact impact analysis traces the economic Indirect Consumer contribution of a company impact spending out through three separate of employees’ Value-added channels: Thales Group’s wages: purchases of • Food and —refers to Thales’s Employment • Direct impact inputs from beverages activity conducted directly own UK UK suppliers • Recreation by Thales in the UK. activity Taxes • Household • Indirect impact—consists of Suppliers’ own goods supply chains activity that is supported as • Clothing a result of the procurement • Etc. of goods and services in the UK by Thales Group’s UK and overseas businesses, plus the further purchases Indirect and induced impacts capital good consumption of those UK suppliers, and impact, attributable to Thales Indirect and induced impacts so on. (this is known as the Leontief are estimated using an “input- manipulation). This impact Induced impact—reflects output” model. This type of • model quantifies all rounds activity supported by the model sets out the goods and of subsequent purchases spending of wage income services that UK industries along the supply chain. These by both “direct” and purchase from one another in transactions are translated into “indirect” (supply chain) order to produce their output GDP contributions, using UK- employees. (as well as their purchases specific ratios of gross value from abroad). These tables added (GVA) to gross output, Direct impacts also provide detail on the sourced from the UK input- spending patterns of UK Thales’s direct impact is output table. households, and indicate calculated using the so-called whether this demand is met income approach. This means Once we have obtained results by UK production, or imported that we sum the components for output and GVA, we products. In essence, the of income to obtain an estimate employment using tables show who buys what estimate of the company’s productivity estimates. from whom. Fig. 22 (overleaf) GVA contribution to GDP. demonstrates a stylised input- For Thales, the relevant output model. We used the United Kingdom income components are its input-output table for 2014, compensation of employees, Using details of these linkages produced by the ONS, for EBITDA, and payments of from the input-output tables, this analysis. This was the business rates. Value added Oxford Economics constructed most recent input-output per employee, a measure of a bespoke UK impact model table for the UK at the time of productivity, is derived by which traces the intermediate modelling. dividing direct value added by consumption impact, and the number of employees.

46 The contribution of Thales to the UK economy

Industry breakdowns Regional breakdowns The UK 2014 input-output Thales’s direct contribution table is divided into 105 to GDP is calculated based different industry sectors, and on the split of gross wages the table shows how each by region and country of sector interacts with the 104 workplace, which we would other sectors. For purposes expect to correlate very of illustration, to show value closely to total employee added and employment compensation. Thales’s first- supported across different round supply chain spending sectors, we have aggregated was provided with a regional these 105 different sectors into breakdown: this is fed into the broad industry categories. input-output model, which then estimates where latter- round indirect and induced impacts occur.

Fig. 22: A stylised input-output model

Industry Industry Industry Consumer Other final Total 1 2 3 spending demand outputs

Industry 1 C1,1 C2,1 C3,1 C4,1 C5,6,7,1 C8,1

Industry 2 C1,2

Industry 3 C1,3

Employment C1,4

Incomes

Profits C1,5

Leakages C1,6,7

Total inputs C1,8

47 The contribution of Thales to the UK economy

BESPOKE ASSUMPTIONS FOR THIS STUDY

The previous section sets out • Allocating procurement • Thales employees whose Oxford Economics’ general categories to national usual place of work is in the approach to economic accounts categories: We Channel Islands, outside of impact modelling. Bespoke were provided with Thales the UK or unidentified were adjustments to these procurement data from excluded from the analysis. techniques have been made to internal accounting systems. allow for Thales specific data. This provided details of the These include the following: sums spent with all external companies during 2017, Treatment of contract • based on the categories staff:Thales employed over used within Thales’s system. 1,000 UK contract workers The data were split by in 2017 through an agency. region of supplier. Oxford A margin is retained by Economics, with advice the agency from the fees from Thales, matched these that Thales pays, with data on a “best fit” basis the rest being passed on with the categories used directly to contractors as within the ONS input-output wages. We ran the margin tables, to enable them to be amount through the input- incorporated into our models. output model as Thales supply chain spending in • Supply chain spending with the employment services suppliers in the Isle of Man category. The remainder was and other non-UK locations included in the indirect GDP was excluded. Where the contribution as contractor region of a supplier could not wages, but was not run be identified, we assumed through the input-output that the regional distribution model under the assumption of spending was in line with that any supply chain the “identifiable” spend. spending associated with Based on the advice of these individuals (e.g. the • Thales, where the type of machinery they use) will be purchase was unidentifiable, reflected in Thales’s own purchases were allocated supply chain purchasing. The to the “weapons and impact is split across regions ammunition” category based on the distribution for Northern Ireland and of the contractors and to “architectural and attributed to the professional engineering services; services standard industrial technical testing and classification based on analysis services” for the the job descriptions of rest of the UK. the contractors.

48 The integration of an Electric Propulsion module built at Thales Belfast. The contribution of Thales to the UK economy

OXFORD ECONOMICS

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