Leonardo SpA

MIL:LDO

Q1-2025 Earnings Call

[Valeria Ricciotti, executive]

Good afternoon, everyone, and welcome to our Q1 2025 results presentation. I'm Valeria Ricciotti, Head of Investor Relations and Credit Rating Agencies.

Today, our CEO, Roberto Cingolani will update you on the progress that we have made during the first quarter of this year and how we are positioned looking forward. Then our CFO, Alessandra Genco, will take you through the Q1 2025 results and performance across the group. We will then welcome your questions. The call is planned to last no longer than 1 hour, including the Q&A. The supporting slide presentation is available for download by registering to the webcast. And all the Q&A results material are available on our website under the Investor Relations Section.

Please note that throughout the presentation, we will be making forward-looking statements, so I invite you to refer to our safe harbor statement, which applies to this call as well.

Now I will hand you over to our CEO, Roberto Cingolani.

[Roberto Cingolani, executive]

Thank you, Valeria. Hello, everybody. Ladies and gentlemen, thank you for participating in this quarter 1 presentation.

Let me start with the numbers. First of all, despite it's only 1.5 months that we met for the update of the plan, we have a remarkable news. And I think the start of the year is particularly good. As you can see in the table, we got comparing the first quarter of '25 to the first quarter of '24, a remarkable increase of all the KPIs. Orders are increasing by more than 20%. Of course, it is comparing the first quarter '24, excluding the submarine activity that was sold, as you remember last year, so it's a homogenous comparison. We have plus 20.6% new orders and revenues are correspondingly growing by almost 15%. We're just accumulating EUR 4.2 billion in this first quarter '25.

EBITDA is also growing substantially, plus 18% and the return on sales is increasing by 0.2 percentage points. The free operating cash flow is increasing by plus 7.6%. And the net debt is considerably reduced down to minus 28%, almost 28%. The rating agencies have upgraded, Standard & Poor's have upgraded the position of the ranking of Leonardo as well as Moody's has given the positive outlook we are satisfied of what's going on. I think it's very important to mention that the growth is homogeneously distributed among the divisions. And even aerostructures having normally -- some problem has been increasing, improving the situation. I will tell you in a minute why. There is an important increase of export, and I think we are starting to measure factually the increase of the KPI, thanks to the efficiency, which is globally improved throughout the company. Alessandra will give you more information later. So I will not bother you with details division by division.

What I would like to mention with some specific attention is the increase of international and export order. If you compare in the plot here on the right, you can see here the first quarter of '24, last year, we were exporting 62%, and we had domestic orders for 38%. After 1 year, the export component has been growing to 67%, keeping 33% of domestic orders. This means that we are not capturing captive market, domestic market, we're capturing real international opportunities. And in some sense, our competitiveness is now increasing, and we're very satisfied. We hope this will improve even further over the next quarters.

So let me start with aerostructures. I know there's a lot of focus about the aerostructures, so I will divide this a couple of minutes presentation about the aerostructure in 2 parts. What is -- what we call the standalone industrial plan. This is what we defined as scenario #3 in the presentation of the plan, which is under implementation. This is kind of mandatory. We have to do it anyway. It's very important to optimize to improve the situation. It consists of -- and that's the setup optimization, which has to do with the fingerprint and with the reorganization of the plants, we are working a lot to increase efficiency. Supply chain restructuring, this has to do primarily in identifying other companies that can participate to the supply chain effort in countries where the labor cost is more convenient to optimize the global cost of the products. We are working a lot on operations performance improvement. This was promised through digitalization and optimization of the production plants. And of course, we are insisting a lot on the revenues increase and diversification. This is very important because we can register now an increase in orders from Boeing, plus 77 orders, new fuselages and also an increase of components for -- from Airbus for the A220 aircraft. But also, we are moving our brand-new alliance with Baykar, we are moving, thanks to this alliance, some of the composite production of advanced drones into the Grottaglie site. So this is, anyway, a diversification that we promised, and we believe it's very important anyway to improve the situation.

Now this is what's going on now in terms of scenario #3, what we call the standalone industrial plan. But of course, the most important part is that we are running quite fast towards the solution, the permanent solution of the problem. Thanks for the discussion with our strategic partner. As you remember, over the last few months, we indicated -- we mentioned that there is a due -- there was a due diligence done internally to the company. We created a task force to face once for all the problem of aerostrutures. We developed a standalone multi-scenario industrial plan. Scenario #3 was the most advanced we reminded you last -- in the last meeting 1.5 months ago. And then we start screening to find potential industrial partners to create a new joint venture on aerostructure, the global champion. Now the good news is that a few weeks ago, we finally identified the partners and signed an exclusive memorandum of understanding. So now the teams are working. This is very important because we are defining the partnership and the development of the joint industrial plan. There is a detailed due diligence activity, which is carried out by partners through international adviser. And just to let you know, in these days, 3 years ago, before yesterday, yesterday and today, there is a team of experts of the partner, supported by the international adviser that is visiting our plants, the 4 plant -- the 4 main plants, and they are checking the actual capability of Leonardo aerostructures to guarantee the production rate of 14, 15 components for the ship for monthly shipment. And this is a very important step because we are now entering in the real analysis the industrial capability. Preliminary results seems to be very encouraging. So we confirm that we expect the principle of the partnership agreement to be defined and finalized by -- before the summer, by July, as I already anticipated. And hopefully, by the end of the year, the partnership agreement will be signed. This is our main target. It's very important. This is for us the main challenge because we really want to make something new and something really disruptive to solve the problem that has been lasting too long in Leonardo.

Now concerning flying objects, I want to update you about the JV with Baykar for the advanced unmanned devices and generally or payload from very small to big. We are progressing extremely fast. The new is that on April 29, we have signed the head of terms with the Baykar partners. We are really moving very fast. The technology is absolutely complementary. There is a fantastic chemistry with the partners. We plan to sign the agreement for the joint venture very soon, and I can anticipate you guys that the joint venture will be very likely presented at the International Aviation Show in Paris in Le Bourget in a few weeks. It should be in June, so we are preparing a surprise for you guys when you will be there, hopefully, and we will present the -- some of the prototypes and also we will communicate the creation of JV. How this is working? At the moment, there are 3 technical teams that are working on the JV, the Technical Working Group. I mean, needless to say, we are integrating objects payloads and flying technologies. So all the requirements are under study at the moment. We are working with an industrial group on the optimization of the production lines. And of course, there is another group working on the marketing and sales working group.

Now ongoing, we have the analysis of the system integration of different payloads. This is underway. We have identified the Italian production sites. There will be 3 sites in Italy, where the integration will be carried out to improve the volumes. Of course, we'll speed up the creation of the new technology, the new machines. And of course, because we are strongly interested in having certification of those drones in Italy, and therefore, in Europe so that the market can be opened very quickly. As I said, the first public disclosure will be done at the 55th International Paris Air Show. But what is very important now to my opinion, is that speed is as important as money at the moment. We have to be extremely fast. This is a growing market. Europe is rather behind, and the competitors around the world are also accelerating. I believe we have a very good position now and the collaboration with Baykar seems to be extremely, extremely effective. Now this is very important because in this moment -- because we are taking off with Baykar, GCAP is taking off, just to remind you that according to the joint venture agreement, it has been established that Italy will have the first CEO of the GCAP joint venture. So we have proposed already the Italian CEO for the JV. This is the actual Chief of the Aircraft Division, Dr. Zoff which has been accepted as a name, as a character by the partners. Of course, we are now waiting for the technical operation that will get started, we'll start the JV. So Dr. Zoff will move as the CEO of the GCAP joint venture. And we are, therefore, slightly changing the -- internally the organization of the Aircraft Division. Dr. Bortoli who is the actual Director of aerostructure will become the Chief of the new division, which will include drones of course, GCAP the [ NATCO ] of GCAP. And of course, the convention of the legacy aircraft activity, the 346, the Eurofighter and so on and so forth, and obviously, aerostructure. I want to be extremely clear, I don't want any ambiguity about this matter. There is no change of strategy whatsoever for the loss-making Aerostructure Division. This is our first priority. We are working very seriously. We are very committed in fixing this problem. But of course, in the meantime, we have to, we have to allow the company to continue its activity on aircraft because there are so many new things, the drones, the GCAP that we have to get an organization internally that allows us to let us work properly and effectively. So in this respect, I hope I've clarified that this is essentially a reorganization, internal organization that should allow the company to be as fast as possible, as effective as possible. Notwithstanding the fact that we are working 24/24 on the solution data structural problem. And I told you exactly what is status now, and I'm very confident that by July, we will give you the good news.

Now we go on the JV, Leonardo Rheinmetall Military Vehicles. This is running very well. There was last week a meeting between myself, the CEO of Rheinmetall, Armin Papperger; and the Chief Commander here in Rome. Two infantry vehicles have been delivered. One is already in Italy. The other one will be delivered by the end of May at the occasion of the second June bank holiday.

Four additional links vehicles will be delivered by the end of the year, very likely those will already use -- adopt the new turrets fabricated by Leonardo with all the payload electronics weaponization. We are in progress in producing 10 platforms under construction for 2026. So as you remember, the original idea was to start with the first delivery shipment of infantry vehicles. Meanwhile, we are working full time on the -- on the integration of the main battle tank. At the moment, the integration of chassis, turrets, electronics, power and transmission is understated by the joint team of Rheinmetall and Leonardo. And of course, we are discussing all the requirements of the NBT with the Chief Commander Officer because we are anticipating the necessary choices, technical choices that will be needed to speed up the delivery over the next few years. So from the land defense point of view, I think we're slightly ahead compared to the agenda.

Let me update you about the M&A activities. That's very important also. We're continuing our scaling effort on strategic platforms in the last 12 months. As you remember, we -- 1.5 months ago, I told you, if I remember correctly, were 20 targets solutions they're -- now they are 22. I'm not sure, I think we've been increasing 1 or 2 units. Anyway, we have 5 offers that are still ongoing, 5 will refuse -- have been refused have been stopped because we didn't find how to say, a convenient landscape for us. to make the investment. Now the relevant update is shown here. There are 2 exclusive negotiation ongoing in the cybersecurity area. There's one company from Denmark, the other one is from some Sweden. There is a due diligence phase already started in a defense software tech company. This is for our American market actually. There is another ongoing discussion for a company with -- that could be very useful for our capacity boost strategy, particularly for the land defense systems. And finally, we have started a due diligence for a space company particularly expert in small satellites. So we are, of course, considering further divestment in minor businesses under analysis, but I think this is what we've been doing since 2 years. We constantly try to optimize our business, and this means continuously cleaning the portfolio, optimizing the portfolio, rationalizing the portfolio and divesting on minor businesses that have no big perspectives.

Let me go to the efficiency plan, which is a constant effort that the company is running since the very beginning of our industrial plan. We are absolutely on time for -- you remember in 2024, we got some better performance compared to the expectation, EUR 191 million rather than the forecast of EUR 150 million. so we have a kind of wallet of EUR 41 million that should be considered by the year, number one. Year #2, at the moment, we got approximately EUR 48 million saving in procurement. So this is -- most of the savings is coming from procurement optimization. 11% of the saving comes from corporate optimization, 7% from travels and business disposal, the 2025 components of the first quarter amounts to approximately 15%. So overall, we estimate EUR 71 million savings for this third quarter, and we are on track according to the prediction for this year.

I just want to show you that -- we are trying to map continuously how this is effective, how the saving plan is effective. I've shown you this plot already last time. According to the nominal inflation, we should have had costs like the green land -- gray line with inflation of 5.4%. We made a lot of renegotiation of long-term agreement to mitigate the role of inflation, and we went down from 5.4% to 4.5% equivalent impact inflation. Then we made the saving plan. The saving plan is this blue line here that I reconstruct by my pen that was corresponding I mean, up to 3.3% average inflation. The actual evaluation we have now approximately a bit less than 3%. So it's the green line, which is continuing. So our effort is to stay with this green line also for the next year, so for the years to come. All the companies very committed from procurement to distribution to technology R&D engineering. So I'm confident that we will overkeep the promise.

Let me go to the capacity boost now because this is a concept we have introduced 1.5 months ago, the concept was that rearm [indiscernible] increase in investment in defense, all those things could mean extra resources and extra resources means extra orders and extra order means extra delivery. And so we were really and committed in trying to forecast what could be the impact of this very complex geopolitical situation because of the existing conflicts and so on and so forth. And we decided to face the problem of the capacity boost in a quantitative manner. Forgive me, I mean, this has nothing to do with the academic lesson, but I just want to show you what is the technical approach. For us, the capture rate means the duration between the net revenues that are effectively captured by the company on the potential revenues that, in an ideal case of no losses, we should be able to catch. I mean, obviously, we would like this ratio to be equal to 1, which means ideal no losses. This is a typical fluid dynamical process. It looks like a pipeline of water or if you want a [indiscernible] in the body, the flat of blood is actually what we call the revenues. Now how can we reconstruct this and how can we forecast what happens? Our potential revenues, which is the deal case, is actually reduced by a number of losses. The first one is the loss induced by noncore product, LN. I mean, we are cutting everything noncore. The second loss is obviously incomplete portfolio. If we miss some component, and we're going to buy it or develop from scratch, this is going to cost more. So we should see which are the weak point in our portfolio. The third loss is loss for production in efficiency. That's a nightmare, of course, because it means many, many things, digitalization, modernization. I mean we can write the book on production efficiency or inefficiency.

Then we have production capacity. Production capacity means how many plants, how many people, obviously, it's volume related. Loss of supply chain discontinuity, that's a critical issue in this moment. We're working on the supply chain because this can really stop the process and reduce the efficiency. And finally, losses due to lack of skilled human resources. Those are the parameters that normally contribute in reducing the potential revenues and, of course, make duration quite smaller than 1. And we don't want to have smaller than 1. We want to have across the 1. Now forgive me, this is just a very ancillary product. I don't spend too much time on this. But obviously, if we don't -- if we don't have a complete portfolio, we miss the water that should enter in the pipeline. It's just a fluid dynamic concept. It's very should be a differential equation, but this is very simplified. We have a loss of production capability, noncore products and inefficiency, which can be represented by a too short pipeline, obstructions or vortex and losses [ holds ]. And of course, if we don't have a human resources or if you have -- if we have the supply chain that doesn't work, we have a shrinkage of further reduction in the cross-section. So actually, we don't collect water. The EBITDA is more, and therefore, the free operating cash flow is more. Now if we increase thanks to the organic growth, new initiatives and the optimization we are discussing since a few months. If you increase the collection capability, if we expand our pipeline, which means reducing the L, the losses, we can get much better EBITDA, much better free operating cash flow. Each one of those losses is not the drawing. It's a team of people that is working with the support of an international adviser. We have created a team of 15 corporate people working on supply chain, program management, technology and digital solutions, finance, HR, commercial and product rationalization, purchasing and infrastructure, together with approximately another 15 people from the divisions because, of course, this has to enter into the very fundamental activity of divisions with an advisory team that is working and supporting our activity. The concept was launched in March '25 when we -- just after having presented to you the need of the capacity boost, we are [indiscernible] we are mapping and making the gap analysis. We plan to give you the master plan by July. So once again, speed is as important as money at the moment. We have Turin. I think most of the contribution will come from the big divisions. To give you an idea, Helicopter division and the Electronics division are already fully committed in this effort, of course, also the others. But you understand that helicopters and electronics on their own, they make a large fraction of the total revenues of the company. So I have to say they are mostly involved in this optimization rate. I don't want to bother you with too many details also because we are just a month [ 1 ] work. We still have time to optimize and to how to say, to calculate this fluid dynamical model, if you allow me to say. But for instance, the Electronic division, has already made a plan to almost double the surveillance rather production and to increase by 65%, the electro-optic technologies for turrets, which is obviously relevant for land defense, Rheinmetall so on and so forth. We've made some strategic choice for getting more independent in terms of chip fabrication and electronic device fabrication. And there is a steering committee into the Electronic division, which has a very large portfolio to optimize the portfolio as much as possible in the shortest time possible.

Concerning Helicopters. There is a plan now, which has been implemented by our team for increasing delivery by 40% and services by 30%, increasing the engineering capability by plus 5 million hours per year and increasing production capability by an equivalent of 11 million hours per year. We're working on synergies and improvement of production in Poland, in Vergiate, in Tessera, so different plants that should be more synergistic. And of course, we're investing in improving and renewing, refurbishing new machinery, new tools for mechanical production. Those are just examples. I could give you as many as on other divisions, but this is the effort we are doing. As I said, it's 1 month after we decided to phase the problem, to tackle the problem from the very fundamental point of view. And I'm confident in July, we will show you something with a clear architecture for the capacity boost. No, because I'm talking about capacity boost that should go back to the defense budget because the capacity boost comes from the idea that there should be more resources, there should be more demand. I already shown you -- have shown you already that we increased our export more than the domestic market. But anyway, we have to be more and more competitive, that's the point. And to be competitive, we have to see also what's the market -- what will be the potential request of the market. So I'm giving you some more updated numbers concerning the domestic market, Italy. You can see here very clearly, 2024, we have approximately EUR 32 billion investment in Defense. Gray -- light gray means salaries, army and so on. The colorful part, approximately 34% is our addressable market, which comes primarily from the Ministry of Defense and partly from other ministries, like Industry or other organizations. In 2025, the forecast is higher. It should be EUR 36 billion, so plus EUR 4 billion compared to last year with an addressable budget of 39% compared to 34%. So somehow we expect this would be necessary, this is a -- this will need a capacity boost because we have to face an increase of demand. Not talking -- not to mention the international market where our competitiveness in export seems to be growing steadily.

Concerning Europe, at the moment, we don't have news compared to 5 weeks ago. 5 weeks ago or 1.5 months ago, you remember we were talking about ReArm or Readiness Program in Europe, EUR 650 billion through an increase of GDP investment, average GDP investment in Europe, but this is not yet quantified. And then EUR 150 billion is coming from -- for loans coming from the cohesion funds and other funds that Europe made available, but those are anyway funds already distributed to the states. The good thing is that we've been invited most of the big companies, so the defense company have been invited by the commission -- by the President Commission in the next few days, I think, if I remember correctly, is in 1 week's time. And there are a number of meetings at the European level to see how this potential investment in defense could be deployed. I don't have other information I don't think anybody has other information on Europe. But for sure, the Italian landscape is clear. Italy is moving towards 2%, not being reached maybe by 2025, but clearly, there is a net positive curve.

Let me go now to -- this is another question I got from many of you. What could be the impact of tariffs on the business of Leonardo. So we have to be very clear, I mean, of course, something is unpredictable, but I think I can safely say that defense and governmental sales should not be impacted by the tariffs. This seems to be the consolidated point of view of all the operators. So there should be no exposure. International footprint has no exposure. If we produce in U.S., and we sell in U.S. because we have our second domestic market in the U.S., there should be also no exposure. So those are good news, let's say. There could be some problem, it's in yellow, not in green in our traffic light scheme. In case there are problems with the supply chain. But as you know, we are investing a lot in differentiation, diversification of the supply chain. We have more than 5,000 companies in the supply chain overall as Leonardo. And obviously, we can manage geographically, eventually, we can manage in a way that we reduce the impact. That's why it's just a yellow warning. The assessment of the impact is also very clear. Military programs, including Leonardo DRS and military helicopters should not be impacted. Boeing 787 aerostructure should not be impacted because the contract states that Leonardo is not responsible for possible U.S. tariffs. There might be some impact on civil helicopters in the U.S. market. We put this in red, honestly, it's not a huge market. But that could be the most impacted area for us. We have a number of mitigation actions. I mean, of course, changing a little bit the production, reassessing the production and changing the assembly line geographically, exploiting global procurement in a smarter way. Of course, we can review the contract with the customers, and there are, of course, other options more financial in terms of temporary imports and so on and so forth. But I'm sure you want to see the final number, which is shown here. The U.S. revenues package is approximately $4.1 billion business. This is the business related to U.S. This blue part is the U.S. civil helicopters. It's about 50% overall, and this could be impacted by the tariffs. The rest should be not so much impacted. So we expect a marginal estimated impact according to current assessment. And to give you a number, an estimate, it could be in the range of EUR 10 million to EUR 20 million in the next couple of years, so '25 and '26 out of a global business of approximately EUR 4 billion. So we can safely say that as long as the situation will be this one, there should be not a big problem for Leonardo.

I think with this, I gave you all the information that I hope were -- I mean were fitting with your question and with your curiosity.

I leave the stage to Alessandra Genco, our CFO, will give you more details about the individual division performance and of course, more details about the key financial KPI -- the financial KPIs. I hope I satisfied your -- at least the most important question you have, and I'll be happy to answer you later after Alessandra has finished her presentation. Thank you very much for your attention, guys. I'll see you soon.

[Alessandra Genco, executive]

Thank you, Roberto, and good evening, everybody. I'm pleased to be presenting our Q1 results, which show increases across all KPIs.

It is 1.5 months since we spoke to you in the Industrial Plan presentation in March. As you know, although the first quarter is important to us as we look to start the year in the right way, it is normally our smallest contributor to the full year, and it's important to bear this in mind. But it's clear that we have made a solid start to the year. You can see this across all group KPIs. Continued commercial momentum with solid double-digit growth in order intake, good top line growth, delivering higher volumes of our growing backlog as we had planned, confirming growth in profits and in cash flow, leading to reduced net debt.

Let me also mention that S&P increased Leonardo's credit rating to BBB stable outlook from BBB- positive outlook based on our solid operating performance and improving credit metrics. At the same time, Moody's has also reviewed its outlook to positive from stable, reflecting our solid operating performance since the upgrade to Baa3 in May 2023 and expectation of continued growth amid increasing defense spending across European and NATO countries.

Moving now to KPIs. Excluding the UAS contribution, group order intake was EUR 6.9 billion, up 20.6%. We're seeing good demand for our Defense and Security products with strong commercial performance across all divisions and in particular, helicopters and defense electronics. This is reflecting good positioning in key domestic markets as well as export markets. The group order intake growth is again well balanced with a good spread geographically and across business areas and without any concentration in any single country or customer and no jumbo orders.

Book-to-bill was almost 1.7x and our group backlog has ridden to EUR 46 billion at March and stands at record level. New orders and our ability to deliver on this backlog drove a top line increase in Q1 of 14.9% to EUR 4.2 billion driven by good performances across all segments, in particular, defense, electronics and cyber across all domains, followed by helicopters. Group EBITDA increased 17.9% to EUR 211 million compared to EUR 179 million in the previous year, mainly leveraging higher volumes and return on sales in Q1 increased to 5.1%.

Our Q1 free operating cash flow outlook was EUR 580 million, an improvement on last year. This was driven by higher EBITDA and tight working capital management with acceleration of milestone payments and cash in towards the end of the quarter. As of March, our group net debt was also significantly lower at EUR 2.1 billion versus EUR 2.9 billion in March, including the initial tranche of sale proceeds of EUR 287 million received in January from the sale of our UAS business. So a solid start to the year on track, and it underpins our confidence in our targets for the full year. It all translates into further steps in delivering on the Industrial Plan.

So let's go deeper into the results and performance at business level. Starting with helicopters, where we saw continued strong positive momentum with good progress on all programs as well as customer support. New order intake was EUR 2.4 billion in the first quarter, up 15.6% with higher orders on the defense and governmental side, including the AW249 program for the Italian Army with orders for supply of additional helicopters plus development of additional capabilities. We also saw multi-platform orders for governmental customers in Malaysia, plus orders on the civil side in the offshore oil and gas segment and orders for customer support from the U.K. MOD for its AW101 Merlin helicopter fleet. Helicopter revenues were EUR 1.3 billion, up 16% and driven by increased activity on the AW family in the dual use area as well as customer support and training, leading to higher profitability and an EBITDA of EUR 70 million. So good performance from helicopters and continued strong commercial momentum with good demand across business areas.

Moving on to Defence Electronics. This segment also had a good start to the year. For the European component, Q1 orders was 1 -- sorry, was EUR 2.1 billion, up 5.6% year-on-year, excluding the UAS contribution. That translates into a book-to-bill of 2x and shows growth across domains, geographies and especially in defense systems. Good demand for upgrade and renewal across a broad range of platforms. We saw additional orders for the MAC 2 radar for the Eurofighter in U.K. as well as 16 Eurofighter for the Italian Air Force. And in the naval sector, the order for combat systems for the Indonesian Navy patrol vessels. Electronics Europe revenues were up 10.6% at EUR 1.1 billion, excluding the UAS contribution, reflecting higher volumes as we delivered of the growing backlog.

EBITA rose to EUR 125 million, an increase of 11.6%, excluding UAS. At the same time, Leonardo DRS in the U.S. had a very good start to the year, showing good growth in orders, up 21.6% in Q1 to $991 million, with further orders for electric propulsion components for the U.S. Navy, Columbia-class submarines plus additional orders for sensors for the second-generation infrared vision systems for the U.S. Army broadly. Revenues rose to $799 million on the back of growing volumes. And EBITDA grew from $55 million to $66 million with an increased ROS, return on sales of 8.3%.

Moving now to Cyber & Security Solutions, which also started the year at a good pace. We see a first quarter with continued growth and increasing demand. New orders stood at EUR 220 million, up 8%. Revenues, EUR 168 million, up 21% and EBITDA, EUR 11 million, up 37.5%, continuing its positive trajectory with increasing volumes and profitability. Order intake growth was mainly driven by domestic markets and included various orders for the Italian public administration through the PSN for digitalization and the cloud infrastructures and secure communications. New orders came also from international customers.

In aircraft, we again saw continued strong delivery on profit and high margins, mainly driven by fighters plus customer support activities. Order intake in Q1 was EUR 839 million, up almost 50% year-on-year. We continue to have a very solid contribution from the fighter business with important new orders for Eurofighter logistics and for the supply of JSF wings. Revenues increased 7.5% to EUR 613 million, and profitability continued to be very strong, with EBITDA up EUR 14.4 million at EUR 63 million and return on sales of 10.3%.

Moving to the sales side on aerostructures. What we saw in the first quarter is a further progress in line with our recovery plan. Order intake increased to almost EUR 500 million, double the level of the previous year. Aerostructures revenue, however, in the first quarter were lower at EUR 150 million, and EBITDA losses increases to EUR 56 million. This reflected the decision of Leonardo to slow aerostructure production rates on the B787 program moving to a single shift per day for the first half of this year with the purpose of unwinding inventory. The plan is then to increase production level again in the second half of the year in line with the Boeing production profile to ramp up the B787 from 3 to 5 and progressively to 7 shipsets per month. And this will lead to better underabsorption of fixed costs and reduces losses later in the year. Then ATR's contribution in the first quarter was negative EUR 14 million, with performance impacted by the postponement of some deliveries.

Turning now to our Space division. In the first quarter, we saw an improving commercial performance and profitability. New order intake was higher and almost doubled year-on-year to EUR 193 million, notably in Telespazio Satellite System and Operations and Geo Information segments, also leading to increasing revenues. The more positive EBITDA contribution reflected the confirmed profitability of Telespazio and for TAS, beginning to see some benefits from efficiency plans launched last year.

Our strong group EBITDA in Q1 also helped drive a better bottom line performance. EBIT grew to EUR 189 million in Q1, with only a very low level of restructuring costs, while the ordinary net result grew to EUR 115 million versus EUR 93 million the previous year. The bottom line net result of EUR 396 million benefited from the capital gain recognized on the sale of the UAS business to Fincantieri completed in January this year. Importantly, we have continued to make further progress in improving our cash generation. It is driven by robust performance on the defense and governmental side. And we saw an improved free operating cash flow in the first quarter with a reduced outflow to EUR 580 million. This reflected the higher EBITDA, plus again, we saw an acceleration of cash-ins and milestone payments towards the end of the quarter. We are pleased with this performance. It again reflects the efforts we have been making to manage working capital tightly. All of this underpins our confidence in our full year target. So you have seen in Q1, we have made a good start to the year, and we are on track with our expectations. Our main businesses on the defense and governmental side are delivering strongly and the year has started well, especially in order intake, revenues and cash flow. We're confirming the full year group guidance that we recently gave you in March. As we previously said, it is based on the current assessment of the impacts of the geopolitical situation, also on supply chain, tariffs, inflationary levels and the global economy and assuming no major deterioration. So you can see our full year 2025 guidance here on the slide. We expect this year continued strong commercial momentum, top line revenue growth delivering from backlog, improving profitability and strengthening cash flow, reducing net debt further.

So now to conclude, Q1 was another quarter of delivery with good performance across all key metrics while remembering that it's early in the year as Q1 is our smallest quarter. We are on track delivering our full year guidance and industrial plan, and we are confident of our path forward.

Thank you, and I will now hand over to the Q&A.

[Valeria Ricciotti, executive]

Thank you, Alessandra. We are now ready to take your question. And I would start from the web. The first one is from Carlos at Bank of America. Could you share any color on the potential space JV with Airbus and Thales? What could be your role in this potential JV? And how do you think about your stake in Hensoldt? Germany wants to ramp up defense spending strongly and faster. Is that going to lead to future collaboration between you and Hensoldt?

[Roberto Cingolani, executive]

Thank you, Carlos. So concerning the space alliance -- well, the special initiatives with Airbus and Thales, I can say that at the moment, there is a due diligence in progress. The parties are assisted by international advisers. So we are watching carefully through the financials and the value creation and organization. So this is running, up and running. We are working all committed. We meet very frequently, regularly. So we let the team make their work, and I believe soon, we'll have some more insight.

Concerning the space alliance with Thales, we are working very intensively because we are, as I already announced a couple of months ago, 1.5 months ago, we are working a lot on the optimization and the update of the Space Alliance, which has been constituted 20 years ago and now need some refreshment. The role of -- the potential role of Leonardo in the alliance with Thales and Airbus, the expanded European alliance I believe will be primarily on end-to-end satellite services, which is the pillar of our industrial plan. So we have to stay on our industrial plan. And of course, we will benefit to the collaboration with the other partners. So far, I think everything is very sustainable in terms of Leonardo's Industrial Plan and also in terms of collaboration. Obviously, financials, so the numbers and the technology we're going to develop together will be decided and defined more details over the next, I think, 2, 3 months.

Concerning Hensoldt, so I'm in constant contact with the CEO of Hensoldt. We met recently, by the way. So we decided to wait for the launch of the new German government. As you know, [ Fred Merz ] was nominated recently. So after the situation will be a little bit clarified and also depending on the strategic choice of the German government, we will decide how to continue the collaboration. And needless to say, at the moment, we share 23.8% of the company, and we are collaborating on several classes of products. Things are doing very well. Now whether we will increase this part or will eventually step back. It will depend on an agreement that we will take after having spoken to the parties. So let's wait the German company to get us -- to assess together with the government, what they want to do. And of course, we are very flexible, very open. And so far, the collaboration has been very good. And we plan to continue as long as there will be a clear scenario with the German partners. By the way, obviously, the Bazooka, the German government has put on the table for the new defense strategy, it's obviously a big opportunity, not only for the general partner, but also for us because we have very strong collaboration with German companies. So we think that directly or indirectly, we could benefit of this important increase of the investment at Europe level, given by the German decision. So I do see very positive moves in the near future, both with Hensoldt with German government, by virtue of the very good relationship we have with the German companies.

[Valeria Ricciotti, executive]

Thank you, Roberto. Next question, again, from the web is Ross from Morgan Stanley, was asking, is Italy does not appear to be willing to increase the fund spending. 2% of GDP reached by inclusion of other budget items rather than organic. What level of spending do you expect over the coming years? And then a second question on aerorestructures. What has changed? If you have ongoing discussion with a strategic partner towards a deal, why combine aerostructures and Aircraft divisions?

[Roberto Cingolani, executive]

Okay. Concerning the first question, I think I gave the numbers. I don't know whether the government will go to 2%, 2.3%, 1.9%. This is not my business. But the numbers, the forecast that I've shown you before are official. So there is a plus EUR 4 billion forecast in 2025. Our addressable budget grows from 34% of EUR 32 billion to 39% or EUR 3.36 billion. So this is for me, is enough to say that there is a large room for growth. Then the politics will decide -- but I don't think that Italy can be so much behind compared to the other countries. So I believe that there will be a continuous improvement of the investment in defense because I think this is unavoidable under the NATO umbrella. With this in mind, with those numbers, I mean you -- of course, you understand that I don't have other information that are at this point, they become a governmental information that I don't know more than that.

Concerning aerostructure and the division, this is a very, very simple thing, has nothing to do with a particular strategy. And as I said before, I want to clarify that there is no change whatsoever in the strategy of aerostructure, simply -- the Director of the Aerostructure division was Zoff that is now moving as a CEO of GCAP, when the JV will be launched very soon. And my other top manager, senior top manager in aviation is Dr. Bortoli who is presently the Director of Aerostructure division. And just by continuity, I cannot move Bortoli as a head of the Aircraft Division, the capitating, leaving, aerostructure in such a crucial moment without the person that's been conducting the entire negotiation. So by continuity, I need Bortoli to guarantee the completion of the strategy of aerostructure, that I told you is matter a few months. And in the meantime, serving the company with this experience over the next couple of years. I mean also, generationally, I would like you to consider that unfortunately, me and Bortoli, we are co-ager, so we don't have 15 years in front of us. Zoff is much younger. And of course, we wish Zoff through the GCAP to have a bright growth in the future, whereas me and Bortoli, being a little bit older, we have to take care of the situation now. Bortoli has to guarantee, reassure the market that we complete the aerostructure strategy without any discontinuity that will be little in this moment. In the meantime, serving the company to keep the Aircraft division as effective as possible. And there are many good news in a few months because in these 3 months, 2 months, there's a concentration of new things. GCAP joint venture starting. The inclusion of the drone joint venture that went so fast that we didn't expect this to be so fast Fortunately, it was fast. And in the meantime, quite a rapid conclusion of the aerostructure deal. So those 3 things happened all between June and July. We don't have time to do big, big change. We prefer to stay on very expert people that know very well the company, very well the situation. And this is the only reason why we did this change.

[Valeria Ricciotti, executive]

Another question from the web, Ian from [indiscernible]. To come back to capacity boost, if I understood correctly, you launched this plan recently, and therefore, it is not included in the industrial plan that you presented to us in March. Can you give us a little more color on the potential upside in EBITDA or free operating cash flow?

[Roberto Cingolani, executive]

Thank you. I mean, yes, I confirm that when we launched the Industrial Plan that was 1 year and 2 months ago, the original version. As you know, no one was talking about [ ReArm ], there were no -- there was no such pressure. I mean, to be honest, it was also another era that was by then rather the Trump, there was less pressure on the tariffs. So yes, I confirm we were optimizing. You remember were optimizing the portfolio of electronics. We were trying to digitalize. But there was no such pressure that could be induced by the fact that we might increase our production rate by 40%, 50%, 60%, which could be a reasonable estimate for the next few years. So 1.5 years ago, it was another era, and we were optimizing. Now we feel the urgency and that's why we made the update of the plan just 1.5 months ago. In this update, yes, indeed, we decided to tackle the problem of the capacity boost, which is a bit extreme compared to the standard optimization of the production rate. Honestly, now after 5 weeks, I'm not -- at 6 weeks, I'm not able to tell you in a quantitative way what could be the upside in terms of free cash flow and EBITDA revenues. But the teams are working since a few weeks after having analyzed the approach, the algorithms and how to do it. And I'm really convinced that in July when we will give you the -- we will present the plan, we will give you some numbers, some forecast. Right now, we simply didn't have enough time to be quantitative. We -- we just started on the most urgent things, and we will need a few months. So by July, you will see everything.

[Valeria Ricciotti, executive]

Okay. Now let's take a question from the call. I'm seeing David Perry. Could you please open his line.

[David Perry, analyst]

I'm going to do something a bit different. I've got 2 questions, but can I just begin with a request, which is unusual, I know. And the request is this, I'm a massive fan of everything you and Alessandra are doing the company. But it would really help if you put the results out at 04:30 when the market closes. This is very hard for us to look at them, especially we came off the Rheinmetall and yours came out, which you may not have known about. But if you could do it at 04:30, I'd be an even bigger fan of you, and I'm already.

[Roberto Cingolani, executive]

DavI'd. We will do it -- sorry. We will do it. We could have done. Yes.

[David Perry, analyst]

So I've got 2 questions and they sort of about start-ups in the industry. So earlier today, Rheinmetall told us that they are setting up the JV with Lockheed. And in the space of starting now and by the end of the decade, the revenue will go from EUR 0 to EUR 5 billion, which would essentially be the same size as MBDA is now. And I wonder why MBDA seems to be growing at 10% a year. And this new JV from Rheinmetall Lockheed can grow so much faster. So I just wondered what influence you have in the MBDA joint venture, whether there's talks to just make massive investments there rather than lose market share.

And my second conclusion also relates to a start-up in satellites because again, Rheinmetall is setting up a JV with ICEYE -- or ICEYE, a Finnish company. I've been looking at their website, and their pitch is that they can build a satellite in 18 months. And I think big organizations like Thales, Alenia and Airbus, they're more like 4, 5, 6, 7 years. Correct me if I'm wrong on that. I mean is there a way that Thales, Alenia and Airbus can move to making much quicker, cheaper satellites? Is that something that's possible?

[Roberto Cingolani, executive]

Thank you, David. I'll try to answer. First, with the Lockheed versus, let's say, missiles and bullets, MBDA. I think the main difference between the 2 -- the 2 bodies is that MBDA incorporates quite a complex governance because anyway, you have 3 different states with 3 different -- if you want organizational characteristics, they have to take care of a national interest, national sovereignty on one hand. And on the other hand, they have to take care of the global market. And I believe that if you make something in U.S., it's just the U.S. size only. If you make something like MBDA, it is Italianize only, Germanize only, France -- sorry, U.K.ize only and France -- Francize only. And this sometimes makes things very complicated. Despite this, I think last year, at least, MBDA got #1 in terms of revenues in the field of rockets, missiles and bullet. So they're not doing bad. But I agree completely with you the European governance with the 27 member states and the fragmentation doesn't help for speed. As much as speed is concerned, this is a drawback. And to be honest, the same answer holds for satellites. Having said this, however, I would like to make some technical remark. You are right when you say 7, 8 years, maybe for geostationary satellite, which is [indiscernible], quite expensive, quite big, quite complex. But the challenge now is on low orbit satellites. I mean, of course, the on low orbit satellites. I mean, of course, the SpaceX Elon Musk and the investment done by Elon Musk and NASA has been very effective, 50% private, 50% institutional. In Europe, it is approximately 80% institutional. By the time you put label institutional, it means slower no discussion, unfortunately. In the field of low orbit satellites, I think, however, we can be faster. To be honest, the constellation that Leonardo has decided to implement, with its own money as our own investment. If things will go properly and of course, we've to work like crazy, they should be launched by the end of '27 and the first half of '28. So as you see, for low-orbit satellites are smaller and cheaper than geostationary, we could reasonably expect 2, 3 years as a time scale and maybe not at the cost of the Americans that -- now they are massively reducing the cost because they have thousands and thousands of satellites but we can be, for sure, rather competitive. The challenge is to get faster, to make a very good engineering and of course, to overcome the problems given by the governance, which implies a lot of fragmentations, kind of cross-correlated vetoes and these kind of things. You need people that want to collaborate for real. And I believe at this moment, Leonardo and Thales, they really want to collaborate for real. And we are we're really committed in this respect to do things faster and very effectively.

[Valeria Ricciotti, executive]

Okay. Let's take another question from the web, again, on aerostructures in this case is, could you please provide us with more color around Q1 results in aerostructures. And what do you expect going forward by year-end in terms again of performance?

[Alessandra Genco, executive]

Sure.

[Roberto Cingolani, executive]

Let me anticipate. By year-end, I hope there will be no more the problem. So -- because I'm confident that we'll fix the problem before. Just go ahead. Sorry.

[Alessandra Genco, executive]

Sure. No, absolutely, the preference that you made, Roberto, is very important and clear. The trend that you see in the first quarter is as expected, and it's Leonardo's decision to actually save cash flow and leverage the inventory that we have by slowing down production rate in the first half of the year. As you know, last year, at some point, midyear, Boeing revised downwards its production profile and the number of deliveries you took from Leonardo decreased significantly. As a result of this, Leonardo is now sitting on an inventory in the Aerostructure division, which we want to unwind. Therefore, through the first half of the year, what we plan to do is very simple. We plan to produce fewer fuselage -- the number of fuselage that Boeing will pick up from us so that the inventory will go down. This is clearly reflected in the volumes, the revenue levels as well as in the EBITDA. As a EBITDA level, there is a higher under-absorption of the fixed cost of the entire division, which will though change throughout the year -- as throughout the year as Boeing lately confirmed raising from 3 to 5 to 7 at year-end, the pace, the production pace and our delivery to Boeing will also increase throughout the year. As a consequence, in the second half of the year, we will raise our production rates.

[Valeria Ricciotti, executive]

Thank you. Let's take another question from the call, final 2. So Alessandro Pozzi from Mediobanca. Could you please open the line?

[Alessandro Pozzi, analyst]

Yes. The first one is on aerostructures, in your opening remarks, you mentioned positive progressions with regards to negotiations with industrial partners or partner and based on what we've read in newspapers more than likely to be the Saudi Arabia Sovereign fund. I was wondering, can you give us maybe a sense of what would be the key pillar of this new, let's say, partnership with your -- with the new entity that is coming in. And in terms of potential new programs, they're looking at potential setting up new facilities in Saudi Arabia. And there's been speculation that, that could potentially lead Saudi Arabia also to join the GCAP. That's the first question.

[Roberto Cingolani, executive]

Yes. Okay. I can say many details because we are in full due diligence. However, I can give you some color. First of all, this has nothing to do with the GCAP. The position of Leonardo about the GCAP has been very favorable since the very beginning. The other companies, I think they're also favorable, but this is a political decision the states will decide. Concerning us, we would be favorable anyway.

Having said this, let's go to aerostructures. Roughly speaking, what we want to do is a major player in the aerostructure domain. And of course, this is an industrial agreement, it's not a financial agreement because we are dealing with partners that owns important airlines, so there are massive customers of aircraft of any size. And therefore, they have -- they themselves represent big customers with the size that possibly is bigger than a big part of Europe. So in this respect, our strategy is multifold. On one hand, to create an industry pipeline where it is not because those countries, they really want to accelerate and take off in aviation, especially civil aviation, but only civil aviation technologies. We plan not only to work with civil aviation, but also with other technologies because we have quite a portfolio technologies that could be shared with our partners. Volumes will increase substantially and also the production capability, not only related to civil aviation. I can't say more, but the business plan will be clarified together with the presentation of the agreement, I hope as soon as possible and by the summer anyway.

[Valeria Ricciotti, executive]

Next question from the call as well, Martino De Ambroggi. Could you please open the line?

[Martino De Ambroggi, analyst]

3 questions on the M&A. The first is still on aerostructure because you are looking for a partner, taking a minority stake in aerostructure. I clearly understand that the reason for the merger, but could the potential partner be interested in us taking the combined entity aircraft and aerostructure. Number two, in M&A, the 5 refused offer is just a matter of price or there is any other main issue? And the third and last, I read a lot of names interested in Iveco. But frankly speaking, in my view, is only Leonardo, Rheinmetall that could be the industrial player able to exploit synergies.

[Roberto Cingolani, executive]

Thank you, Martino. Very, very pointing questions. I'll be very synthetic in the answer. So let me go back. The first one was about aerostructure. I exclude that anybody could access and acquiring our aircraft division our strategy with the Eurofighter in the future with GCAP and so on and so forth. This is too strategic for as high-tech. And I think we should give time to the partners also to grow with an effective and real aircraft industry. So I think step by step, we can start with something and then in the future, we will see. So at the moment, I categorically exclude that the Board, the margin of the operation is outside the aerostructure will be a nonsense industrially, but also for the partners. I mean we should be, how to say, reasonable in the industrial approach, and there will be a great mutual benefit if we can -- instead of we can make the joint venture. This -- you will see soon.

Second, you were asking about the 5 due diligence that failed. Now simply, this is because of price -- because we are dealing primarily with cyber and digital things and the multiplicators are crazy sometimes. So as you know, I mean, the financial -- basic financial approach is that EBITDA times a multiplicator, you have an enterprise value equivalent, right? Now sometimes we find multiplicators that are really crazy. And as you remember, I made a clear statement. We don't want to spend more than roughly 15%, 20% of the value of the division -- or the revenues of the division that is making the acquisition. And of course, if I buy a small company for EUR 200 million, this is going to be beyond the limit that I put and primarily, I mean, we don't think it's reasonable to invest so much. There might be some special case, but we didn't find a special case. So simply, the multiplicator was too high and others wanted to invest more. Least but not last, Iveco. Well, I mean, very -- in maximum transparency, we obviously presented our nonbinding offer together with a Rheinmetall that would make a big sense in terms of production capability, so also capacity boost in terms of strategy for light vehicles and many other issues. However, we plan to do exclusively an industrial investment, not a financial investment. So we are not available to spend more than the right money to do this event or this possible acquisition. So for us, it's a real industrial strategy. And so we will very carefully analyze the financial data. I think the due diligence and the data room will be open soon. So we're totally flexible, totally unbiased, but one thing is clear. This has to be an industrial operation. It has to be a clear advantage and a very fair cost of this operation. Otherwise, it's a financial operation, and we are not going to make any financial operation.

[Valeria Ricciotti, executive]

Okay. We're really out of time. So I want to thank Roberto and Alessandra for the time, and thank you all for being with us this afternoon. As usual, the IR team is available for follow-ups. Thank you very much. Thank you.

[Alessandra Genco, executive]

Thank you.

[Roberto Cingolani, executive]

Thank you, guys.