Leonardo SpA

MIL:LDO

Q2-2025 Earnings Call

[Alessandra Genco, executive]

Good afternoon, everyone, and welcome to our 2025 half year results presentation. I'm Alessandra Genco, CFO of Leonardo. Today, our CEO, Roberto Cingolani, will update you on the highlights of the first half of this year as well as the strategic progress that we have made. I will then take you through the first half 2025 results and performance across the group and guidance for the full year. We will then welcome your questions.

The supporting slide presentation is available for download by registering to the webcast, and all the first half results materials 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, executive]

Thank you, Alessandra. Hello, everybody. It's a big pleasure to see you again for this first semester of '25 will be a very dense presentation. We didn't expect to have such a concentration of new programs, results and so on, all in this afternoon. But that's the agenda you see here. We'll start with the highlights of the group, bringing to your attention the results of 2025, some quick analysis of the main financial KPIs, then the usual update on the efficiency plan and a short focus on the tariffs in view of the recent discussion and claims that were done, and we all read on the press.

Then we will move quickly to the organic growth analysis. In particular, I will inform you about the status of the 3 joint ventures that we launched. We call them organic now because they are all up and running, and we believe this is the last time we will consider them as inorganic contributions since the next quarter that will enter into the normal organic streamline of growth of the company.

Third will be the capacity boost presentation. You remember, I promised you to describe the methodology we're developing for increasing capacity and efficiency into the company in view of the strong growth that we all expect because of the geopolitical situations and also because of the reorganization of the business.

And the fourth point, we have the inorganic growth, the new inorganic part, which means updating you about the merger acquisitions that we did in the cybersecurity area and a big acquisition related to the Iveco land defense, Iveco defense systems that has been finalized in the last hours.

Fifth point will be Aerostructures. As promised, we are at the July '25 milestones, and we have news to give you. And last but not least, the new initiative about the integrated air defense scheme that is the completion of our multi-domain interoperability strategy that is the fingerprint of the entire industrial plan of Leonardo.

So let's go now and see the numbers first. We'll start with the main KPIs. Orders have been increasing 9.7% from EUR 10.3 billion to EUR 11.2 billion year-over-year, first semester '24, first semester '25. Revenues have been growing by 12.9%, up to EUR 8.9 billion this semester. Return on sales is increasing 0.1%. The free operating cash flow has been growing 19%. And the net debt has improved by 27%.

We are quite happy of those results, primarily because we see finally a trend in version. The orders are increasing, but the other KPIs are increasing super linear faster than the orders, indicating that very likely all our efficiency effort and our efforts in rationalizing the portfolio and improving the global efficiency of the company is finally giving measurable results.

This is for your analysis basically in the last 24 months since we started our activity altogether, we had an increase of orders. Today's guidance is EUR 21 billion for orders at the end of '25. And you see the revenues are growing slightly faster. The EBITA is growing a little bit faster and the free operating cash flow that was the weakest KPI we had over the last years is finally accelerating.

So I'd like to remind you that I was using this simplified expression, orders, revenues, EBITA and free operating cash flow that we didn't like so much. Now they are progressively getting parallel or possibly slightly super linear, which we believe is healthier.

The additional achievement to that, of course, we increased the investment by 15% over the last couple of years. We increased the dividend by 3x over the last 2 years. We made a number of global alliances following the light JV model. It seems to be very promising. We made bolt-on merger acquisition you will see today.

The tools where business and product rationalization, strong digitalization and increasing effort for optimizing the operations. Priority in the investment that was fundamental, working capital management and a very disciplined capital allocation strategy; and finally, investing a lot of effort into the efficiency plan.

Now in view of those results, we believe it's a good moment to propose a new guidance. Actually, we proposed to increase by 7% our guidance in orders from EUR 21 billion in 2025 -- end of '25 to something between EUR 22.25 billion and EUR 22.75 billion. So it's an increase on average 7%. And the same on the free operating cash flow with a net increase of 9% from EUR 870 million expected at the end of the year up to EUR 920 million, EUR 980 million. That's the range.

I mean to be honest, as you know, big orders impact not only on the orders themselves, on the order portfolio, but also the free operating cash flow because of the down payment but also because of the increased efficiency that we realized over the last 24 months. We believe that revenues and EBITA will grow a little bit later. There is a little bit of jet lag, so you don't see the immediate effect in the 6 months. But I'm sure from '26 onwards, we're going to see the positive effects of this important order increase and efficiency increase.

It's important to mention, however, that we are now proposing this new guidance with a substantial increase, 7% to 9% because we have to admit that this increase is important for us, and we believe it's just the beginning of an even better improvement of the other KPIs in the years to come.

As usual, I report you a short update about the savings plan. We're on target. The company is fully committed on that. This year -- this semester, we've been saving according to the initial forecast, 76% on procurement, more than EUR 100 million, about 10% on corporate and travels and about 14% on the disposal due to the disposal of core business activities for a total estimate of EUR 142 million savings, which is approximately 1/2 of the savings plan for the 2025. Considering that last year, we had an extra saving of EUR 41 million. We were supposed to save EUR 150 million, we saved EUR 191 million.

We can say that for the current year, we are approximately 65% of the target. So we're doing, I think, in a satisfactory way. And I confirm that procurement is the key saving driver for our saving plan action. The achievement, 2025, are on line with expectation, slightly better possibly because of the good heritage of last year.

And as usual, I'd like to remind you that this curve that you see here, this one, is the expectation in case of standard inflation. Then, of course, we had a second curve, the one that we mitigate because we do -- we sign long-term agreement to mitigate in the midterm the cost of the procurement. And the brown line here, this one is the forecast that we had in our saving plan.

The dots are the experimental points, those that we measure every quarter or every semester. And as you see, they are slightly below the model, pretty much like if the inflation were around 2.9%, 2.5%. So this is promising. We keep insisting. We're very committed in the saving plan. We want to bring the result of EUR 1.8 billion in 5 years at home. And I think this is a global commitment of Leonardo.

The update on tariffs. Well, you heard just a couple of days ago, there was a meeting between President Trump and President von der Leyen. We got some message like 15% tariff flat, but not so many details have been released. So it's very difficult to calculate the impact.

We heard about using money for American Defense platform, but this is concomitant to the use of the same money for European -- for the European defense space. So we are looking forward with our government and many other European governments to understand a bit more. However, we continue with our analysis.

The key considerations are shown here basically. Direct impact is not very important. We don't have big exposure because in general, governmental sales and defense are not touched so much by the tariffs. The indirect impact, this has to be evaluated because the scenario is changing continuously. For instance, the 50% flat, we still don't know exactly how it will be distributed with different goods. So we are tuned and we're trying to understand more, and we will inform you by the next quarter.

The international footprint is safe. I mean we have our American domestic market. And there, we don't have any important impact. We expect, like we said last time that out of a business in the range -- a global business in the range of $4.1 billion in the U.S. market, we expect just relatively small tariffs in the range of $10 million to $20 million this year and next year, excluding any mitigation actions. So this number has not changed. It's very -- I think it's encouraging.

The impact assessment indicates that the military programs, including Leonardo DRS and military helicopters are not touched by the tariffs. The B787 also will not be touched. Leonardo is not responsible for U.S. tariffs in this specific case.

For the helicopters, apparently, there was a decision that everything flying will not be touched by the tariffs, but it's unclear whether this applies only to fixed wing or also to rotary wings. We look forward to have information. We still don't know. But of course, we're going to calculate this as soon as the information will be clear.

One point of attention, as you see here, we label this red and green because it's digital. If this doesn't apply to the helicopters, we'll calculate the numbers. If this applies to the helicopter too, there will be no extra impact on our helicopter business.

Okay. So I think I can go ahead to -- to be honest, I think the financial part, what I've shown you now, it's the most important financial part, but I want to complete the information for this half year by informing you about the 3 main joint venture that we launched over the last year. And particularly, I start with the Leonardo-Baykar joint venture for the drones. We are really running fast here. The joint venture has been established recently. We already started the integration and the production.

First of all, let me anticipate, we expect by the first quarter of '26 to start the sale campaign. So we are really moving fast.

In Ronchi dei Legionari, where we have our traditional drone plant, we are not only developing a program with the Mirach, which is our own machine, but also we have equipped everything to prepare the final assembly of the TB3 that will integrate the Baykar drone that will integrate the payload done by -- all the payload done by Leonardo.

In Turin, the team is ready to work on engineering and certification activities, which is mandatory because we want to export those machines Europe-wise and possibly outside.

In Villanova d'Albenga close to Genova. We have set up the final assembly of the TB2 and of the Akinci. Akinci is the big one with a big payload. The TB2 is a smaller drone also with a remarkable payload.

In Rome, the team has set up a capacity -- high-capacity program for the multi-domain technology and innovation hub, preparing all the payloads that will be integrated in the different drones. And in Grottaglie, which is currently the Aerostructure area, we are preparing the composite -- the composite manufacturing technology and the final assembly of the Kizilelma. Kizilelma being a very interesting product. It's a jet. It's a fighter. It's a drone jet drone fighter that could be the adjunct of choice for us because it's very flexible with a big payload, I think, 1.5 tons. And so this anticipate quite a lot of our capability in producing adjunct also build the GCAP.

So this is actually up and running. It's the last time I will tell you about the Baykar-Leonardo joint venture as an inorganic event. This is now in the network of Leonardo, and you will see the numbers over the next quarters.

On the same footing, I will give you the Leonardo Rheinmetall military vehicle update. The joint venture is up and running, as you know, the governance, the top management is in place. Actually, what you see here, this envelope here is just the supply to the Italian Army. But of course, this does not include by any means export, which hopefully and very reasonably will, for sure, develop an extra demand. And of course, we are working -- we are already working on the integration.

But if we stay on the domestic program, the good news is that we are slightly ahead with respect to the original plan because we already delivered 5 infantry vehicles. It was 0 this year, but we are anticipating. And we are planning to anticipate also a couple of main battle tank, the international version, in order to allow our forces, military forces to become familiar with the new platform. This should be done by next year. So we are slightly anticipating.

That means the hope is to accelerate as much as possible. Of course, here, there is an important issue of capacity and efficiency, and I will give you the information in a minute when we will discuss the capacity boost. But from the Leonardo Rheinmetall point of view, things are running, and we are moving in the right direction.

Let me go to the GCAP. That was the last big initiative. So the GCAP, as you remember, was supposed to create the GIGO, which is the umbrella company, the JV. This has been launched. And it's named Edgewing, what you see here, the Edgewing Company. It has been incorporated on June 2025. It includes, of course, BAE Systems, Leonardo and the Japan Aircraft Industrial Co.

The company is in charge of fabricating -- designing, fabricating the first sixth-generation combat aircraft by 2035 that will operate at least up to 2070. And the top management has been appointed. Marco Zoff, who was the former Chief of the aircraft division in Leonardo is now the Chief Executive Officer of the Edgewing. And Herman Claesen is the Chairman.

So the machine is up and running. So they are working. There will be in October, the first ramp-up of workforce, approximately 200 units will start. And in the meantime, by the end of '25, the NatCos, the Italian, the U.K. and the Japanese companies will be launched with their own programs. This is very important because we will go parallel. So the platform will be developed. We already started basically and the NatCo in parallel will develop very important parts of the program.

For instance, in our case, the CRUD and CRUD operations, the adjunct and all this warm intelligence that is needed to put in contact to operate the drones by the fighter, by the sixth-generation fighter.

Importantly, the role of Leonardo is also quite crucial within the platform because as I told you already in the previous reports, -- we'll be in charge of the Sanket, command control, flight control. So the very core of the electronics that's very important for the performances of the platform over the next years.

So those are the 3 joint ventures. Now they are incorporated. They're up and running. We don't consider them anymore inorganic. You will see them embedded in the huge amount of activities that Leonardo will develop over the next years. But all this requires a lot of effort to deliver on time, increase capacity in production and increase efficiency. And this very thin boundary between efficiency and capacity is exactly what we are targeting with the capacity boost that I'm sure you remember, I proposed, I launched in the first quarter, so 3 months ago, promising you a first outlook of this program at the semester. So here we go.

Let me tell you, first of all, why capacity boost. So the international scenario is, though complicated, it is very clear. NATO defense strategy is targeting at a substantial budget increase in defense. Roughly speaking, 3.5% of GDP of the countries should be in defense platforms, plus something like 1.5% of the GDP in security, infrastructure and digital. So globally, we expect something like 5% versus the 2%, maybe 3% in some country, which is actually the size.

Europe-wise, the defense strategy through the Readiness 2030 program has launched a number of measures also with different names. But for the time being, for instance, the SAFE program plan to provide funding to the member states with a very long and low interest loan, very convenient, to be honest, almost 0 as an impact. And the expectation after talking to our main shareholders, the Ministry of Finance, is that there should be something like EUR 18 billion to EUR 20 billion dedicated by the SAFE to the increased spending in defense and security. This is over the next 3, 4 years. I mean those numbers will be, of course, certificated by the state, but we just have an indication.

And then country-wise, on the Italian budget, we were advised that there will be something like EUR 4 billion increase in defense expenditure per year over the next 5 years, at least 2030 because this will enable the country to approach 3% over the next decade. That's for defense only. Then there will be all the rest of the infrastructure.

So as I told you in the last meeting we had at the first quarter, we could estimate that every point of GDP increase in investment in defense, Leonardo is going to intercept something like EUR 2 billion to EUR 2.5 billion, roughly speaking. This is just an order of magnitude that gives you an idea. So if in the current year, we had an organic growth of EUR 4.8 billion over the EUR 17.8 billion that we made by the past activities. A inorganic contribution and upside because of the initiatives by EUR 1.5 billion. The expectation by the end of the budget plan is to be around EUR 24 billion revenues in 2029.

But if we include all the contribution that I told you now that are coming from national and international institutions under the drive of the NATO request, very likely, in a conservative estimate, we can expect that EUR 24 billion that we have at the end -- we forecast at the end of 2029 could be much more because at least another EUR 4 billion to EUR 6 billion could come in revenues because of all this increased investment in defense and security.

So the question was, are we ready to go in 5 years, in 4 years from EUR 17 billion, EUR 18 billion revenues to something like almost EUR 30 billion. Are we efficient enough? Are we capable enough to deliver with such an almost exponential growth in demand and of course, resources? That's why we decided to develop something new.

I mean we have to start from something. It's a very quantitative methodology, the one we developed. So we consider, first of all, the capacity boost addressing 3 divisions that are making themselves almost 70% of the Leonardo revenues, basically aircraft helicopters and defense electronics. According to the plan, this is how they are supposed to grow.

You see each division has an important growth, 7% electronics, almost 5% helicopter, 9.7% aircraft. So the point is, can we increase efficiency? Can we increase capacity in production to guarantee an average CAGR of 6.2% per year in a market that normally grows slower?

So what we did, therefore, was to create a group that will be permanently operating in the company over the next 5 years at least. This is coordinated by capacity boost core team, 7 people. They all have industrial experience from different industries, not only defense. We have gathered in this team about 75 people from the divisions. This clearly tells you the commitment of the divisions that are now those who produce the goods.

So 25 from Defence Electronics, 25 from Helicopters, 25 from Aircraft, taking care of the engineering, manufacturing, procurement, supply chain, human resources and of course, project management. And then we have a corporate team of approximately 20 people that includes Leonardo Logistics, so LGS, the procurement headquarter, Leonardo Logistics for the logistics of the initiatives and the most important division like finance, HR, security, business strategy and technology and so on and so forth.

So in numbers to date, 3 core divisions were aligned working towards the shared objective of increasing capacity and efficiency. More than 10 key functions have been engaged to create a cohesive execution. So the corporate here acts like the brain controlling a distributed brain into the company. More than 15 production sites have been analyzed in detail. More than 100 people are involved [ 24/24 ] on this activity. More than 200 hours of working sessions have been done so far to assess the needs and to identify the key initiatives to develop the capacity boost program.

Now I will be -- I will give you more numbers in a minute, but just to let you understand the methodology. The 3 inputs are engineering, manufacturing and supply chain. Those are the 3 key factors that impact on efficiency and capacity.

Each division has different streamlines. IBP stands for integrated business plan, so it's the industrial plan. LRMV is the Leonardo Rheinmetall joint venture. LBA System is the Baykar joint venture. National is what we are negotiating in terms of capacity boost with the Chief Army Commander and all the Ministry of Defense. It's classified. I cannot give numbers, but it's a big -- it's a very big database, more than 170 items that requires clear answers and capability to deliver on time. And then the Readiness 2030 program, which is Europe.

Now where you see green, we have completed the assessment. Where you see yellow, we still have to work primarily because of Readiness 2030, that's a little bit unclear at the moment. Classified, we are quite ahead, but we can say for obvious reason of confidentiality for national security, but it's also doing very well. So the methodology consists in comparing expected workload and resources for the budget plan '25-'29 with the actual capacity and trying to understand which are the needs of the division.

Now if we were in a very inertial model without making any effort, I could forecast -- we could forecast that only for the engineering, we might need something like 6 million to 7.5 million extra hours of engineering. For manufacturing only, we would need something like 1.7 million to 2.3 million hours for manufacturing only. And at least we should focus on something like 30 to 60 key strategic supplier that are the most important in the broad supply chain that we have to manage continuously.

So considering that 1 working hour would cost EUR 90 or EUR 100, you can easily see that this would be EUR 1 billion investment just to fulfill the needs in terms of working hour, engineering hours, so on and so forth. That will be not sustainable in the mid- to long term. I mean we want to avoid to make huge investment to guarantee a capacity and efficiency in the short term and then in 5 years, finding ourselves with gigantic installations that don't have the demand anymore.

So we have to be flexible. And this is exactly what we're trying to do. We don't want to make another Aerostructure situation basically. So we want to be clean, lean, agile, but we need to intercept and understand the needs in terms of efficiency and capacity of all our divisions.

How we do this? It's a bit complicated, I'm sorry. There are 5 priority intervention areas, commercial focus and product portfolio rationalization, efficiency boost efficiency stands for manufacturing, digitalization, engineering, capacity growth, which is really industrial footprint redesign, people attraction and development. So we have to work on brains and upskill the people and then effective and reliable supply base.

So there is 5 priority intervention areas and 7 flagship initiatives, product portfolio, manufacturing, digital AI factory, next level engineering, industrial footprint, Leonardo Academy and resilient supplier ecosystem. So those are the initiatives. Those are the priority intervention areas. I skipped the vision. I mean, it's clearly -- it's very clear what is the vision of each of the flagship initiative. What is most important is the target that we want to have.

For instance, for new product portfolio strategy, we need to rationalize 30% of the product. either withdrawn or optimized or integrated or eventually moved to the supply chain where it's more convenient. For manufacturing excellence, we have to quadruplicate the efficiency in the land platforms, increasing by 40% the efficiency in helicopters of the production rate and 35% in aircraft. Considering digital in a factory, we need to have a 10% extra productivity in specific selected processing product that can only come by a strong digitalization and so on and so forth.

Now you have the data. I don't want to bore you just reading the numbers. This is on the slide you have, but it's clear that we went from a method to numbers. That will be reported to you every 4 months. The commitment we have with the structure in Leonardo and with the market is that we are going to report every 4 months, there will be a report of basically every couple of quarters, we are going to tell you how this is progressing.

In order to move towards the implementation of the method, at the moment, we have 177 teams and projects that have been launched, 9 in the portfolio, 40 in the efficiency, 24 in the engineering, 54 in the industrial footprint. And those are specific vertical projects that we are making in the specific division for specific products in order to get the results that we promised.

It's a neural network. So those are the -- this is the Galaxy like we -- how we like to call it. It's a crossing between people, strategy, capital allocation, supply chain, engineering, manufacturing. Those are interconnected, of course. They're not independent. And there are a number of warnings, how we allocate resources to core products, how we allocate talent, how we allocate resource -- how we align resources to the growth objective, how we digitalize and with what priority, how we manage the workload of the engineering. So those are the big warnings.

In order to do this, we have clustered the project, as I told you, we call it Galaxy because we name them like Cassiopeia, Hydra, [indiscernible]. Those are teams with allocated programs that are targeting the new product portfolio strategy, the Leonardo Academy for Human Resources, the resilient supplier ecosystem, the next level engineering, the manufacturing excellence, the industrial footprint redesign and the digital AI factory. And ultimately, they have to deliver those numbers that will be under control, will be reported continuously and will be 24/24/7/7 and the team of approximately 120 people will be dedicated. We are ready to expand this team if necessary.

To make you quite, we are not going to put billions on that because the divisions already have the capacity boost in their budget plan growth. They are aware of that. We will need extra resources that will come from the extra revenues, extra profit, but this will be done in real time, measuring the needs and trying to report the results that we are promising.

The key takeaways for the capacity boost are very simple. More than 100 people engaged for industrial capacity and efficiency optimization with a continuous monitoring and formal reporting every 4 months. So everything will be super transparent. This is a method, but it's also a quantitative process.

We empower the supplier ecosystem because we want our supply chain to be able to scale up production capacity. Those are -- in principle, most of them are small, medium enterprises. We can suffocate them with increasing demand without stopping. We are big and we can maybe do extra sacrifice, but for the small, medium enterprises, that will be a deadly effort. So we have to nurture. We have to support the supply chain in a way that can follow our growth.

Finally, the method is meant to be solid, flexible, sustainable compatible with a sustainable growth model, and it's focused on operational efficiency before any scale up. So once the operational efficiency will be at the maximum level, then we can scale up, eventually building new plants or so. But first of all, we have to reach excellence in efficiency and capacity of delivery. This is our commitment now, and you will be reported about that continuously. We'll show you the results.

Let me go now to the inorganic growth. We have very good news here. I want to make a short stop. I mean, I'm sure you remember this was last quarter. The inorganic growth strategy as presented -- has been deployed by creating the joint venture, Baykar, GCAP and then with Rheinmetall and then the Fincantieri for the ships, the Space Alliance, we're working on space. And we said we have to go towards the multi-domain completion.

So we will focus now on 3 areas: land, this one. We'll focus on cybersecurity, this one. And last but not least, about the space and the constellation. So I will give you 3 pieces of information that are very important for our future.

The update on the M&A updated to last week, 24 target companies have been the subject of our due diligence in the last 15 months. Of course, this number is increasing. Last time it was 22, now it's 25 -- 24. For the time being, there are 4 offers still ongoing. 12 were stopped, 5 were refused. There was another winner, but 3 acquisitions have been signed. Particularly, I will tell you today about the acquisition of Iveco Defence. Give me a couple of minutes because I want to do before the agile acquisition, the small acquisition, especially those in the cybersecurity division.

We have acquired Axiomatic full ownership. And the minority stake of SSH, both crucial for our industrial plan in cybersecurity. We have another couple of due diligences in the space, but this is the subject of the next quarter. Let me show you what is the upside given by the cybersecurity strategy.

Now I'm sure you remember that 2 years ago, we launched a transformation program for the cybersecurity division that had a plan that was too spread up over different fragmented small programs. So we decided to increase order generated by proprietary products. That means investing in technology, innovation, increase the relevance of defense and cyber digital business, less public administration and more serious defense cybersecurity, reached a very challenging target of EUR 1 billion order by 2026. At that time, I don't remember, I think it was EUR 400 million or so. I don't remember now. I don't have the number here. But no, I think I have in '23, okay. And then rationalize the product portfolio.

You see from this plot, you see here very clearly, in '23, orders were EUR 0.7 -- now the target was '26 to go to EUR 1 billion. I'm happy to announce that in '25, we go to EUR 1 billion. The acceleration was really powerful. CAGR was around 20%. This is because of the rationalization of the portfolio and then the strong investment in new technology. And being primarily software technology, obviously, the pie back is better than the hardware. When you have to build concrete things, hardware, you need more time to see the results with software in general services, you're much faster. And I think this speed reflects the fact that choice was good.

And if you remember the opportunity metrics that we had 2 years ago, where essentially most of our products were in the low success probability axis with low impact access. We said, no, in 2 years, you have to be here in the challenging part of the success metrics. Well, I think this clearly shows that we are growing in the right way.

Now what do we do with these 2 acquisitions. The 2 acquisitions are perfectly inserted into the strategy of the division. We are targeting the accomplishment of zero trust capability, never trust who is operating with your data and always verify who is operating. Now to make it clear, Zero Trust is a security approach that is applied within the NATO and will be progressively applied and adopted all security requirements in the civil context. So having Zero Trust capability in authentication and authorization means that we are already compliant to the NATO standard, and we can offer a much stronger product portfolio, essentially because we have a dynamic and real-time privileged access management of our products. And also, we can monitor continuously what type of user access and what type of resources and which circumstances those resources are used.

So Axiomatics from Sweden guarantees at a cost of EUR 33 million, a very powerful package in Zero Trust for authorization. The 1/4 -- the 25% of share in the SSH communication security company, which is listed at the stock market for EUR 20 million investment ensures us the authentication capability in all our cybersecurity products. So for secure cloud, endpoint security and response, cyber threat intelligence and advanced managed security services.

This makes our product much stronger. The participation in SSH from Finland is very important because we got basically the license to adopt this technology in all our products, in every cybersecurity by design platform, in any other cybersecurity-related product. This widens the market to SSH, but also improved substantially our portfolio.

We made a rough calculation. We could consider over the budget plan from today to '29, something like let's say, valuation of the Zero Trust capability. It could be evaluated as an estimated target market in the range of EUR 250 million, EUR 260 million for the authentication and EUR 270 million for the authorization. But the synergy of the 2, the fact that we can offer both together simultaneously adds another EUR 20 million, 90 million target market. That means globally some EUR 0.8 billion additional estimated target market because of this introduction of this new capability in our portfolio.

Of course, we will monitor this continuously, but we are extremely satisfied of this acquisition because this really makes our portfolio stronger, our product much stronger and opens the geographical footprint of the division and, of course, accelerates the success of the cybersecurity that in the frame of the multi-domain picture that I reminded you before is fundamental because all the components in that volume space where the multi-domain interoperability should be insured must be cybersecure. And of course, within the NATO standard with authentication capability and authorization capability, Zero Trust, we cannot be compliant to all the military needs. That's very important.

Now let's go to the land platform and Iveco Defence. Now you've heard a number of rumors about that. 2 years ago, there was a possibility we explored the possibility to create a joint initiative with Iveco. But you know that recently, there was a strong acceleration. So let me summarize, first of all, why land domain has become so interesting, so strategic over the last, say, 12 months.

So first of all, there is an increasing demand of land vehicles at the moment. The market is estimated to be approximately EUR 100 billion by 2030. And importantly -- more important is that the -- let's say, the ReArm EU, the European defense investment is targeting something like 40% of the funding for land defense and 70% approximately for the complete package land and air defense. So this is perfectly fitting with our multi-domain interoperability vision.

Now so land defense was not so critical even 2 years ago. I would like to remind you that this also comes out of the -- what happened in Ukraine. I mean people have realized that Europe has 118,000 kilometers of borders into the continent, 118,000. It's a huge number. And more or less the same amount of borders is on the east side. Very few other continents have so many borders to protect. So land defense gets very important together with air defense.

Obviously, the fact that we launched this huge enterprise with Rheinmetall, with our partner, Rheinmetall on the next-generation main battle tank and on the next-generation advanced in the vehicle that will be interoperable, satellites connected, brand-new machines. If you compare -- I mean, the most recent machines have been designed in the year 2000, more or less. We are talking about the future here.

Well, this has made the interaction with Iveco very strategic. For instance, I'm sure you remember in the joint venture between Leonardo and Rheinmetall, 15% of the workload was supposed to be transferred to Iveco through the consortium, Iveco Oto Melara. Oto Melara is the land defense plant that Leonardo owns, just to distribute the effort, the capacity and production in the country.

Now all this becomes entirely Leonardo. And the collaboration with Rheinmetall is also very strategic because Rheinmetall is not only world-class expertise on land defense system, but also on trucks. And the Iveco Defence contains a component, which is military trucks also, not only civil trucks, and this is also part of the design.

So we believe the integration of the acquisition of Iveco is a unique possibility to offer worldwide both tracked and wheeled platforms. And we are the only one that can offer on wheels and on trucks, all kind of platforms, inventory vehicles, main battle tanks, light, heavy harm, partly armored.

The acquisition of Iveco guarantees an increasing capacity boost in capacity of production because there are 3 plants in Italy and another couple of plants around the world that can be used to complete our capacity effort. And last but not least, Iveco started studying land defense unmanaged system drones, and that would complete our multi-domain interoperable strategy, which adopts drones everywhere in the sea, in the land, in the air.

So the acquisition of Iveco Defence further enforce Leonardo's strategic position in the land domain. And this is something really new because we have to be fast in accepting the new market demand and the change in the global security landscape.

How is Iveco doing? Well, I mean, the key financial numbers are here, 1.1 -- more than EUR 1.1 billion revenues this year. EBITDA, EUR 129 million. EBIT, EUR 180. by region, they sell 47% in Europe and plus 25% in Italy, 12% in North America, 9% in the rest of the world, 7% in South America. By product, it's about half-half. Land vehicles and trucks. Part of -- most of the trucks are military. So they can carry radar, they can carry weapons.

The workforce is about 2,000 people, primarily in Italy, rest of Europe and Brazil. More than 250 R&D engineers and 5 production sites, 3 are in Italy, Bolzano, Vittorio Veneto and Piacenza. So one is in Germany and the other one is in Brazil, where we do have also quite a lot of activities. It's also very encouraging that there is a German-Italian connection into the plants that it mirrors the joint venture with our partners, Rheinmetall. And the commercial offices in 9 different places with 6 R&D centers. So this is a healthy representation.

At the moment, the portfolio includes armored systems, so tracked, wheeled and amphibious with a gross margin, 31%, very interesting. Multirole and uncrewed military vehicles, margin 14%. The complete light tactical multirole protected and unprotected vehicles that complete the portfolio.

And then there are the trucks, military and super heavy duty. And a small part, which is for mining application, oil and gas, this is a relatively small, 11% of the production. But this is a very interesting portfolio.

We've been working on the synergies, of course. But let me tell you -- let me give you the numbers. Given the EBITDA that we gave you before and assuming the average international multiplicating factor 12x for this -- in this period of our history and for this specific class of products, the enterprise value has been estimated to be EUR 1.7 billion, which is a fair price.

We're going to go for the acquisition immediately. So this is done by Leonardo, but we have a term sheet already signed with our partners in Rheinmetall because we will discuss over the next few months how to share the -- to distribute the truck activity and the armored vehicle activity. So this will be done over the next few months. By the end of the year should be completed, of course, subject to regulatory clearance for our partners in Rheinmetall that they have a big experience in the field of military trucks.

But of course, this is also a big help for us because the joint venture with Rheinmetall gets stronger with a bigger fingerprint. And it is very important now that we have already -- we started estimating the synergies with Rheinmetall that, of course, are not included in our evaluation. But if you consider that we will become the first integrated OEM that can offer wheeled and track systems with a full value proposition, we can benefit of an expanded commercial network because we also absorbed the one of Iveco.

We make a very strong -- we have a very strong benefit by the fact that all the combat electronics, weapons and sensor suite are produced by us. So we make a uniform electronics strategy for all our land systems, for all our drones and for all our interoperable multi-domain platforms. We optimize the manufacturing because, of course, we share the plants. We, of course, increase our capacity in production because we have more engineers, we have more capability in production. Well, all this together, including the logistic network expansion.

At first glance, gives something like EUR 30 million plus in the EBITA on average because of the synergy among those technology characteristics. But with a multiplier of 12, it's a big number. It means that we do have a very good possibility to accelerate innovation and product development, leveraging on our excellence in Europe and also outside Europe from both entities. So this is the rationale. Those are the numbers. We closed the deal.

Starting from tomorrow after tomorrow, we're going to work on the integration, full integration to fulfill the requirements of the military forces and of the market. This can only increase in the mid- to long term. So on a long time scale, our capability, also opening the way to the unmanned land system technology that in this way, like we did for the flying unmanned system can really be accelerated joining forces with the Iveco people.

Let me go now to Aerostructures. That's a very important appointment. So let me tell you, first of all, the disclosure. Our partner authorized us to say the principles, not yet authorized to disclose the name. They have very strict rules, very well explained. We understood perfectly. But of course, we explained that we need to give the vision now where we go, and there are important news that we're happy to share with you.

At the moment, our partners made a very detailed due diligence with a number of visits, analysis, 2 international advisers, a very, very deep analysis of our stand-alone industrial plan. This is the one you already know. We call it the third scenario. I'm sure you remember. Optimization of the industrial setup of the Aerostructure division, restructuring the supply chain, improvement of the operational performances, diversification of the product and to increase revenues. This is what we are doing already. And our partner over the last months, we're working on the due diligence.

And as you remember, July '25, this semester, this day today was the go/no-go day. That means that after this due diligence, our partner could have said, okay, we don't continue because we don't see reason to continue. or he could have said, we want to continue and study now the partnership for a joint venture. So I can communicate officially that our partner said, we want to continue, enter Phase 2, the second phase. So we have now the green light to go towards the second phase of the program, which is explained simplified in this slide.

We want to define a joint venture with a partner. Phase 1, so the analysis of the stand-alone Leonardo Aerostructure business plan has been completed successfully. The green light means that now we start the second phase, this one, in which we will develop by the end of the year. That's a target for us. The partnership plan for the joint venture based on the commercial and industrial synergies that we are going to develop together. This means how the market will be expanded, which new products, what technology we transfer and so on and so forth.

With the discussion of the key stakeholder, we have to engage a stakeholder because, of course, as you imagine, we now are ready to go with our partners to talk to our stakeholder, namely those big companies that are giving us orders of Airbus and Boeing because we're going to share with them the strategy, which is a constructive growth strategy. And of course, we have to share with them how to make it.

We will work on the joint venture governance and organization and the implementation road map for the next few months. This work is in progress. And I think -- well, I mean, 1 month ago, that was an important target for us to know that today, we could have said, okay, we can enter Phase 2.

Just to make short, we want to create a global leader in the Aerostructure business, combining Leonardo distinctive capabilities with the synergies enabled by the new partnership. This is a target. We have to close by the end of the year. There is still the possibility that we don't find, how to say, the good way, a satisfactory way for everybody, but we -- all the fundamentals now are very clear. We are both very much committed. The partners has been very, very serious in the analysis, very collaborative. We're doing our best. And I think the probability of success is very high, very high. And this is what I can communicate at the moment.

Sorry for not giving you some numbers and some name, but I think you have to understand how important and delicate is this transition phase. And this for us is the most important. We want to do something that will fix in a disruptive way and a definite way, the problem of Aerostructures in the years to come for Leonardo.

Before concluding, after 24 months, we started. I want to go back to the original design. You remember, this was 2 years ago, the little boy that was making the drawing of the multi-domain and we were starting creating alliances trying to design the future. So I told you now why land defense. So land defense is over. I told you why artificial intelligence and cloud computing, this is over. This is running very fast, very well. We closed the agreement with Fincantieri for the ships.

Baykar drones, everything is fine. GCAP and the next-generation fighter, this is up and running. Cybersecurity strongly improved. We have seen the numbers and the expectation. What is left? Space. The division is doing well. We're still talking to our partners, of course. But you know that we are now launched the constellation program. with the Minister of Defense. This will be a national security program, very advanced.

This is the last component, electronic acting like the glue of all the strategy. This is the last component of the draft we made 2 years ago. And the last component means that we are now ready to propose the Leonardo integrated air defense solution, which is missing. And this is not for Italy, this is for export for all the world. Primarily, this takes advantages by the full portfolio that now Leonardo has in its arsenal.

We fabricate all kind of radars. I think we can easily say we're Europe leader and among the top in the world from 30-kilometer range to 1,000 kilometers. We do have all the drone technology. We do have our constellations in construction for both infrared observation and tracking of trajectories.

We do have land system, land services. We do have aircraft of any kind. We do have drones on ground and in air. We do have everything to create our Leonardo Integrated Air Defense solution. The point is that if you -- I mean there are 2 competitors basically, the patriots on one hand and the Israel defense system. But our idea is to be much more flexible.

We want to revert, we want to invert the paradigm. We don't make the integrated air defense solution starting from the effector from the miss side. We start from the technology. We can install any kind of radar on any kind of land platform on our platform, providing any kind of ground service, interoperating any kind of machine on the sea, in air, in land with a cybersecure protocol that makes communication very secure under the observation of the constellation, which is under construction, will be launched '27, '28. And the effector is the last thing.

The system will be adapted to the effector. Whatever is the missile you have, we're going to adapt the system to your missile. Pretty much like we don't start from the bullet to fabricate the GaN. We fabricate the GaN and then the GaN will have a caliber that can be adapted to all bullets.

In this way, we think we can offer a sort of partnership with any country, especially in the Western system to defend our air in combination to the land defense because I explained you what we're going to do with Iveco and with Rheinmetall according to the new plan, having a cybersecure environment, strong capability in artificial intelligence and computational power. That is the most important thing to guarantee the decision is made quickly, having state-of-the-art electronics command and control, combat system, cloud combat and so on and so forth.

And finally, being the only one sixth-generation fighter program that is alive because as far as we know, GCAP is the only one that is running at the moment. So we can look at the future with some optimism in this respect.

And with this, I want to conclude. I thank you for your patience. It was a long presentation, I'm sorry, but this after 2 years, we completed the design and we have good numbers. And I pass the -- I give the word on the stage to my friend, Alessandra, for some of the more financial information about what we did so far. Thank you very much, guys, and I look forward for your questions later.

[Alessandra Genco, executive]

Thank you, Roberto. I'm very pleased to be walking through our results for the first half. They show a good commercial and financial performance across the group with very solid double-digit growth levels across order intake, revenues and EBITA, while further improving free operating cash flow and reducing net debt.

So we have continued to build on the positive trends that we saw in Q1. You can see this across the group and across all the KPIs. New orders of EUR 11.2 billion, up 9.7%. Group revenues, EUR 8.9 billion, up 12.9% EBITA EUR 581 million, up 15%, slightly improved return on sales of 6.5% and the lower free cash flow outflow of EUR 408 million at half year. We're seeing good demand for our core Defence and Security products, technologies and solutions with strong commercial performances across all divisions and in particular, in Defence Electronics, helicopters and in the Aeronautics. This reflects good position in key domestic markets as well as export markets.

This first half group order intake is again well balanced with a good spread both geographically and across business areas and without any concentration in any single country or any single customer and no jumbo orders. Book-to-bill was almost 1.3x, and our group backlog has risen to EUR 45 billion as at June. New orders and our ability to deliver off this backlog drove solid growth in our core top line and volumes.

We have then been able to continue increasing our profitability and cash flow generation at a faster pace than we have been growing our top line, benefiting, as you have seen, from efficiency measures, from operating leverage and from tighter working capital management.

Our first half free operating cash flow was EUR 480 million, an improvement of almost 20% on last year in the level of cash absorption.

As of June, our group net debt was also significantly lower at EUR 2.2 billion versus EUR 3 billion in June 2024, including the sale proceeds totaling EUR 446 million received in January and in June from the sale of our underwater business. And at the same time, we have increased investments in the business and also doubled the dividend. So overall, a solid first half performance on track and it underpins our confidence in our targets for the full year.

As Roberto said earlier, we are increasing our guidance for new order intake for the full year to the range of EUR 22.250 billion to EUR 22.75 billion as we see more visibility in the second half pipeline, reflecting potential jumbo orders.

And we also are raising our full year free operating cash flow target in the range of EUR 920 million to EUR 980 million. Given our solid operating performance and the higher order intake expected for the full year with the associated advanced payments from customers. And we're now also expecting a greater reduction in our year-end net debt. So let's go deeper into the first half results and performance at business level.

Starting with Helicopters. We saw continued strong positive momentum with good progress on all programs as well as customer support. New order intake was EUR 3.4 billion in the first half, a good performance against a particularly strong comparator for the previous year. Continued solid order intake on defense and governmental, including the AW249 program for the Italian Army, plus multi-platform orders for governmental customers in Malaysia. Orders for customer support from the U.K. MOD for its AW101 Merlin fleet, plus orders on the civil side in the offshore oil and gas segment and for orders for the ground-based pilot train system for the Italian military.

Revenues in helicopters increased to EUR 2.8 billion, up 15%, driven by increased activity on the AW family of products as well as the good contribution of customer support and training. All of this led to higher profitability, EBITA of EUR 202 million, up 17.4%, and this was also supported by good resilience in the supply chain. So a good first half performance from helicopters and continued good commercial momentum with solid demand across business areas.

Next, Defence Electronics, which was a good performer as well across all segments. Electronics Europe achieved good growth in new orders, volumes and profitability. In the first half, new order intake was EUR 3.7 billion, up 11.7% year-on-year, excluding the UAS contribution. The book-to-bill was 1.6x and showing growth across all domains and geographies, especially in Defence Systems. Good demand for the upgrade and renewal across a broad range of platforms.

In particular, additional orders for the MK2 radar for the U.K. Eurofighter Typhoon as well as defensive systems for 11 Eurofighters for the Italian Air Force and in the naval sector, the order for combat systems for the Indonesian Navy Patrol vessels.

Revenues in Electronics Europe were up 12.6% at EUR 2.3 billion, reflecting higher volumes as we delivered off the growing backlog and EBITA rose to EUR 294 million, an increase of 17%.

Return on sales increased to 12.7% and contribution from strategic joint ventures were in line with expectations.

At the same time, Leonardo DRS had also reported a good first half performance, showing good new order intake of $1.8 billion, up 5%. Further orders for the electric propulsion components for the U.S. Navy Columbia-class submarines, plus additional orders for sensors for the second-generation infrared vision system for the U.S. Army Bradley.

To mention also the award of a contract to provide combat management systems hardware to the U.S. and to allied navies. Revenues rose to $1.6 billion, up 13% on the back of growing volumes. EBITA grew to $143 million, up 18% with an increased return on sales of 8.8%.

Moving now to Cyber & Security Solutions. Volumes and profitability were up significantly compared to the same period last year, as Roberto had anticipated.

New order intake was EUR 453 million, up 6%. Revenues, EUR 359 million, up 19%. EBITA, EUR 29 million, up 81%, with return on sales increasing to 8.1% and continuing its positive trajectory with increasing profitability driven by higher volumes and product mix.

Order intake growth was mainly driven by domestic markets and included various orders for the Italian Public Administration through the PSN fund for digitalization, cloud infrastructure and secure communications as well as new international governmental orders.

As we have mentioned, we are now presenting the Aeronautics division, grouping together our aircraft, Aerostructures business unit and capturing more potential opportunity across our fixed wing activities. This reflects our role as a leading player in aeronautics in both military and civil sectors, and it will also now include our participation in the next-generation GCAP program.

We will also include activities that are developed in the unmanned aerial systems. There is a single stewardship now with a consolidated vision across both the fixed wing businesses and the newer developing areas, maintaining their distinct strategies and plans. The aggregated division's size is shown on the table and on the chart in financial terms with growing orders and revenues and with EBITA reflecting the first half losses in Aerostructures as we had anticipated and ATR performance.

To make operating performance comparable, we are still setting out for you the KPIs on the next slide for our business units, aircraft, now including also the GCAP, which previously was reported under the other activities, then Aerostructures and also the ATR joint ventures.

Now let's start with the Aircraft business. Strong performance in the business unit. Orders grew in the first half to EUR 1.6 billion, up 42%, driven by orders in the GCAP program and export orders for the C-27J multi-role aircraft. Revenues grew to EUR 1.6 billion, up 18.6% on the back of higher volumes across military programs such as the C27J, GCAP and JSF. While EBITA grew to EUR 180 million, up 5.9% and maintaining strong double-digit profitability.

It is important to note that around 30% of aircraft revenues are now coming from customer services, representing stable revenues, attractive margins and cash flow and shows how we have been successfully implementing the servitization strategy over the last few years. So an important contribution on the defense side from aircraft.

Moving to the civil side of Aeronautics. In Aerostructures, in the first half, we saw further progress in line with its recovery plan. Orders increased to just under EUR 700 million, almost double the level of the previous year on the back of orders from Boeing. But Aerostructure revenues in the first half were lower at EUR 334 million, and its EBITA losses increased to EUR 96 million. As we have mentioned before, this reflects the decision to slow Aerostructures production hours on the B787 program to a single shift per day during the first half of the year with the purpose of unwinding the inventory of fuselages.

The plan is then to increase production level again in the second half of the year, in line with the planned ramp-up for the B787 from 3 to 7 shipset per month by year-end. And this will lead to better underabsorption of fixed costs and reduces losses in the second half of the year.

ATR contribution in the first half was negative EUR 29 million, with performance impacted mainly by supply chain constraints, which are currently being addressed. And we're now pleased to see some more positive signs in terms of new order intake.

Turning to our Space division. In the first half, we saw an improving commercial performance and profitability with new order intake higher at EUR 413 million, notably in Telespazio Satellite System and Operations in the Geooinformation segments. This led to increasing revenues and the more positive EBITA contribution is reflecting the confirmed profitability at Telespazio and also the partial recovery in the TAS joint venture as it began to benefit from efficiency plans launched later in the year.

Our strong group EBITA in the first half also helped drive a better bottom line performance. EBIT grew to EUR 432 million, up 10.8%, while the ordinary net result grew to EUR 273 million versus EUR 189 million the previous year, with lower financial expenses. The bottom line net result of EUR 542 million benefited from the capital gain recognized on the sale on the underwater business to Fincantieri completed in January this year.

Importantly, we have continued to make further progress in improving our cash flow generation. It's driven by the robust performance on the defense and governmental side. We saw an improved free operating cash flow in the first half with a reduced outflow of EUR 408 million. It reflected higher EBITA and good improvement in the level of cash absorption in the first half. We are pleased with this performance. And again, it reflects the efforts we have been making to manage working capital more tightly. It also underpins our confidence in raising our full year target, as was mentioned before by Roberto.

So you have seen in the first half, we have continued our good start to the year and are on track with our expectations. Our main businesses on the defense and governmental side are delivering strongly, especially in order intake, revenues, profitability and cash flow. We are confirming the full year group guidance that we gave you in March for revenues and EBITA with top line revenue growth as we deliver from backlog and improving profitability.

While we are increasing our guidance for new order intake for the full year to the range of performance and the cash advances also associated with higher orders, we now have a lower target for net debt. At year-end, we plan to have a EUR 1.1 billion net debt figure as a result of higher free cash flow and also because of the postponement to next year of some expected large portion of the M&A transactions.

As we have previously said, our guidance is based on our current assessment of the effects of geopolitical and macroeconomic environment on the global economy and our assessment of tariffs, supply chain and inflation and assuming no major deterioration.

So now to conclude, the first half showed a good performance across all key metrics. We have made some solid positive steps, and we are on track delivering our upgraded full year guidance and industrial plan. We're confident of our path ahead of us. Thank you, and I will now hand it over to the Q&A.

[Unknown Executive]

Thank you, Alessandra. We are now ready to take your questions, and we would like to start from conference call. Please go ahead.

[Operator]

[Operator Instructions] We will start with Alessandro Pozzi with Mediobanca.

[Alessandro Pozzi, analyst]

A big part of the presentation was on capacity boost. And forgive me if I've missed some of the comments, but it feels like there's going to be a first phase where you will focus mainly on productivity gains and efficiency and perhaps a second phase where you could deploy more CapEx and expand production. Is that right? And can you give me perhaps more color on these 2 parts of the capacity boost? That's the first question.

And second question, on Iveco Defence. I was under the impression that the JV would have made the acquisition of Iveco Defence, the Leonardo Rheinmetall JV. Instead, it looks like Leonardo will be buying Iveco Defence and then it will sell the trucks business to Rhemetall. Can you give us an idea of the time line for that? And what could be the cash in from the sale of the trucks business to Rhemetall?

And if I can, the final question on order intake. Any color on the jumbo orders that you expect to receive in the second half? And on free cash flow guidance, how much comes from the guidance upgrade? I mean, how much it comes from the improved underlying cash performance versus down payments?

[Roberto Cingolani, executive]

Yes. So thank you for the question. Let me -- first of all, I'd like to answer the question you made about the capacity boost. I would generally confirm your interpretation in that at the moment, with the 177 programs -- projects that we are running are essentially going towards rationalization of products, increase of productivity in selected programs, manufacturing capacity in selected areas. So clearly, we are in this first phase, we are starting, first of all, because nothing like that has been ever done in the past with such a in such a depth, but also with such a broad vision, very transversal.

And second, I think that what we want to accomplish initially is to have very good efficiency because there is room for increasing efficiency. Once we make sure that the efficiency is high enough as we expect, I mean, close to 1, maybe it's too much, but 0.8, 0.9. At that point, for sure, we should start the second part, which you don't make a new production line or a new plant if you don't use 3 shifts per day in the plant. And to have 3 shifts per day, you need everything digital, everything well done. So indeed, we have to improve the situation before and then eventually going towards more massive investments and change in the production lines. Same with the supply chain. We need to have the most important company -- most important members of the supply chain at the beginning, and then we will go more in a more capillary and fragmented way into the smallest one.

Concerning the question of Rheinmetall, Iveco and Leonardo. So well, first of all, the joint venture between Rheinmetall and Leonardo was done on purpose without industrial assets. I'm sure you remember, in order to start very fast, we made a joint venture that was very light, Leonardo and Rheinmetall keeping their own industrial assets and working primarily on -- the joint venture was working primarily on the war share. So it was 60-40 or if you wish, 50-50, but this was based essentially on a very well-designed war share analysis.

So for that kind of joint venture like [indiscernible] if want similarly, where you don't have an industrial asset hardware CapEx infrastructure given to the joint venture, it is difficult to face such a big purchase because anyway, it's quite big. So in any case, the acquisition would have done by Leonardo and Rheinmetall.

Originally, we thought there was a possibility was to go directly us and Rheinmetall together, making the purchase. But then discussing with the Iveco colleagues, it was difficult with the time constraint we had, we want to finish by the end of July, having all the carve-outs and all the detailed information that could have led Rheinmetall and Leonardo independently to make -- to close the deal, taking the entire EV Iveco Defence perimeter.

So we decided in this way. We do it -- and we already have the term sheet with the friends in Rheinmetall. And since tomorrow, we start discussing how to make internally any kind of carve-out distribution of the specific production lines. And we want to conclude this by the end of the year, of course, we get 4, 5 months because anyway, the entire deal will be closed -- should be closed by the end of the year. So times are very short.

Consider that Rheinmetall and Leonardo are already working together. So it's much easier for us to discuss on a daily basis how to make things than waiting a perfect separation done by the seller in that case, Iveco and then intervening separately with the 2 boards and making the operation simultaneously. So that was simply simpler and more convenient. That's all. And I'll leave Alessandra the stage for the third question.

[Alessandra Genco, executive]

Yes. Thank you, Roberto. So Alessandro, on your question on the jumbo orders, -- as you may appreciate, we are pursuing in the second half of the year a number of opportunity, both in domestic and international markets on platforms as well as on the electronics domain. And we do see our visibility today is higher than the one we had when we defined the original guidance in March, and we do see an opportunity to capture a share of those jumbo orders that we have factored in the new guidance that we have given to you.

With respect to free operating cash flow, the free operating cash flow upgrade in guidance, which is sizable, it's almost 10% is driven by both our confidence in the operating performance of the business, which, as you have seen in the first half has been doing well. We have increased our free operating cash flow performance by almost 20%. And there is also a contribution from the fact that with these jumbo orders, we will be receiving some anticipation of cash flows from customers, customer advances. So it's a combination of both elements.

[Unknown Executive]

Thank you. We now take a question from the webcast, Christophe Menard of Deutsche Bank. Can you comment on how you will be financing the Iveco transaction? Is it debt? Or could you dispose of some assets?

[Alessandra Genco, executive]

Christophe, we have available cash, abundant available cash on our balance sheet. By year-end, we expect to have approximately EUR 2.5 billion of cash -- so we will have no challenges in financing the acquisition using the cash available.

[Unknown Executive]

Thank you. Now a question again from webcast, Nick Cunningham of Agency Partners. The outlook for Space in Europe seems to have rapidly transformed from decline due to commercial competition from SpaceX to instead strong medium-term growth because Europe needs to replace U.S. supply capability with European sovereign controlled space assets. Does that mean that the consolidation and rationalization with Airbus space needs to stop? Does it also imply you may have to leave with poor financial performance from TAS for a little while longer before defense demand come through in space?

[Roberto Cingolani, executive]

Thank you. That's a very, very interesting question. Let me say so. I think it's still worth to try to make a giant of space operation in Europe. So we're still in due diligence with our friends in Airbus and Thales, and we still try hard to make it. That's primarily for satellite services.

Another chapter, of course, is launchers because don't forget that we might be good to fabricate payloads and to sell services, but then we have to launch them in the space. And I think this is where the supremacy of United States started because the first thing was to make good launchers. They can launch 90 times a year, we kind of do this. So those are 2 areas with different pace and different difficulties. But we still -- I think we still should try to do something together.

On the other hand, we have to be very realistic. I mean in U.S., more than 50% of the investment in space comes from private resources. In Europe, I think it's 85% from public. So the 2 markets are inherently not comparable because in the fragmented European landscape, states are putting money on space. And if a state puts EUR 1 on space wants to have a return on its own balance somehow.

And of course, this creates a little bit of imbalancement compared to the American situation. As long as the money for space will be primarily public and will be state-driven, basically taxpayer driven, it will be very difficult to think to a space system in Europe comparable to the American one. However, companies such as ourselves and the other big operators in aerospace and defense, they can start investing.

I mean maybe we're not like -- we don't have the capability of the mask, but we can invest substantial amounts of money. This is what Leonardo is doing with the constellation. We do it because we believe it's time to reinforce the capability in selling end-to-end satellite services. This is strategic for defense as well as civil application for earth observation, I mean.

And so sometimes we have to play the industry risk. And the market opened by the space economy is really a big market. And 70% of that market will be on satellite services. So I think it's a relatively low-risk investment if you consider how many opportunities we have in front of us investing in space. That is something that clustering companies in Europe in a unified entity could reinforce the capability of investment.

So I think we have to accept that the model is different because it's different in the economical landscape, there's less private money, but joining forces can be very useful. Having said this, states want to have the rewarding, and they want to make sure that what they invest is under their control. So a trade-off must be found.

[Unknown Executive]

Thank you. Another question from the webcast, Ian of UBS. On Aerostructures, great to hear progress is being made here. Can you confirm that the partnership plan will be completed by the end of the year and so a partnership agreement will not be signed until 2026? On Aerostructure again, is there an opportunity to return to cash generation without a partnership?

[Roberto Cingolani, executive]

Okay. Concerning the first question, we are totally deeply and strongly committed in closing as soon as possible and respecting the deadline at the end of the year. This for us is mandatory because we want to really open a new opportunity, a new market and fix the problem and launch the new initiative. I think on this, we are both committed, us and our partner. I mean, of course, there is a lot of work to be done. But as I said, I'm very optimistic.

Concerning -- imagine there is no partnership, there is no new initiative, we do see measurable improvement in the Aerostructure situation. And for the time being, our pathway would be if we were alone to reach breakeven point in '29.

To be honest, I'm a bit scared in giving numbers because we were very optimistic when we presented the industrial plan 3 years ago, we were really at reach of reaching the breakeven point in '25. And no one could expect this very difficult situation that we had to face with the problem of Boeing. So before saying again that the breakeven point is that year, I would be prudent to not say anything. But the numbers clearly are pointing towards a breakeven point in '29 if we are alone. The problem is this will never be a business with high margins.

So I think that a company like Leonardo, which is making a transformation towards super high tech, global security and so on and so forth, should in a way strategically consider to invest solely in a business like that with low margin. If we don't do something to change completely the approach, the product portfolio and even the strategy of Aerostructures, this would never be very satisfactory. So I think it is necessary to create partnership to launch a global player.

[Operator]

So the next audio question comes from Martino Ambroggi with Equita.

[Martino De Ambroggi, analyst]

The first question is on the capacity boost. So I clearly understand that the works are in progress, but do you believe the capacity boost could probably penalize operating profitability because you need to hire people and free cash flow because you need sooner or later higher CapEx?

Second question is still on -- again, on Iveco deal. Just two clarifications. I understand that you will sell assets, not share assets. So you will have a cash in with the deal with Rheinmetall. And the EUR 30 million synergies are for your perimeter or for the whole Iveco vehicle?

And connected to this, I clearly understand, Alessandra, your answer. So you will use the cash to finalize the acquisition. But does it change your priority in terms of new deals or would suggest to accelerating some additional divestiture?

[Roberto Cingolani, executive]

Okay. Thank you for the question. Concerning the capacity boost, I can guarantee that we started with these 3 divisions making 70% of the global business of Leonardo because they were strongly involved in the GCAP and the payload over production required by the land defense and by the drones and helicopters, which is traditionally overwhelmed by the orders and sometimes having problem in delivering on time.

So those 3 divisions that are big. They already had internally a plan for efficiency and capacity increase. So most of this is already inside their business plan. It does not need a specific investment at the moment, let's say, not big CapEx investment. In the future, there might be some. But our perception after making this preliminary 3, 4 months of assessment is that efficiency, first of all, has been improved and efficiency in that specific case is not expensive, relatively cheap, let's say.

In order to have higher efficiency, we need to optimize processes, digitalize, optimize the manpower resources. There are a number of things that we can do. And we are not at all worried about the start of the capacity boost.

In the future, mean '27 or so or second part of '26, if there will be the need of some investment, CapEx investment, this will be in front of big orders that should be habilitated by the new joint venture. So in that respect, we don't plan to -- we don't have the need of a big amount of money to be invested.

It will be not the case if we don't do this because if we don't do anything, we don't work on the efficiency on the capacity in a very scientific way, the solution will be the usual one. Let's buy millions hours of engineering, millions hours of manufacturing. And even in offload or if you hire people, those become recurring cost and you increase the cost and obviously, the profits go down. So basically, we don't want to do the usual approach, which is a massive one.

Concerning the Rheinmetall and Iveco, yes, I confirm, it is not sharing. Rheinmetall was ready to participate in the acquisition. They have a lot of interest in the truck part, obviously, because they have a long tradition in that area. And so now we will start analyzing how is the situation in more detail, and we'll see what is the most convenient way to do it. But I confirm that they are going to -- they want to sell.

And of course, also they are doing this because strategically, they are a top line for the investor. They are getting stronger in areas where we have not interested, but they're very complementary. Typical example is that if you own the capability to make 8x8 traction trucks or 10x10 traction trucks, you can install on those things, radars, you can install weapons and so on. So by the combination of military trucks and our payloads, you can do brand-new platforms. And so this is -- this will be ideal for the joint venture between us and Rheinmetall.

Having said this, clearly, Leonardo doesn't have a track record in trucks. So it will be rather unusual for us to keep the truck alive, being so small in an area in a field in a sector that is populated by giants, not only Rheinmetall, but other big automotive company.

The EUR 30 million EBITA estimated, this is a preliminary estimate done over the last couple of weeks are dealing with primarily with Leonardo Technologies and Leonardo synergies. So it's estimated by our Electronic division. We didn't have the time, the capability, the possibility to talk to our friends in Rheinmetall to do the similar calculation with them. Very likely, this integrates also some joint activity. But I'm sure that there is something else also from the side of Rheinmetall, but we didn't have time to do it. This is just for Leonardo as an estimate.

[Alessandra Genco, executive]

Okay. Martino, on your question on the cash financing of the Iveco transaction and the priority in other deals. Well, if we go back to the capital allocation framework that we shared with you a couple of months ago in March. You may recall that we had over the 3-year horizon, 2025 throughout 2027, EUR 1.5 billion allocated to M&A. And those were mainly bolt-on acquisitions and potentially strategic deals that would be really fundamentals for Leonardo's growth path. And it checks the box, basically what we have done. The 2 M&A done in the cyber business described by Roberto are bolt-on acquisition of minor size, but exactly bringing the technology we needed to the business and to -- as an add-on to the product portfolio.

The EUR 1.7 billion acquisition of Iveco is also fitting on the strategic path of being an asset that Roberto was very clear is a strategic one because it's vertically integrated, a key chain in the supply and value chain of a core program for us. and a core segment of business. So all of those are really priority deals as we frame the capital allocation priority set. They match where we want to land, and we are in the ballpark. We may be EUR 100 million, EUR 200 million off, but that's clearly not something that is of concern to anybody. We are where we wanted to be in the scale and most importantly, in the scope of our priorities.

[Unknown Executive]

Thank you. Another question from the webcast. Carlos of Bank of America. Helicopters top line growth going better than expected. How should we think about the growth in helicopters in the second half of the year?

[Alessandra Genco, executive]

Well, helicopters have been growing really nicely, mainly leveraging the AW family, and that's by virtue of a combination of both the commercial market, which continues to do well. We continue to see strong interest for our products as well as the institutional governmental market, where we're capturing opportunities, both domestically and internationally. And for example, the 189 has proved to be a key platforms globally for a multitude of applications, both oil and gas, transport missions. And because another product, the Sikorsky product is no longer operational. The 189 proved to be the successful substitution product for a number of customers. And that is the evidence of the performance of the first half, and we expect to see a good performance throughout the rest of the year, always anchored on a contribution, which remains key in the business from the customer support and training.

[Unknown Executive]

Okay. We are 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 Investor Relations team is available for follow-ups. Thank you very much.

[Roberto Cingolani, executive]

Bye-bye. Thank you.