Valeria Ricciotti: Good evening, ladies and gentlemen, and welcome to our Q3 9 months 2023 results presentation. I'm Valeria Ricciotti, Head of Investor Relations and credit trading agencies. Today, our CEO, Roberto Cingolani, will take you through our recent progress and actions in key focus areas. And then our CFO, Alessandra Genco, will take you through the 9 months results in more details and the outlook for the full year 2023. We will then welcome your questions.

And I will now hand you over to our CEO.

Roberto Cingolani: Thank you, Valeria. Hello, everybody. Let me start with this birthday. It's 6 months today, 9th of May, end of November.

We're happy to be still here. And I want to thank you for this opportunity. Today, it's particularly nice to tell you what has been done so far in this 6 months. So as usual, I have notes that are not readable, so I will try to get the key points and to tell you primarily the key numbers over the last 9 months of the third quarter. And then I would like to go deeper into the path for the modernization of Leonardo, particularly what we promised you at the very beginning 6 months ago.

It's our path to make Leonardo the future, what we're going to do and what we need to do and what will be strategical in terms of commercial activities and financially for the future of the company.
So if we can go to the next slide. I would say the third quarter has been positive. All our KPIs year-by-year are positive, are growing. I'm not sure a representation quarter-by-quarter makes sense for such a long-term business like we have in the aerospace and defense.

But for sure, 9 months over 9 months, '23 or '22, we can be satisfied. We continue a good commercial performance. The group order intake is now EUR 13.3 billion, and it's been growing by 14.8% without jumbo orders. So this is actually a clear presentation of reality. The growth is very interesting year-by-year.

We have a backlog of EUR 40.2 billion with a book-to-bill in the range of 1.3 pair, which is also a good figure. The revenues have reached EUR 10.3 billion and are growing by 4.8% year-by-year, 4.8%. The EBITDA has reached EUR 644 million, growing 6.3% year-over-year. Aerostructure is fortunately on track with the recovery plan. This is what we promised you and it's progressing in the right direction.

And we are fully committed in maintaining our investor grade profile from the 3 main agencies. So the results are in line with the plan, and there is a progress with the core business as we promised at the beginning 6 months ago, and we can confirm, therefore, the full 3 2023 guidance.
Alessandra will cover the results in more detail later. Talking about the helicopters, achieving good momentum in progress, Defense Electronics, which is growing in volume and profits, aircraft, which is continuing the growth towards the breakeven point -- sorry, Aerostructure, which is continued growth towards a breakeven point. We are successfully managing inflation and cost pressures on the supply chain, which is affecting, of course, all the compartment.

And we are now in a good track for the improvement of the free cash flow that we promised at the very beginning to be one of the priorities.
Concerning future actions, as we said 6 months ago, we've been working on governance and organization, a geopolitical strategic positioning of the company and products and technology for the future. So let me update you on the progress in those 3 areas after 6 months of work. Concerning organization, we have moved quickly to make our organization leaner, stronger, simpler. It's completed now.

We have reduced the number of direct reports to the CEO from 26 to 10 with 50% women. There have been new appointments that are very strategic to the company. The most important for sure is the direction -- the Co-General directorship given to Lorenzo Mariani with a specific task dedicated to business operation, creating a closer customer proximity. And I have to say Laurence is doing a terrific job around the world, and I'm sure this -- we will see the results very soon starting from next year, I'm sure.
We have appointed the new Managing Director of Cyber division.

We need to reinforce substantially the approach to cybersecurity, both cyberattack and cyber defense. And we trust this has been a very good technical choice. We're now writing the new industrial plan, and there are a lot of new things that I will tell you later. We have appointed a new Chief Innovation Officer, a guy coming from the digital world, which is absolutely necessary at the moment for the digital transformation of the company. We have a new Chief Strategy and M&A officer with a strong financial background, but also a very strong product background.

We have a new Chief Sustainability Officer because sustainability matters now, and it's very important. We want to keep our outstanding position in the international ranking of the sustainability in the Aerospace division compartment, but not only there. And we have separated legal and compliance because it's the best practice to keep them separated, not unified under the same person.
Looking at the people strategy, we are really focused on building a knowledge-based company. We need to invest on talent in young people.

We need to renew the basic competencies in several domains, including cybersecurity, digitalization, artificial intelligence, cloud and data analytics, and we need to make our product portfolio more competitive and to reach our platforms with new services. This is what we are committed to do with people. Let me go now to something that is very important. I promise you at the very beginning, which is efficiency cost and capital allocation. I know this is something you're watching carefully.

So I'm not going to give you the numbers today. This will be -- those numbers will be very clear with the new industrial plan, which is due by the beginning of next year. But for sure, I can tell you what we are doing, so you have a map and you have a clear picture of the strategy.
First, we are very focused on reducing corporate costs. Reducing people in the headquarter is a must.

We're going to cut 400 positions that will not be replaced, and this is through a preretirement program, and this will be an important step towards efficiency in the HR compartment. We have optimized logistics and real estate. We were supposed to stay in 3 different buildings. We have canceled one, and we have redistributed people in existing buildings. That is an important simplification and an important reduction of cost.

We have rationalized the portfolio of participated companies. For your information, we reanalyze the portfolio of participated company. We had 151 participated companies. 101 were just abroad for commercial initiatives. Those are, I mean, kind of mandatory for an international company, but many others were kind of old or maybe not so central at the moment.

So we have decided to cancel or close and merge 24 of those participated companies. The saving will be bonus, maybe [ $2.5 million, $3 million ], but this is very important to simplify that over structure.
We are optimizing travel costs and corporate costs in terms of advisory companies. This is something which we have already produced guidelines to all our executives and all our divisions. Saving will be substantial in this respect.

We are assessing the global procurement and the real estate performances that are at the moment carried out by Leonardo Global Solution, which is a controlled company of the group, managing almost entirely the procurement pipeline of the company. So those are really big numbers. We're talking about billions. And we're going to make efficiency there, changing the procedures to make them very -- much more effective than they are now, and of course, trying to save quite a substantial amount of money. I will give you numbers by the end of the year because we are actually running on those things, working on those things.

Now a long-term contract for energy supply has been signed recently. So we have guaranteed quite an amount of energy for the next 12 to 18 months, I think, a very reasonable fair. And in this moment, the specific moment, having a supply of energy at a reasonable fair for a manufacturing company like Leonardo, it's very important to have effective manufacturing and selling of money. Finally, we revisited our equity participations and products which are not profitable or far from the core business. Just a few examples, Skydweller, one of the Unmanned Systems has been canceled as a program.

We are finalizing the closing of the [indiscernible], which is a company participated by Leonardo to build electric buses. This is absolutely outside our core business. We cannot afford for that.
We are shipping and streamlining our unmanned activities in view of the future directions that Leonardo will carry on. And we have decided not to participate in any form to the manifestation of inter call of interest done by [indiscernible] Aerospace.

We don't want to be in the business of small aircraft. That would have been a distraction. We cannot do this.
Let's go now to the second promise to the second activity, which is geopolitical strategic positioning of the company. What to be very clear, I'm strongly convinced that I -- of course, I discussed this with all our collaborators, executives and people in the company.

There is no future for a domestic aerospace and defense company in a global world like the one we live in. So we have to create strong European alliances. The concept is we have to create European giants in strategic areas where Leonardo must be the engine. It can be the catalyzer of strong alliance that often are not possible because there are competition state to state, which is somehow detrimental to the efficacy of the European policy Continental policy.
So the competitors are in U.S., the competitors are in the East.

We can have domestic markets and domestic competition within Europe. We have to create giants. I mean, the model to do this is a kind of MBDA like model. This joint venture, 1/3, 1/3, 1/3 with different companies and different member states in which we really can influence and impact on the global strategy. For sure, we are working on different things.

I mean, clearly, there are some low-hanging fruits. Imagine a gun company for ground defense technology at European level. This is something we are now negotiating with KNDS, the leading authority, industry leading authority for the [indiscernible]. Imagine the [indiscernible] business, which is growing, we recently had very direct discussion and contact with both the governors in this case, in Germany and the CEO of those companies. And we are progressing quite well.

We are quite satisfied on how this is progressing. And of course, everything will be written down with precise number and road map in the industrial plan, but we are progressing quite well in this field.
Another thing that, for sure, you remember is GCAP, the Global Air Combat Program. I'm just back from Japan, I came back to Italy last night. And I was 3 days in Japan, where I met the Minister of Defense Minister of Economy and Ministry of digitalization.

And then I met the CEO of Mitsubishi Corporation, Heavy Industries, which is supposed to be one of our 3 partners together with BAE in U.K. So the concept was rediscussing in a very effective way, what should be the role of Leonardo within the GCAP consortium. I'll be very clear, if the challenge is to make a sixth-generation aircraft that is supposed to be a system of system that is an aircraft controlling a number of drone in the next 15 years with approximately EUR 40 billion funding, okay, this is a big challenge. And we need to have a clear technical statement behind that. Italy has granted now EUR 8.4 billion for this program.

So we have, how to say, the governmental support, such as Japan and the U.K. But I think we need now a very detailed description of what we want to do.
There is a school of thought and a way of thinking this program, like we want to make a new aircraft, there is another way of thinking we want to make directly system of systems. Remember that we have the Eurofighter, which is a fourth generation, the F-35, which is a fifth generation is a stealth aircraft. Now the challenge is having a stealth aircraft, very supersonic and on top controlling drones.

So this means having very advanced AI, very advanced system of systems into this technology. So we need to know exactly where to go. And this discussion in Japan has been very fruitful. There will be a continuation in the next 2 weeks. And then, of course, we will close the loop with our U.K.

colleagues. I'm confident we can end up with a joint venture signed by the end of the year. And from then, we can start the design of this very challenging program.
I also promised you that I would have discussed in great detail our role in the Space alliance. You know that since many years, Leonardo and Thales are committed into the space alliance.

It has been a very fruitful period. We had a couple of meetings with the CEO of Thales, Patrice Caine. That was absolutely fruitful. And as I told you in our last discussion, the target was to renegotiate a little bit the symmetry of the alliance, consolidating the finances of Telespazio within the balance of Leonardo. And I have to say we ended up with a very fruitful discussion and collaboration.

So we are now -- we have redefined the article in the statute that are dealing with the symmetry for the consolidation of Telespazio, [indiscernible] and our colleagues in Telespazio in Thales have been absolutely collaborative. We also had a discussion and this we have opened a working group in the next few weeks, we will have a continuation about the future of satellite services. As you know, we have another joint venture in not only Telespazio, but also Thales Aleniaspazio that works on space exploration, but also on satellite services. And there is a part which is dedicated to SATCOM. So communication and a part which is dedicated to other services.

So with the Patrice Caine, we decided that we should revisit a little bit our strategy as a joint venture in the satellite services because maybe the SATCOM at the moment is suffering a little bit. Other services have an immense potential of growth, and this is something we have to discuss together. Clearly, there is no hope for Italy itself and Leonardo itself and Thales itself, with France itself to compete in the global space challenge. So we really have to reinforce our collaboration and make a clear technical statement on new products, new services, of course, associated to satellites. And the good news are in this respect that we recently found an agreement also for managing the launchers, Avio versus Ariane.

So we are restarting the European activity, and there is a new agreement in which the 2 launches will be more independent. Avio has 18 launches already granted. They are developing the new engine. We are discussing at the European level, how to reinforce, reboost Ariane. So even in terms of launches, we are finding our way.


I think this is a very good news because the international collaboration is mandatory in this respect because I said the competitors are very few in the world that are very big. Let's go on product and technology portfolio. As I told you at the very beginning, first of all, we have to ensure continuity and consolidation of the core business aircraft, helicopters, electronics that are growing well. I mean, as I said, the year-by-year numbers are all good or positive. But I think there is a lot of room for substantial improvement and rationalization of the portfolio.

We are working on that. You will get everything written in the new industrial plan with all the numbers. However, let me tell you that -- the keywords will be digitalization for the next years because this will make our products more competitive and our service is newer and attractive for the market. Digitalization is a key tool in connecting our core businesses to our newer growth areas for the future.
The process began in 2019, 2020, when we installed the largest facility for HPC, high-performance computing and the fast cloud computing, and we created the Leonardo lab for artificial intelligence and digital technology.

That was a big investment. It's done already. It doesn't cost very much to keep it updated. It gives an immense added value in terms of bringing new concept, new capability to our products. So we'll have to define a new approach, which is the digital continuum.

But that is encompassing a wave that conveys Leonardo Labs, most disrupted technology through the entire company organization and value chain, enhancing our industrial heritage and delivering the best solution to our customers.
Please be aware that this doesn't touch only new products and old projects, but even the administration in terms of business intelligence, capability of forecasting models. So it's going to be very transversal because we do have the capability and the competencies for doing this. The digital continuum is mainly based on

4 pillars: artificial intelligence, quantum computing, deep digital technologies and digital twins, where Leonardo has developed distinctive competencies in several business applications. And I list them quickly, but of course, you will find a very clear organization in the plan.

Of course, I would be happy to answer your questions whenever you want later.
So the first thing will be digital twin, digital [ continued ] implementation from product development to validation and certification after predictive maintenance. Our helicopters are now fully digitalized with an innovative approach as flight condition recognition. This is a track to follow also for the other flying products.
We're also working on digital design of our aircraft a technology framework that allows the digital design of complex systems, thanks to the application of the digital twin approach, it is now possible to evaluate the dynamic response of platforms in terms of performances and detailed behavior of the system during mission.

And obviously, this is one of the most important assets we have for our competitive positioning into the GCAP initiative. I want to go back to the GCAP, but clearly, one thing is to build an aircraft. One thing is to build an aircraft which has been designed since day 1 as a system of systems. And that means it's not only aircraft technology, but it's also AI, digital control, cybersecure organization of the network and network. So this is really [indiscernible].

Quantum Technology [ or no ] solution and positioning navigation and timing, sensing and imaging systems, and we need to develop specific quantum technology for some of our products. Not going to be very expensive as more group of very talented young people, but we know exactly where to apply those technologies to which specific programs, including cyber resilience, crypto and digitalization applied to cybersecurity. Another pillar is autonomy enabling technologies, which is application advanced sensing and artificial intelligence technologies to have higher-level platforms and system autonomy. Once again, GCAP is going to be the landing runway for this activity. Even Aerostructures that is recovering its breakeven point has now optimized some of the processes to reach structural optimization and outstanding precision and crush worthiness assessment.

I mean I can say clearly that at the moment, Aerostructure as a quality level that is unsurpassed by competitors. I mean we've seen the crisis of Spirit. For sure, Aerostructure had problems. But in terms of quality now, we've been investing on very relevant technologies in the past. And now that our structures are recovering at the right pace, we are much more competitive than others.

It goes automatically that we plan to renegotiate with our colleagues at Boeing the future pipeline of orders as Spirit did.
So this is something that we are doing now. And in the next couple of months, it will be a proposal to be discussed with our Boeing colleagues soon. Multi-domain system integration will be actually accelerated. We need to develop network resiliency for all our future wireless communication, including GCAP, but not only.

And of course, in space application, whenever we talk about exchanging data and exchanging images or transmitting data, all those things will be mandatory. We can't have a space activity based on satellite services without having a cybersecure network, which has to be developed according to the most recent technologies.
We will ultimately exploit our digital technology, particularly big data and AI to enhance and advance our finance and operation analytics system to enable the most advanced business intelligence in order to have better and more informed than timely managerial choices. I think this kind of artificial intelligence or business intelligence for planning and control can be really an asset for a diversified and complex group such as Leonardo. Next slide is going to be about working on the new industrial plan.

Okay. Yes, of course, you understand at the moment, we are working almost 24/24 on preparing the industrial plan. Most of the work I've been describing to you so far is function to do 2 things, setting the new mindset, but also recovering resources that will be dedicated to the implementation of the plan. I'm not going to do any new debt. We are trying to do with a massive amount of money that we plan to save according to the optimization, efficiency of costs and so on and so forth.

So this is a part of the plan.
About the say, reinforcing and strengthening the core business. I think you don't have doubt, helicopters, aircraft electronics. I told you what we're doing for digitizing, digitalizing the product. I told what we are doing for the new program, national and international like GCAP, like the giant European space of defense.

In electronics, I'm happy to communicate that we recently, just a couple of weeks ago, signed a big agreement with [ Fincantieri ], which is the Alterigo of Leonardo in the novel area. And this alliance will be very important because there will be a massive transfer of our sensors, radars, electronic into the maritime area. That was not trivial in the past because the 2 companies were not going very well along each other. But now, I mean, this alliance is fundamental because once again, the competition is outside is not within the domestic market. So this agreement has been signed, and we're going to constitute the [indiscernible] company, which will be a joint venture led by the of course, [indiscernible], they are building ships, we are doing flying things and electronics.

But this will be a very preferential way to share the best technologies in the maritime area, both civil and military.
About the cybersecurity. Well, I think, clearly, for the future, we have to think something new where there is a big market ranging -- I mean targeting $240 billion in the next years in cybersecurity and $1 trillion in space, cyber will be the kind of a catalyzer or the kind of glue that will keep all technologies together. Our priority is announcing cyber resilience in all Leonardo platform, all of them by design or new platforms we're going to create next. We would like to become the market reference in the secure bids products in the defense, especially.

We are developing a new generation of AI-driven services and solutions that provide our customer in the field of cyber information and operational superiority in multi-domain command and this is going to be a fundamental for the future application of our simulators, of our control systems of our command-and-control technologies.
We need to support our customers and institutional defense, space, strategic national and European organization for end-to-end protection of strategic assets. We need to ensure technology severity with full-spectrum cyber capability from defensive to counter defensive in response to cyberattacks. We've realized that one thing is to make a product, which is a cyber-attack product, another thing is to make product which is a separate defense attack. So this will be separate teams developing different platforms.

Last, we are providing our customer -- and we are investing in the development of secure sovereign cloud solutions. We need to ensure protection, integrity and availability of data in multidomain, multi-dimension, multi-classification mission-critical context. Least but not last, we're now creating -- we are participating in the national pole of data with our cloud that is going to be a safe cloud for citizens, for military, sanitary and financial information. This is not going to be public like purchasing cloud space from other companies is going to be really a protected cloud.
Finally, in space, I think I told you most of the news.

Actually, we are creating this new space division. The good news is that we finally consolidate Spartan this. We have created a new business unit and will be now moved even financially into this division. We have a number of assets from all optical systems. We are reinforcing the launchers activities, as I told you before, and we are developing new services associated to satellites.

I'm not going to make you a list now. That will be boring and maybe too much detail for the stage at which we are but for sure, what I can tell you that 2 days ago, it was signed an agreement with the French partners about making much more flexible, the relationship between Avio and Ariane Group for the launches. That helps a lot in having a parallel development to the launch of technologies and in exploiting the base launch in Africa. So this is a considerable improvement.
What I can say is that in the last 3 months, there have been very important improvement in the international relationship and facilitating the progress of the industrial plan.

So the takeaways are for this quarter. So comparing '22-'23 at the third quarter, all data are positive with plus sign. That's and accepted good information. The takeaways are, we are committed in maintaining our invested grade ranking from the agencies. We really want to improve.

We confirm the full year guidance, and we are strongly committed we're making a big effort in developing our international programs because, as I said, Leonardo can be the catalyzer of large-scale international industrial activities. There will be no point to be just a domestic company. We have to think international, we have to think big. And you will see all this in the next industrial plan at which we are working day and night, I should say, in the period. With this in mind, waiting for you -- looking forward for your questions.

I pass the stage to Alessandra that will tell you more in detail the numbers and show the tables for the financials of the third quarter. Thank you for your attention, guys. I'm pleased.

Alessandra Genco: Thank you, Roberto. Our key group metrics show a solid performance in the first 9 months, delivering on track with our plan for the year.

We have seen good performances across helicopters, defense electronics and aircraft with Aerostructures progressing in its recovery path. The results again confirm strong commercial momentum for the group with new orders of EUR 13.3 billion, as you've heard from Roberto, up almost 15% year-over-year with a book-to-bill of 1.3x, growing our backlog to an all-time high of EUR 40 billion.
This resulted in continued top line growth across the group, with revenues at EUR 10.3 billion, up 4.8% on a perimeter adjusted base million, up 6.3% with profitability in successfully managing cost pressures. We continue to progress improving cash flow year-on-year with the seasonal free operating cash flow outflow in the first 9 months, lower by almost EUR 300 million at EUR 604 million, benefiting as we expected from a higher level of cash ins earlier in the year due to a concentration of cash milestones. All this leads us to confirm our guidance for the full year.

We continue to focus on strengthening our financial position and deleveraging. And as the CEO said before, we are now rated investment grade by all 3 rating agencies, Fitch, Moody's and S&P. We are proud of where we stand today, and we are strongly committed to maintaining this position. Let's first look at the performance across the group across 3 metrics. Starting with order intake, overall, good performance, and we continue to see good commercial momentum.

We're seeing and capturing opportunity domestically and internationally. Group orders at 13.3 million are up almost 15%, and that's without any major jumbo orders. Book-to-bill is at 1.3x, and the backlog is over EUR 40 billion. All of this is providing us long-term visibility, especially on the platform side. You can see strong commercial performance across our core main businesses.

Helicopters, in particular, booked 9 months orders of EUR 4.2 billion. Remembering that last year, we had a very high comparator, which included the Polish 149 order for EUR 1.4 billion.
We continue to see good demand for our products well spread geographically, both domestic and internationally, especially on defense and governmental as well as on customer support. New orders in the period included 18 aircraft for the AW169 for the Austrian Ministry of Defense, 13 MH-139 for the U.S. Air Force and a number of orders on the civil side, mainly related to the AW139.

All of this is further evidence of the steady recovery on the civil side. Moving on to Defense Electronics in Europe. The business delivered an excellent commercial performance with orders at EUR 4.9 billion, a year-on-year increase of 39%, with growth in all business areas. We're seeing strong demand continuing for both sensor systems, defense system solutions. And importantly, we signed in June, a major U.K.

order for the MK2 game-changing new radars for the Royal Air Force typhoon fleet. In other domestic markets, we saw orders for the Italian Army command post and an order for Cronos radars for the Italian Air Force.
In the cyber sector, we were pleased to see more orders, including the order for the establishment of the joint operational center, the JOC, for the joint operational command of the joint forces Cove, of the joint defense forces. Defense Electronics in the U.S. with Leonardo DRS stepped up new order intake to EUR 2.3 billion or EUR 2.5 billion in dollar terms, up 17% in dollars.

This demonstrates, again, the great positioning in key DoD programs of the company. Winning additional orders to supply electric propulsion components for the next generation U.S. Navy, Columbia class submarines, which was just announced by the company about a week ago, order that covers most of the components for the remaining 7 Columbia glass submarines. In addition, orders for the supply of infrared countermeasures for the U.S. Military.

In aircraft, we saw increased orders at EUR 1.8 billion, winning an important export order for the C27J aircraft, increasing orders for the Euro [indiscernible] logistics component as well as for orders for the JSF program. In Aerostructures, new orders grew to EUR 526 million, up from EUR 342 million last year, benefiting from growing demand across a range of programs, mainly B787 and ATR. Overall, a very strong group commercial performance and growing new order intake. Now let's move on to revenues.
We see continued growth in our top line at group level, EUR 10.3 billion in the first 9 months, up 4.8% on a perimeter adjusted basis and on track with plan.

This performance is leveraging our strong backlog and important long-term programs on which we have been delivering. Looking at sectors. In Helicopters, the first 9 months book revenues of EUR 3.2 billion, slightly ahead of last year, with a strong contribution from dual-use platforms as well as customer support and training and with a lower contribution from NH90 Qatar as we had expected. Helicopters continue to deliver well on its major programs. Same for Defense Electronics in Europe, which recorded a EUR 3.3 billion figure for revenues, up 4.6% on the back of growing demand and continuing to deliver well on its backlog.

In the U.S., DRS reported revenues of EUR 1.75 billion or $1.9 billion ahead of last year. Then in aircraft, revenues just under EUR 2 billion, in line with last year and with similar volumes. While in Aerostructures, revenues grew by over 30% to EUR 462 million on the back of rising levels of activity by our OEMs.
Moving to profit and performance. Overall, we delivered an EBITDA of EUR 644 million, an increase of 6.3% on a perimeter adjusted basis with a return on sales of 6.3%, in line with last year.

We saw solid performances from all our main businesses. Helicopters grew EBITDA to EUR 250 million, up 6.8% on due to higher volumes and business mix. Return on sales increased to 7.8%.
Electronics Europe grew EBITDA to [ EUR 327 ] million, up 6.9% with good performances across all its business areas and return on sales increasing to 9.9% in the first 9 months. We also had a good contribution from MBDA, noting that last year's comparator was very strong.

MBDA's underlying trends continues to be very positive to date and looking forward into the full year. DRS reported EBITDA of EUR 146 million, EUR 158 million on a perimeter adjusted basis, showing solid improvement, thanks to better program execution, favorable business mix and higher volumes.
Aircraft EBITDA was [ $242 ] million, in line with last year, showing continued strong profitability with top ROS of 12.5%. Aerostructures showed gradual recovery in line with the plan, reducing losses to EUR 127 million in the period. ATR was slightly better than last year, negative EUR 2 million versus negative EUR 4 million with last year's comparator including a one-off customer settlement.

The business is now seeing recovery in its main markets, and it has been increasing deliveries on track for the full year. More specifically, deliveries at September 30 were 21 aircraft versus 10 last year.
Space reported a lower contribution as previously flagged. The Satellite Service segment, Telespazio is in line with expectations with growing revenues and solid profitability. While in the manufacturing segment, there were continuing pressures.

There, we had sales affected by some ongoing supply chain pressures. We're working with our co-shareholders, [indiscernible] with a view to improving its future performance.
So overall, we have delivered a solid improvement in group EBITDA with profitability in line with last year and showing that we have been successfully managing cost pressures. Moving to below the line, you can see an EBIT of EUR 537 million in the first 9 months, slightly down on last year due to the expected impact of restructuring costs related to the accelerated pension scheme applied to corporate and SaaS functions as well as the PPA linked to the RAD acquisition. The net result before extraordinary transaction at EUR 290 million versus EUR 387 million last year reflects one-off positives in 2022.

This is the effect of higher financial expenses due to higher market rates. And the one-off positive last years were linked to the performance of [Technical Difficulty]. The net result was EUR 301 million, with the previous year having included the profit on disposal of GS and AAC from Leonardo DRS. Importantly, we have continued to make progress this year in improving our cash generation. You can see improved free operating cash flow at negative EUR 604 million for the first 9 months, an improvement of almost EUR 300 million year-on-year with better quality and lower factoring and benefiting as expected from a higher level of cash-ins earlier in the year due to a concentration of cash milestones.

And it underpins our confidence in our full year target of positive free operating cash flow of EUR 600 million. We're also pleased to see the rating agencies have recognized our efforts in terms of deleveraging. We are now rated investment grade by all 3 rating agencies, Fitch, Moody's and S&P.
With the recent upgrade by Moody's in May and S&P in August, all of this reflects the improving financial strength of the group and our strong commitment to use cash flows to reduce debt while maintaining constant shareholder returns. Now looking at our guidance for the full year.

You can see that we have delivered a good performance in the first 9 months. We're achieving good commercial momentum across the group with a book-to-bill solidly above 1. All this means we are comfortable at this stage, reconfirming our full year guidance on our key metrics. Our confidence is underpinned by the progress we have made and the sustained demand we are seeing throughout the group and through our geographies. We are on track with our growth path in revenues and EBITDA, seeing good progress on delivery of programs.

We're confirming our targets with a balanced contribution from all the divisions with Electronics being a key contributor to growth, Aircraft maintaining its top profitability levels, helicopters performing strongly in line with plan and Aerostructures continuing on track consistently with its recovery plan. All of the divisions have been absorbing the macro inflation pressures into their margins, thanks to mitigation measures we have taken. These measures include pricing on contracts, renegotiations with suppliers, and we can maintain in such a fashion, solid control on profitability.
We have also been managing pressures on supply chain and skill and labor shortages, which we, as well as the rest of the industry have been facing. As you have also seen, we have been stepping up our cash flow on track and in line with plan, strengthening our organic cash generation and showing a better quality, also progressing on our deleveraging path.

So in summary, we have achieved very good commercial momentum, strong order intake, book-to-bill above 1, providing growing future visibility, delivering on strong backlog, improving EBITDA and financial performance and improving free operating cash flow, actively managing challenges in the external environment, on track for our full year targets and positioning well for the future. Thank you.

Operator: Our first question comes from Alessandro Pozzi with Mediobanca.

Alessandro Pozzi: Thank you for taking my question, if I may. Thank you very much for giving us a good overview of the [indiscernible] opportunities that I had for Leonardo.

And on the GCAP, I believe you mentioned a potential that could be a JV sanctioned by the year. And I was wondering if you can give us maybe a time line of what be the progress of the project and whether can you confirm whether the now there will be a nice part in the consortium. Also in the past, we've seen potential. It was on other partners joining the program on the middle is about even in Germany. And I was wondering if you can give us your sound that as well.

The second question is on the Italian BTP, the document where the government basically showed handing across programs for the next few years. There has been a substantial increase for the GCAP but also for the [indiscernible]. And I was wondering, I think that probably Italy will try to give as much of those funds within Italy. And I guess that [indiscernible] program of the DCS. I was wondering exactly it could happen every time soon.

Final question, your 6 months in the job, what are your impressions compare to your initial expectations in the areas that [indiscernible] to make them more effective.

Roberto Cingolani: I'll be fast in answering. Concerning GCAP, the road map that we shared today with the Japara colleagues, and I will soon meet the U.K. colleagues is to sign the joint venture, so this triple group of companies under the government-to-government agreement by the end of the year. Of course, we have to negotiate a little bit some of the technical details and roles.

But I think we are on the right way. The government -- even government has allocated EUR 8.4 billion for the GCAP program itself. But during the ministerial meeting between U.K., Italy and Japan was stated by our minister that, of course, the country will allocate what necessary depending on the progress of the program in the years to come. And as you know, those things are not limited to a financial law, but they go through multiyear planning. It's just one of the few things that can work this way on a domestic level.

About the rumors, Germany joining the GCAP consortium. This is a rumor in the press, I spoke to our colleagues at the moment in Japan at the moment, it's just rumor on the press. We know that the competitive program, if I remember correctly, Germany and France is going to be quick. So there might be some in the future, some inquiry, but we're going much faster at the moment. We are finalizing the program.

So I'm not worried about that. To be honest, even other countries in the Middle East would like to participate. But this is still at the chatting level. Concerning other allocation for defense, we are aware now. We've been told that there is $0.8 billion on the special 808 low, which is dedicated to defense and aerospace application, primarily defense.

So this is quite a large investment more than in the past. So I think the [indiscernible] is trying to keep on track for increasing the percentage of GDP, which is dedicated to defense. I'm not sure we got to 2%, but there is an effort to increase this.
About the [ Leopard ], yes, you're right. Of course, I confirm the combination of tourists, guns and electronics and command-and-control could become a very important part of the next-generation Leopard.

And as you know, there is a huge market for the renewal of the land defense fleet, not only in Italy. I think Italy has 20 billion for the next 20 years or 10 years or so, but also in other countries. And of course, improving the Leopard technology will be very important in the future world landscape because the only competitor will be the [indiscernible] in U.S. So this could be a very, very important business.
And least but not last, you asked me an impression for those 6 months.

Very good. The impression was very good. The team is very committed and all the work we're doing, I mean at a domestic level, I think -- okay, we have to work a lot on the optimization and efficiency. We're doing this very seriously. I have to say at the international level, maybe because of my background, but I found it very easy and normal to talk to the colleagues in Tales, in Japan and so on to explain our reasons to present our technical ideas and to find immediately an agreement.

So I think the important thing is that we have to -- I mean, we are a knowledge-based company, okay? As long as knowledge is good, I think it's easy to talk to the people. And then if you do to the people I mean abroad. And then if you do good alliance, it's a good strategy. I think even the market will be happy with this. So just continue working like crazy on the efficiency and optimization and just continue working like crazy and innovation and knowledge.

That's the recipe for me.

Alessandro Pozzi: Okay. Just on the lots potential, you can take a work share in the locator that's how it could work basically.

Roberto Cingolani: Yes, I confirm that we are working in this direction. Actually, the expectation is extremely good.

The negotiation is doing very well. Please allow me not to give more details at the moment. But I confirm we are on a very good track.

Operator: Virginia Montorsi with Bank of America.

Virginia Montorsi: Just a quick one on space and your agreements with Thales.

Have you reached actual final agreements with them? Or are you still discussing? I'm just asking because last week on the call, Thales said that I think nothing has specifically been reagreed or renegotiated. So I just wanted to get a sense of where you are in the process.

Roberto Cingolani: Very good. So yes, last week, it was ages ago. No, I'm joking, of course.

But we exchanged now, shared an agreed change of a specific article in our agreement, which is related to the deadlock and our legal offices have found a specific agreement that satisfies both partners. So this is now written on paper. We are finalizing the little things. And then in the call I had with Patrice Caine, we discussed about this issue that -- I mean, it's now over refining details, but the new article is agreed. And then we decided to open a discussion about, as I said before, the SATCOM and the perspective of the joint venture for satellites.

This is to be done actually. And well, there are other minor agreements concerning the financials of the joint venture, but this is more technical and the CFOs are working quite well together and trying to fix everything.

Operator: We now turn to Victor Allard with Goldman Sachs.

Victor Allard: Actually, just to follow up on the prior one. I found your comment on bringing more symmetry quite interesting, and I was wondering if you give more elaboration around that point.

And if we should think about this in business terms with new revenue and recurring terms as part of these JVs or more holistic in terms of how you sort of envisage the business with Thales underline in the future but not sort of as part of the shareholding agreement would be my first question. The second one, I think Mr. Cingolani, you have mentioned as part of your introductory remarks-- a plan also to renegotiate the future work pipeline in Aerostructures with Boeing, I think you said quite soon. And at the same time, I can see that the order intake has been quite strong in the business year-to-date, and you say partly driven by new 787 orders. So I was wondering if you could help us bridge these 2 data points and to share with us some color on the nature and volume size of the contract that you typically engage with growing in that business? And also curious to hear to which extent you can pass on the current inflationary pressure that we're seeing as part of this point.

Roberto Cingolani: So concerning the Symmetry, let me answer in a very simple way. We have 2 joint venture, 2/3 Italy, 1/3 Italy, Telespazio; and the other one is PaaS, 1/3 Italy and 2/3 France, okay? When I say Italy and France, I mean Thales and Leonard, of course, right? So in the past, Thales consolidates the 2/3 plus the 1 in 1/3. In the tenet part, so we don't consolidate our 2/3. So the first symmetry is to make this symmetric. And we found a very open approach and a very helpful approach by Thales, and this is what I was mentioning to the colleague before.

So we found a way on the deadlock article to fix the problem. So now it's been just small details by the lawyers, but I was very happy because the position of Thales was extremely constructive, and it was very good.
Other symmetric things, other symmetries deal with the technology and the products. So one of the discussions we had with the colleagues in Thales is, maybe we should ask ourselves where is the future business in satellites? Is this more SATCOM or is this more services, monitoring or many other possibilities? And since we have to admit that lately over the last few years, it was not very successful, the SATCOM business, primarily because of the pressure of the telco companies that are targeting selling 1 kilobyte for EUR 0.01. So obviously, the margins in this market are very small.

We decided that in the common and joint interest, we should discuss which kind of perspective, we foresee for satellite services. There are so many opportunities at the moment that we decided to discuss this. And actually, to be honest, the body is in my field now because I promised my colleague, Pat is going to catch them again over the next week and establish a couple of video comps and then meeting because we have to do a little bit of brainstorming.
I mean, this has nothing to do with the financial 2023. Of course, this is not the heritage of what we've been doing in the last years.

But we plan to give new breath to the joint venture. And I'm sure we will do this. Sorry, the Aerostructure, you ask me. So as you probably know, Aerostructures is waiting to reach Series 1406 million to increase the revenues per order. I think we are 300 deliveries before something like 1,000.

But of course, after having seen what Spirit has done, I mean, I think better than I that Spirit has EUR5 billion of revenues and EUR 3.8 billion of debt and EUR 56 million read at the moment is in red. So due to the inflation pressure due to quality problems, they went to the main customer, Boeing, and they wanted to renegotiate. Boeing was very open, gave them higher prices and also some cash. Arista has very good quality. We don't have the same problem.

We do have, of course, we do feel the pressure of inflation. We are waiting to reach fuselage order number, 1,406 to increase the price. But we think now that we should also go back to Boeing and renegotiate a little bit of conditions. I mean, to be very clear, our new manager of the Aerostructure is already in contact with Boeing to reanalyze the entire package. And the idea is that by the beginning of next year, the first couple of months to go directly at the bonded quarter and certainly try to finalize this.

And we hope we can get better conditions. I think we deserve them also because the quality of the manufacturing in Aerostructure is very high.
Let me say something also to be absolutely transparent and fair. I think our quality is very good compared to competitors. Maybe some small competitors can do something better, but big competitors, quality is outstanding.

We do have an Italy high cost of the workforce. Well, this is Italy, but not that in the state is cheaper. And also, of course, we suffer inflation because this impacts several percentage points on the total cost. We had the problem with the yield. So how many hours we need to produce a component, which has been improved now by the recent investment.

So one of the things that our structure is doing now is tend to quantify the improvement. So we go with precise number in this renegotiation. I think we are fair in the request and we are faring the analysis. We'll see what happens in the next 6, 8 weeks or so.

Operator: Our next question comes from George Zhao with Bernstein.

George Zhao: On Aerostructure again. So in Q3, the losses worsened year-over-year despite the higher revenue. So what drove that? And would you still need to do to get the losses to narrow as volume picks up? And when do we see that benefit? And the second one, to your last question about both to the response to the last question regarding discussions with Boeing. Do you need to do that to get to this breakeven? I mean, what are the risks that you don't -- the use had a contract, can you still get the losses to narrow as the one picks up.

Alessandra Genco: Sure.

On the 3 months, we should not be focusing on that single quarter because it's a matter of phasing. As you know, the mix of activities changes quarter-over-quarter. We should rather look at the 9 months. And then what the 9 months tell us is that there is an improvement from EUR 134 million to EUR 127 million of loss. And this improvement is what we plan to see projected into the full year.

So as we have provided guidance at the beginning of the year, in '23, analogously to '22 and also forward-looking '24, we see gradual improvements in performance, both from a cash flow as well as from an EBITDA standpoint.
On renegotiation with Boeing, we have a contract -- an existing contract, as Roberto was saying, signed by Boeing allows entitles Leonardo to have a different price upward revised from shipset 1,407. So that's contractually already defined. What we are looking into is to have a better alignment to the current environment of cost inflation that we are all living through and see that reflected in a new agreement with our customer.

George Zhao: So the losses being lower year-to-date, is that the case with the cash burn as well for the 9 months?

Alessandra Genco: That is the case, yes.

Operator: We now turn to Martino De Ambroggi.
Martino

De Ambroggi: Starting from your statement, no intention to add debt, but you want to do a lot of things, particularly concerning alliances, joint ventures and so on. So my first question is, will you need or would you be willing to inject money into new joint venture alliances? And the second question always related to the subject is what is the level of idea that you have in mind or the maximum debt in your view, is the right level for Leonardo, and third, on the subject, probably part of the cash to be eventually used for injections in the joint ventures may come from divestitures. But my personal feeling is that whatever you are looking to sell is probably moving size. So just to have an idea, if I'm right on this.

Roberto Cingolani: My ideal debt is 1.5x to 2x the EBITDA roughly. I mean under the control of my CFO, but I think given the revenues are, I would like to have an EBITDA, which is at least 10% free operating cash flow, at least 65% of the EBITDA and the debt in the range of 1% to 2% the EBITDA. I mean this is just referenced numbers that much better than the one I found when I came. We hope we can do better, of course. Concerning merging joint ventures and so on.

So first of all, most of those things are done like in the case of MBDA, where I worked extremely well. MBDA has outperformed now right and locking marketing with $8.3 billion this year. So it's really doing very well. I've been done sharing the assets that sold the capability, the investor capability of the group.
And yes, of course, we will need money either for acquisition or for participation.

But of course, we are considering now selling some assets we have in a modern way just to reach the target. We have now -- we are now working on those things. So as you imagine, this is all at the moment very confidential, so I cannot say more. But I confirm no debt.
Martino

De Ambroggi: Okay.

And the follow-up is on the order intake, so a short-term question, but what is the reason why you did not revise upward the guidance for the current year, considering that implied Q4 means more or less a 30% decline year-on-year, but maybe just I clearly understand that there is not a recurring flow in order intake, but just my curiosity on this considering the stronger performance in the first 9 months.

Alessandra Genco: Sure. Well, no, I think you answered the question. As you know, orders are lumpy and they're not linear quarter-over-quarter. So at this moment, we feel that confirming guidance of EUR 17 billion for the full year is the fair approach to [indiscernible].

Roberto Cingolani: But let me say something from a personal point of view. I came here 6 months ago. Leonardo is big, it's complex. I thought from my side would have been very much acceptable say, we confirm, we do our best to confirm the guidance. Maybe it would have been how to say, too hard to say, well, we increase now and I feel a bit more confident, but okay, give me the 6 months beginning period to be prudent.

Operator: We now turn to Gabriele Gambarova with Banca Akros.

Gabriele Gambarova: The first one is on the performance of DIS technologies because in Q3, I think the EBITDA performance was outstanding, as 32% year-over-year and margin improving by 210 basis points. So I was wondering if you could share with me what were the…

Roberto Cingolani: I mean the benefit a lot of the rad acquisition from them was the quantum leap was with the red acquisition. So of course, we're very happy that they're doing well. And this was a timely and correct acquisition, I think.

Yes. So in some sense, it was a successful operation.

Alessandra Genco: That was clearly a key component and DRS continues to perform well across its businesses. And in particular, the naval power business is progressing well on the Columbia class submarine where the company is producing the electric proposer. And you see the results of progression in program mix as well as continued improvement in execution of programs, which is what we have planned to see throughout the course of the year.

Gabriele Gambarova: Okay. So we can assume regarding rather sort of structural improvement in margins vis-a-vis the past?

Alessandra Genco: Definitely. Definitely.

Roberto Cingolani: Yes. Yes.

Gabriele Gambarova: Okay. And second question and last one is on the B787. News was situated in on here in Italy that the Federal plant basically could ramp up production to 10 units a month or by the end of 2024. Is it possible to have an understanding, I mean what would be a reasonable, let's say, average production rate for 2024, if possible.

Alessandra Genco: No, I think that must have been a rumor with no particular foundations.

We are following the official Boeing schedule, and the achievement of the 10 series per month will occur at the end of 2025 when the series deliver to Boeing will get to the target. Beforehand, we will have a gradual progression, '24 over '23 and '25 over '24 with no specific jumps.

Roberto Cingolani: Okay. That is the plan at least. Maybe by the negotiation that we will do in the future, some good news will come.

But at the moment, there is nothing like this. We go according to the plan.

Operator: It was the final question. So thank you very much.

Roberto Cingolani: This concludes our Q&A.

Alessandra Genco: Thank you for your attention. Roberto if you want to...

Roberto Cingolani: Guys, thank you very much. That was a pleasure always available, any questions you might have, and thank you for your attention and your support.

Alessandra Genco: Thank you.

Bye.