Lisbon, 26th October 2017

British and Portuguese Defence Industries Partnering Workshop

5Brexit, defence

main trends and Portuguese innovation

8Why Portugal,

European funds opportunity

and EY team

3Portuguese

factsheet and defence sector

values

2

British and Portuguese Defence Industries Partnering WorkshopPortugal factsheet

3

42 years of democracy

30 years of UE membership

9 centuries of history

38° 42‘ N9° 10‘ O

Time zoneUTC/GMT

Portuguese

PT €Republic of

Portugal92 km2 10 million people Capital

LisbonCurrency

EuroMinimum wage

€557

1.4 6.0 6.8 0.2 2.1 9.4Annual Growth Rate of GDP in

2016

Annual Growth Rate of Exports

in 2016

Annual Growth Rate of Gross Fixed Capital Formation in

2016

Annual Growth Rate of Public

Consumption in 2016

Annual Growth Rate of Private Consumption in

2016

Unemployment rate in 2016

1.5%Defence spending on GDP

Source: Instituto Nacional de Estatística (INE); European Defence Agency (EDA); Banco de Portugal

British and Portuguese Defence Industries Partnering WorkshopDefence Industry in Portugal

4

+4,3% -93,4% +120,5% -55,1% +1,2%Staff expense Infrastructure

and construction expense

Investment O&M Spending per capita

National spending on Defence

2.53 2.51 2.42 2.542.77 2.78 2.67

2.372.59 2.50 2.53

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Billi

ons

of e

uros

€2.5bn Total Defence expenditure in 2015 breakdown► € 2.0b Personnel► € 343m Equipment procurement► € 157m Operations and maintenance► € 2.5m Infrastructure ► € 2.4m R&D

1.5%GDP allocated to Defence expenditure in 2015

>30kNumber of military personnel

€ 353m Imports in 2014 - Mainly communication

€ 157mExports in 2014 - Mainly components

Portuguese defence in numbers

Source:: European Defence Agency ‘EDA

British and Portuguese Defence Industries Partnering WorkshopBrexit

5

Routes for leaving the EU: Triggered withdrawal under Article 50 of Treaty of Lisbon

► 29 March 2017;► Sets the start of the leaving process – initiates

negotiations for the terms of exit;► EU treaties cease to apply in the UK into force of a

withdrawal agreement.

Although the UK is leaving the EU, it is still integrated in NATO, and has historical relations with Portugal in the Defence Industry

Major macro environment areas of impactEconomy & Tax environment

► Slower growth forecast► Access to the Single Market: impact on trade► Changes at several levels (Customs and excise, VAT,

withholding tax, treaties, labour mobility, state Aid, EU tax initiative)

Politics► Two new departments created, dedicated to delivering

BREXIT► Northern Ireland has the right to leave the United

Kingdom and join the European Union as part of the Republic after BREXIT

British and Portuguese Defence Industries Partnering WorkshopDefence Industry – Main Global Trends

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Defence Clusters

Aeronautics

Aerospatiale

Naval

Security

ITC

Military force (human capital) is losing strength Hardware cost is rising faster than inflation

► The British army plans to reduce its military personnel to 82 thousand (20% cut) until 2020;

► The US army has decreased its numbers for the first time since the 80s.

► The annual inflation of military weapons, munitions and defence equipment usually ranges between 12% and 15%;

► In the US, naval construction inflation surpassed GDP prices’ inflation during the majority of the last three decades.

Local defence production is increasing Defence agencies search for an effective response to cyberattacks

► India has reformed its acquisition policies and procedures and increased its FDI limit from 24% to 49%;

► The United Arabic Emirates want to become a key player in weapon exports and craft maintenance in the next 5 to 10 years.

► British military systems register more than a million suspicious incidents each 24 hours;

► USA Defence Department has plans to build a cyber mission force (133 teams) until 2018 to avoid cyberattacks.

Modernisation of defence equipment is becoming a focus area

Rising of global tensions will increase the demand for defence

► Between 2012 and 2016, around two thirds of the Russian defence budget was dedicated to buy new military equipment;

► The global aerospace and defence industry is likely to experience strong growth in 2017;

► Between 2014-22, 50% of the Indian defence budget (US$620bn) will be dedicated to capital expenses.

► The UK plans to deepen defence cooperation with the Gulf region and the US;

► Rising global tensions will lead to increasing demand for defence and military products in the Middle East, Russia and Asia (China, Japan, India and South Korea);

► Increased focus on strengthening the US military (demand for defence equipment will rise significantly).

British and Portuguese Defence Industries Partnering WorkshopDefence Industry trends in Portugal

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Innovation and main trends► Portugal’s national strategy has taken into account these

trends and sets as its main goal ‘to value knowledge, technology and innovation’;

► The increasing awareness of cyber attack threats;► The modernisation of defence forces.

Legal framework

► Companies or entities that wish to entry the industry of military goods and technology must be previously authorised and must comply with certain requirements;

► After being granted presence in the industry, companies that want to export/import, must comply with the specifications and request authorisation to import and export Defence-related products.

Defence Technological and Industrial Base (“DTIB”)Network of companies and entities with ‘the ability to intervene in one or more stages of the Defence system and equipment life cycle.

Joint effort of: Ministry of National Defence; Ministry of Economy; Armaments and Infrastructures Directorate; Offsets Permanent Commission; AICEP and other relevant entities

The national DTIB focus areas:1. Research and development.2. Production.3. Modernisation.4. Maintenance, repair and modification, demilitarisation and disposal.

The network includes 350 companies organised in clusters :► Aeronautics;► Textiles;► Automation;► Robotics;► Construction;► Engineering;► Software development;► others.

Portuguese defence industry attractiveness

Is integrated with:

Aeronautics

British and Portuguese Defence Industries Partnering WorkshopWhy to invest in Portugal?

8

Portugal’s attractiveness

15th

In overall infrastructure out of 190 countries

25th

In ease of doing business out of 190 countries

25%Students with

degrees in science, engineering and

technology

60%Speaks at least one

foreign language

2Financial Times

Top 25 of the best in europe

24th

In air transport infrastructure out of 190 countries

37th

In e-government development index

out of 190countries

64th

In overallperformance out of 138 countries

87%Total of production

exports in the defence industry

Space

Main players► OGMA► Critical software► Tekever► Indra Sistemas Portugal, S.A.► EID – Empresa de investigação e

desenvolvimento► Arsenal do Alfeite► Edisoft► Deimos Engenharia (Group Elecnor)► Sodarca► Eurofiresafe

90%Percentage of SME’s looking for business opportunities to

escalate their businesses

Source: Global Competitiveness Report 2016-2017, World Economic Forum, 2016; Doing Business 2017, World Bank, 2017; IAPMEI

British and Portuguese Defence Industries Partnering WorkshopDefence Industry in Portugal – European opportunity

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Budget expectation Until 2020 After 2020 Eligibility

► Only collaborative projects are eligible with at least 3 participants from several member states;

► Proportion of budget earmarked for projects with cross-border participation of SME’s;

► EU will only co-fund development of prototypes if one of the member states commits to buy the final product;

► Projects conceived in the framework if PESCO will benefit from a higher EU co-financing rate (10% bonus).

Research100% EU funding

€90 million total €500 million/year

DevelopmentAt least 80% €2 billion total €4 billion/year

OthersUp to 20%

€500 million total €1 billion/year

Research

EU funding

Development

Pooling of national contributors

EU co-funding

Acquisition

Practical support by European Commission

HOW WILL THE FUND WORK?

HOW WILL IT BE FINANCED?

British and Portuguese Defence Industries Partnering WorkshopEY team around the world

10

Canada Aerospace Defense Security and Resilience Lead

Ottawa, Canada

Derek Dobson

US Defense & National Security Lead

McLean, US

Kevin Nagel

Australian Defense Leader

Canberra, Australia

Rowan Moffitt

EMEIA Defense Leader

Oslo, Norway

Anne Grette

Germany Defense & National Security

Munich, Germany

Cornelia Gottbehuet

France Defense & National Security

Paris

Valerie Laine

UK Defense & National Security Lead

London, UK

Björn Conway

MENA Defense & Security Sector Lead

Abu Dhabi, UAE

Krishnakant Duggirala

ASEAN Defense& National Security

Singapore

Sam Wong

11

Thank you!