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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Leonardo Third Quarter and 9 Months 2019 Results Presentation. [Operator Instructions]. At this time, I would like to turn the conference over to Ms. Valeria Ricciotti, Head of Investor Relations and Credit Rating Agencies of Leonardo. Please go ahead, madam.
Good evening, ladies and gentlemen, and welcome to our Q3 and 9 months results conference call. I'm Valeria Ricciotti, Head of Investor Relations and Credit Rating Agencies. For the presentation today, I'm very pleased to introduce you our CEO, Alessandro Profumo. He will be talking to you about our recent progress across Leonardo and placing that in the context of the execution of our Industrial Plan.
Then today, our CFO, Alessandra Genco, will take you through the detailed financial results for the first 9 months and outlook for the full year. At the end of the presentation, we will welcome your questions.
I will now hand over to our CEO, Alessandro Profumo.
Many thanks, Valeria, and good evening, everyone, and thank you for joining our third quarter and 9 months results call. The key messages from our results are that we had another quarter of progress of delivering on our Industrial Plan. Overall, we are on track after the first 9 months of this year.
We have a good order intake across the group at EUR 8.6 billion. Good revenue growth across the group at EUR 9.1 billion, up 11% year-on-year and profitability at 7.5%, in line with our plan. Last but not least, that the free operating cash flow is on track, reflecting the user seasonality.
So we are confirming our 2019 guidance with all main businesses: Helicopters, Defense Electronics & Security; and Aeronautics, performing in line in and in some cases, ahead of our expectations, while ATR and Space manufacturing joint ventures are experiencing lower contribution.
And you'll also see that we are announcing today a tender offer to repurchase our U.S. listed notes and start reducing interest expenses to be paid over the remaining life of the 2039 and 2040 bonds, and this will be NPV materially positive. Alessandra will cover this later, together with the financial performance of the business.
Let me now just mention some key things that we have shown during our recent Investor Day in October to be straight to you -- straight our progress how we are delivering to our businesses across the group and where we are in our journey. As you know, we are fully focused on executing our Industrial Plan aimed at long-term sustainable growth.
So Helicopters, we are on track to meet our targets. We are successfully achieving sustainable growth. We are a strong well-diversified business. Our successes and our capabilities in military and customer support are offsetting the weakness of the civil market.
And importantly, the plan, restore profitability, is well on track. We are a great product family, and we are investing in new products and new technologies, important for building an attractive long-term business.
Electronics is growing from strength to strength. We have key goals to raise performance. We are scaling in the right direction. This is a high-quality business with a positive momentum. We are continuing to leverage best practice in Electronics to challenge and address the underperforming businesses.
To give you one example, 1 year ago, we had a problem under-delivering for our customer [ vichay ]. This is fixed. And 1 year later, we are delivering earlier than expected. And thanks to that, we are now in talks about future partnership with this client. So a successful example of how a new structure, discipline and focus in execution can lead to a significant turnaround.
Across the business, we are also building a long-term sustainable future with new programs. Tempest plays well to our unique strengths. We have started to work on the project and this give us a huge opportunity in the long run.
Leonardo DRS is growing strongly in the attractive U.S. market, with excellent positioning in growth areas that are key priorities for the U.S. DoD. We are seeing very strong top line increase -- increases and a really good soft backlog and we expect to increase profitability, thanks to the conversion of existing programs from lower-margin developing type to higher-margin production products.
And in Aeronautics, our aircraft is in very good shape, it's building success through important program, such as EFA, the Euro 5 program. And those achieving commercial success on programs where we have invested, like the M-346 FA. In addition, Aerostructures' performance is improving in line with expectations.
And then, ATR and Space manufacturing joint ventures, both for different reasons, have shown a weaker performance because of short-term headwinds. Alessandra will cover this later, but I want to emphasize that this key message have a good long-term prospect based on good market position.
So in summary, we can see our plans being well delivered through the businesses across the group. And we can also see long-term growth drivers. We are on track in executing our Industrial Plan.
We remain focused on execution, maintaining continued commercial momentum, leading to additional top line growth, continuing to improve profitability also through strict cost control, with a strong commitment to a solid financial strategy, reducing gross debt and interest expenses and investing in new products and technologies to compete successfully in the market to build our long-term sustainable future.
And on that note, now let me hand you over to Alessandra to take you through the details of the first 9 months results.
Thank you, Alessandro, and good evening, everyone. We have had another quarter of progress in executing and delivering our plan. Overall, we have seen a good 9 months, and we are on track. We are pleased with the performance and progress in key areas of the group, and we are seeing positive good momentum across the main businesses, especially in order intake and top line.
We are growing internationally, and we can see long-term growth drivers across the group. So in summary, good results in Q3 and in the first 9 months.
Strong order intake across the group of EUR 8.6 billion. Considering that last year, the figure included the EUR 3 billion contribution of the NH90 Qatar contract, this year, we had an especially strong performance in the U.S., with our company, Leonardo DRS, and also in Italy. We can see really positive momentum in export markets.
Good top line revenue growth, EUR 9.1 billion, up 11% thanks to Defense Electronics & Security but also Aeronautics. EBITA at EUR 686 million and group return on sales of 7.5%, showing good progress in main businesses, more than offsetting the weakness in ATR and Space manufacturing joint ventures.
Net income of EUR 465 million benefiting from improved operating results, lower restructuring cost and lower PPA. Cash flow negative at the 9-month stage, reflecting the usual seasonality and the cash profile of some contracts, namely EFA Kuwait and NH90 Qatar.
So overall, we are on track at the 9-month stage, and we are confirming full-year guidance in the ranges previously set out, notwithstanding some short-term challenges in ATR and Space manufacturing, which we flagged earlier in the year. As ever, Q4 is the biggest contributor to the full year.
Now let's look in more detail how the progress in the business has driven the group performance in the first 9 months. Starting with order intake. We have seen strong order intake across the group, with EUR 8.6 billion of total new orders, and a strong commercial performance, reflecting successes across the group in many key markets. We are very pleased with this.
As mentioned, remember that last year's comparable figure included the significant EUR 3 billion NH90 Qatar helicopter contract. We are seeing some really positive momentum across the group in export markets, in the U.S, and in other domestic markets like Italy.
Looking at the businesses. Helicopters achieved EUR 2.2 billion in new orders in the first 9 months, adding to a significant backlog of EUR 11.5 billion. We have been achieving good success in the military market, for example, the important NH90 order for 23 helicopters for the Spanish Ministry of Defense and the AW101 for Poland, all this, together with good order intake for customer support and training activity.
In Defense Electronics, we also saw a strong commercial performance with order intake of EUR 4.6 billion, up 30% compared to the same period of 2018. In the electronics division, we saw good export orders for naval combat systems, as well as for airborne systems in the U.K., and in the automation business for baggage handling systems.
In the U.S, Leonardo DRS continued its strong performance. Here, we are very well-positioned on a number of programs for the U.S. DoD which underpin future revenue growth. Leonardo DRS has been winning good quality contracts, which we have highlighted to you before, like for example, the first contract for the supply to the U.S. Army of active protection systems for tanks and the supply of computers and portable electronic devices, again, to the U.S. Army.
We are investing much time and effort in developmental contracts that position us well for future attractive production phases. On top of all of this, and not shown in the number, remember that Leonardo DRS enjoyed a significant soft backlog of potential orders, which, again, underpins visibility and growth for the future.
In Aeronautics, order intake of EUR 2 billion was achieved with great performance, up from EUR 1.4 billion of last year. 75% of these orders were achieved in the Aircraft Division. And among these, major ones include the order for 13 additional M-345 trainer aircraft for the Italian Air Force, plus related logistical support for 5 years, the first order for 6 M-346 fighter attack and other important customer order -- customer support orders related to EFA, F-35 and other programs. And meanwhile in the first 9 months, also Aerostructures won orders to supply 50 more fuselage section for the B787 and 37 ATR sections.
So overall, we are really pleased with this level of commercial activity surrounding order intake. And while there is more to do to achieve our targets, we are comfortable that we remain on track for the full year.
Moving on to revenues, which show the strong increase of approximately 11%, reaching EUR 9.1 billion for the group, we saw top line growth all across our businesses. A key driver was Defense Electronics, where revenues grew 12.5% to EUR 4.3 billion, with good performances in areas like Airborne Systems executing its solid backlog and Leonardo DRS particularly strong, showing growth in revenues of 18% to EUR 1.8 billion, a reflection of its winning key contracts and delivering of those wins, as we have mentioned before.
Another top line growth driver for us was Aeronautics, where revenues in the first 9 months grew 13.8% to EUR 2.3 billion. We saw growth in aircraft activities driven by EFA Kuwait, while Aerostructures increased volumes, thanks to the B787 program and the A220.
At the same time, Helicopters delivered well, showing steady growth of 3% to EUR 2.7 billion. We are pleased with these volumes and the mix containing attractive military and customer support activities. So in overall group terms, a good top line performance, with all businesses delivering.
Talking now about EBITA and profitability in the first 9 months. Group EBITA was EUR 686 million, up 8.5% from last year with a return on sales of 7.5%. This shows a good performance, on track with our plan. The EBITA reflects improving operating performance across the group, offsetting the lower contribution from the ATR and the Space manufacturing joint venture.
Looking at the main businesses in more detail. Helicopters' 9 months EBITA was EUR 270 million, up nearly 25% year-over-year, driven by higher revenues, a robust industrial performance and by the benefit of favorable product mix, due to the higher contribution from military and customer support and training activities, as well as from the revised terms of the U.K. pension scheme achieved in the last quarter in Q2.
In Defense Electronics, 9 months' EBITA was EUR 342 million, up 19% from last year, on the back of higher volumes and a very good growth at Leonardo DRS, where EBITA grew 38% to $160 million and ROS, the return on sale continued at an improving path to 6.4%.
In Aeronautics, EBITA was at a similar level, at EUR 165 million, with strong levels of profitability in the Aircraft Division, progress in Aerostructures, which was offset by weaker results in ATR, where, as we expected, the challenges continue to be tough in Q3, with delays in deliveries and sales mix at lower margins than in recent years. The contribution from ATR in the first 9 months was EUR 4 million compared to EUR 31 million the previous year.
Then in Space, in the first 9 months, we also saw a lower contribution and continuing challenges in the Space manufacturing business, as we said at the half year presentation.
Elsewhere, our other joint ventures, Telespazio and MBDA, performed well and in line with expectations. We have also been continuing to invest in central functions within the corporate, with the goal to continue to build the infrastructure and the backbone for growth, especially on the international commercial side. But again, looking at the group overall, we see an EBITA and profitability performance on track with our plan.
Looking further down to the bottom line, the net result benefited from our improved operating results, writing to EUR 465 million compared to EUR 263 million last year. There are a number of positive factors here. You can see significantly reduced restructuring costs. These fell materially from EUR 186 million -- EUR 187 million to only EUR 80 million in the first 9 months of 2019.
Last year's figure included the one-off restructuring cost of the early retirement plan agreed with the unions in Italy, which accounted for approximately EUR 170 million. We still expect some restructuring costs for the full year, and they will be in line with the guidance already provided that is less than EUR 100 million.
PPA expenses were lower, being mainly linked to the original Leonardo DRS acquisition. And we have had a positive effect from the release of the provision set against the guarantees given up on the disposal of AnsaldoBreda.
Our net financial expenses in the 9 months to September were in line with expectations. You see that we are also announcing today a tender offer to repurchase any and all of our U.S. listed notes outstanding for a total amount of EUR 432 million.
This is in line with the financial strategy to lower financial expenses. The repurchase will have a materially positive NPV for us. The tender offer will close on November 15, and depending on the take-up, we see a charge to this year's P&L of up to EUR 75 million if all the bonds were to be tendered, as the notes are trading above par in the market.
Then talking about group free operating cash flow. We have seen the usual seasonal outflow in the period to September, together with the different profile of some programs, such as EFA Kuwait and NH90 Qatar, where in Q3 2018 we had received advanced payments.
We are very focused on achieving our cash flow targets. And as ever, Q4 is the key quarter of the year. We are on track for full year and we are seeing good progress across all businesses.
Now to sum up and to see how we see the full year. What stands out is our commercial performance and positive momentum, our strong top line growth across our businesses and the delivering of our profitability in Helicopters, Defense Electronics & Security, as well as Aeronautics. As you have heard, our main businesses has performed well in the first 9 months, all in all, in line with our expectations.
At the same time, we have seen some weakness in the contribution from ATR and Space manufacturing and these strategic joint ventures will perform below expectations for the full year.
For ATR, the weaker performance is mainly due to an unfavorable mix and some shift in deliveries. ATR remains an excellent business, is a leader in its market. Customers really like its products, and we are investing in new versions, for example, the Short Take-Off and Landing version, the STOL, which we have just launched. Management priority has been securing a solid backlog to support a stronger and steadier revenue outlook.
For Space manufacturing, as confirmed recently by our partner, Thales, the business is underperforming due to market weakness, which is expected to be continuing in 2020. So overall for Space, EBITA in the year will be materially lower than last year. That said, we remain confident in the longer-term strength and prospects of the Space manufacturing business.
So for the group as a whole, looking at the full year, we are comfortable that we will be within our group guidance ranges previously set out. We can be pleased with our performance in the first 9 months of this year in the continued execution of our plans, especially our commercial performance in key markets, the good revenue growth and the solid performance of our main businesses. Overall, we are on track and where we expected to be. We are pushing hard to execute on our plan and meet our targets.
And with that, I will hand it back over to Valeria who will chair the Q&A session.
Okay, we are ready for questions.
[Operator Instructions] The first question is from Alessandro Pozzi of Mediobanca.
The first one is on Electronics. I think we've seen strong performance in terms of revenues there. I was wondering...
Sorry. Sorry, could you please restart asking the question? We have been cut out.
Because we have been cut out for a while.
Okay. So strong performance, in terms of revenues from DRS, I was wondering whether we should see that continuing over the next few quarters. And I was wondering whether the contribution is coming from one main contract or it's spread across different contracts in the U.S. And also, my second question is on Aeronautics. I think we've seen an increase in revenues, but the profitability has not followed through. Especially in Q3, I think it was quite low. I was wondering if you can give us maybe a bit more color on that.
Okay. So on DRS, the revenue growth is projected to continue. We have had 2 years in a row of double-digit growth in the business, and we are very pleased with that, and that is the result of a strong order intake that the company has managed to achieve, both in 2018 and in 2019 thus far.
So we expect that to continue over the coming years, and our expectation is that growth is going to be above the peer group in the U.S. With respect to composition of that growth, it will be spread quite evenly across all business segments.
Moving on to your second question. Aeronautics, the business -- the Aeronautics business, in our segment reportings includes 3 elements: the Aircraft Division; the Aerostructures Division; and ATR. So what you see reflected in the profitability performance in the 9 months is also the ATR performance, which year-over-year, as we have mentioned, has gone down because of a lower number of deliveries and a less favorable mix.
While on the other hand, Aircraft is continuing to perform really strongly, with both an increase in top line as well as continued very strong profitability. And Aerostructures is making progress on the turnaround plan, whereby production efficiencies are being improved.
On ATR, are we seeing a trough for the profitability of ATR or there's more remedial action to be taken, maybe in Q4?
With respect on the [ profit ] in Q4, the new backlog is pretty good. So the new order book is good and so we expect that there would be a significant increase in deliveries, but we won't achieve the level of last year. The backlog is close to EUR 3.7 billion. So it's very relevant.
The feeling we have that the company will continue to perform well, as again, there has been a reduction in the deliveries in the first 9 months due to specific topic, but the portfolio is moving quite positively.
The next question is from Andrew Humphrey of Morgan Stanley.
The first one I wanted to ask was really around book-to-bill in the quarter. And I can see -- I appreciate you had a tough comp on Helicopters last year, but book-to-bill on Helicopters this year, but also the European Electronics business and Aeronautics was below 1. So I wonder for each of those segments, could you give a comment on what is in forming that order weakness?
And secondly, on the strong growth in Aeronautics in the quarter, could you give us some indication of how much of that is driven by Eurofighter?
Sure, Andrew. So with respect to book-to-bill, the book-to-bill is quite lumpy, as you know. The group has a backlog of approximately the 3 years of production, EUR 36 billion of backlog. So I would not necessarily focus on a quarter-by-quarter booking parameter.
What is relevant is that we are focused on the year-end figure and we are comfortable with the year-end target that we have set for ourselves earlier in the year. And that is pretty much the value throughout the different areas of the group.
On Aeronautics, clearly EFA Kuwait is a very good contributor of profitability. Together with the customer support, approximately 25% of the Aeronautics business is made of customer support activities. And in general, all the other programs within the businesses are doing well.
Then if I can add, clearly, if we have and we always hope to have some jumbo order, like the around EUR 3 billion from Qatar. It's by far the largest order we have received in the Helicopter business, you have a positive impact. There is a scenario where we can have significant orders, one is the Eurofighter order. We know Kuwait. The other one has been is Helicopter. We are not seeing any other opportunities like that because you have to remember that this order has been on the NH90 [ mainly ] because of the fact that Qatar decided to have us as prime, which is, I think, very important in order to show the stability of our capabilities, because to be the prime is very important.
And the third area where we can have significant orders is the [ nava ] business, where usually we receive a significant order on combat management system with the missiles and the weapon component that partially is reverted to ourselves, [ for the common ] with Oto Melara and partially is reverted to MBDA, which is a company where we have 25%.
So back -- what is important is that I think the largest order we've seen this year is EUR 400 million. And despite of that, we have a book of new orders of EUR 8.5 billion, which shows us the solidity of our commercial activity.
But on that growth scenario, and also if I can follow-up, it seems that you've seen significant growth in Aeronautics revenue year-on-year in Q3, but it hasn't, at this point, dropped through to profit.
So I wanted to try and get to the bottom of are there kind of specific program aspects that are driving that and how should we think about the evolution of that margin?
As Alessandra has said before, you have to consider the ATR contribution reduction. Then on Aircraft, this is mainly work in progress in Kuwait, so -- and not necessarily booked the profitability on a quarterly basis because it depends on what we are dealing.
So -- but the aircraft, so talking of our division, which is based on Euro 5 for Tornado trainers and C27-J, is solidly double-digit. In the 9 months, slightly better than last year.
The next question is from Martino de Ambroggi of Equita.
The first question is on the Helicopters, because in the first 9 months, you got 9.9 EBITA margin. Usually, Q4 is stronger than the rest of the year, so you will exceed the 10% target that you had in 2020. So just if you could elaborate on what is your expectation for next year, since it seems to be in advanced compared to the original target.
But we are in line with our plan to be double-digit by 2020. So by 2020, there is also 2019, but by 2020, we will be double digit.
So but presumably you will be double-digit also this year, no?
I'd say yes, and we issued the number.
Okay. And the second is a quantitative question on the financial cost because you guided for slightly less than EUR 300 million and it seems to be much better. Obviously, there is the one-off, the EUR 75 million for the bonds buyback.
But I was asking you, one, what is the updated indication for the financial cost ex the one-off for the bonds buyback? And what is the benefit you expect on this line going forward?
So Martino, on the financial cost, yes, your recollection is right. The guidance was approximately 3 -- below EUR 300 million and we are approximately confirming that guidance. And on top, there will be a charge for the buyback, which again is going to be max of EUR 75 million, so we expect that 100% of the bonds were to be tendered. So that's enough to figure.
Okay. But the EUR 300 million was not included in the figure or we can sum up also this in the EUR 300 million?
There could be some EUR 3 million from that EUR 300 million full figure that you can do, but not major.
Okay. And the very last on ATR. Just to figure out what is the real profitability of the remaining business. Sorry if I missed the figure, but last year, ATR contributed with EUR 12 million. Can we have an idea what is the contribution, positive or negative for the current year, in absolute value?
Yes. So for the 9 months, we mentioned we have EUR 9 million in 2019 versus EUR 31 million last year. And for the full year, our expectation is that we will be below last year levels because again, we will be below in terms of number of deliveries.
The next question is from Gabriele Gambarova of Banca Akros.
Regarding the other and elimination item for DDA, what is your idea for the full year 2019, please?
Gabriel, you were mentioning other and elimination?
Yes, yes.
So the other line is, as you know, composed of various elements, including the corporate cost. As you may recall, Gabriele, when we announced the Industrial Plan, one of the elements supporting the target achievement was the strengthening of the central functions, mainly related to commercial exports in order to increase our penetration in key international markets.
And we are progressing on that path and there are a number of initiatives that we are working on and that's what you see summarized in that line item.
Okay. But I don't know, for Q4, we can assume -- basically in Q3, they were almost stable. We could assume that they will remain almost stable even in Q4 or there will be an...
In this case, the year-over-year comparison, I would say, is not particularly meaningful. So I would think more in terms of how we would describe the situation in the second quarter, meaning that there is a progress quarter by quarter on our activities. It may not be linear throughout the year, but there will be a higher figure at year-end compared to what you see in the nine-month results, which is as per the plan.
Okay. And second question if I may, on -- again in Q4, basically, if I consider your fiscal year 2019 guidance for revenues, it implicitly tells me that there will be a revenue fall between 16% and 3% year-over-year.
I don't think there is reason to believe that, let's say, revenues will come down on a year-over-year basis in Q4. Am I wrong or the guidance is a little bit cautious on this?
The fourth year is always the most important for us and always the most exciting to live through. So our guidance as of now, we confirm the guidance that we had for the full year, which is in the range of EUR 12.5 billion to EUR 13 billion.
And we'll see how things will develop, and we may have some solid continued progress for the 9 months. But as of now, we feel that confirming that figure range is adequate.
The next question is from Monica Bosio of Banca IMI.
There is just only one remaining from my side. It's can you elaborate, please, a little bit more on the soft backlog of DRS? Can you give just an indication, like quantitative indication?
And second is a housekeeping question. I've noticed that the tax rate in the third quarter was particularly low. Can you just give us some -- elaborate a little bit on this? And can you give us any indication for the full year, just an update?
Okay. So many thanks. On DRS, in the U.S. you can book an order as order when it's funded by the DOD, by the government. So what you see in the -- our backlog of DRS is exactly what has been already funded. We had a similar situation for the 84 helicopters that have been ordered by the U.S. to our division, our Helicopter division. We booked on the already funded helicopters.
But on a statistical base, the history tells us that when you are in a program, it's usually -- at a certain level, the program is funded also afterwards because of this reach in cost for the customer to be the guide.
So you can figure out that statistically, considering the past, what is the amount of the existing orders so that we'll continue to be funded. And In this perspective, and it's a very solid statistic, as you can imagine, because we have a long history behind us, what we are seeing is that you can multiply for -- by 3.
So -- which means that the total backlog is more or less 4x what you are seeing as a backlog in the groups. Okay, the second piece of the question?
On tax, Monica, the tax rate for the year is confirmed between 25%, 27%. What happens on a quarterly basis is the result of very tax-specific adjustments and adding and subtracting back. So I would not take that as a record point for the full year, where, again, the rate is around 25%.
The next question is from Nick Cunningham of Agency Partners.
I know we've talked about the Aeronautics segment revenues already, but it is up 50% in the third quarter itself, which is a really big jump. And so I just wanted to try and pin that down a little bit more. I'm assuming that most of that is some revenue recognition of Kuwait rather than growth in Aerostructures. So I'd like to check that.
And then secondly, because that profits were flat, there's obviously big moving parts within that with ATR down. But again, does that imply that actually that profit recognition on that initial lump of Kuwait revenue is just going to be low, because you're so early in the program? And is that a quarterly thing like we'll get more of it in Q4? Or is that a year-to-year thing that actually we need to wait until next year or the year after?
And then second question. DRS, profit margin was much better than I expected, good top line growth. But does that suggest that actually you are seeing some maturity in the programs now and that we could actually see really quite significant move back towards, if you like, normal margins over the next year or 2?
Okay, Nick. So on Aeronautics, you are absolutely right. The main driver of the increase in revenues is EFA Kuwait, absolutely. There is also a certain increase in the JSF revenues. So those are the segments that determine the delta.
With respect to profitability, there is a mix of phenomenon. There is certainly a component of pass-through activities that we have on the program because as you know, we are prime of an EUR 8 billion contract and the large portion of the activity is also done by our joint -- our partners in the EFA Consortium.
Therefore, on those activities, the margins are lower. But again, that's very typical for the business. Nonetheless, the higher -- the highest impact on the segment profitability number that you see is associated with the ATR change in profitability year-over-year.
On DRS, margin for DRS, the margins in DRS are improving. They're benefiting from a leverage effect because volumes are really ramping up at double-digit rates for 2 consecutive years. So you see a tremendous operating leverage effect.
And gradually, we are seeing a change in mix with -- especially next year, we'll see lower contribution from development contracts carrying lower margins and higher contribution from production contracts, which carry higher margins. So this change in mix will certainly move the profitability upwards.
Thank you. Just a brief follow-up on DRS. If you look at, if you like, the product mix of the business and what the DoD kind of allows contractors to make, it depends a lot on that product mix. Is DRS really, if you like, an 11% sort of peak of cycle business or potentially a 15% peak of cycle business?
Nick, I think there is no mid-tier American company that is 15%. Sorry, we cannot be higher than the best-in-class, if we talk of mid-tier. If we talk of larger over the first year, clearly, the [ AR ] and [ IR ] with [ aero ] Space, thanks to specific programs.
So we do expect to be very well-positioned in the mid-tier segment, as we said. And you remember that we always said that I think that if we over-plan, we'll beat double digit. Please, sorry if I finished. It is also related to the fact that sooner or later, there will be a sort of normalization in the order intake. The peak will continue to grow 15% in terms of new orders. These new orders will dilute the results but the bottom line will be higher. So it's a very good way to be diluted.
Thank you, all of you. As usual, the Investor Relations team is available for follow-up calls.
Thank you.
Many thanks.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.