Operator: Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Leonardo Full Year 2023 Preliminary Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms Valeria Ricciotti, Head of Investor Relations and Credit Rating Agencies. Please go ahead, madam.

Valeria Ricciotti: Good evening, ladies and gentlemen, and welcome to our full year 2023 preliminary results conference call. Today, our CEO, Roberto Cingolani, will take you through the important progress that we achieved during the last year and how we are positioned looking forward. And our CFO, Alessandra Genco, who will then take you through the full year 2023 preliminary results. We will then welcome your questions. It should be noted that the approval of the Leonardo's draft annual financial statements and consolidated financial statements as of 31st of December 2023, is scheduled for 11th of March 2024.

Therefore, the information throughout this call is to be considered as preliminary and referable to the current day.
The preliminary results of the 2023 financial year has not been audited by the independent auditors. As you know, we will be holding an Investor Day on the 12th of March to present the Leonardo Industrial Plan. And included in that will also then be presenting our guidance plus our medium-term target. Now I will hand you over to our CEO.

Roberto Cingolani: Yes. Thank you, Valeria. Hello, everybody, and thank you for coming this evening to this call. And once again, thank you for accepting that we anticipate the preliminary results just because we don't want to accumulate too much information on March 12, when we will have the Investor Day.
So in short, in field, then I will leave the stage to Alessandra for the detailed presentation.

I think we concluded '23 with good numbers. The orders have been growing by almost 4% year-over-year, up to EUR 17.9 billion. This is ahead of our guidance for 2023. The book-to-bill is in the range of 1.2x bigger than the [indiscernible] 1.2x. And our revenues are growing by 3.9% compared to last year, reaching EUR 15.3 billion.

This is in line with the guidance. It's reasonably consistent with our strong backlog.
The EBITDA margin has been growing by almost 6%, 5.8% year-over-year up to EUR 1.29 billion. This is in line with the guidance. And the free operating cash flow has been growing by 17.8% compared to last year, up to EUR 635 million.

This is ahead of guidance.
Finally, the net debt has been reduced by 23% compared to last year. Also, this parameter is ahead of guidance. In general, we think the results are good, mostly representative actions that have been taken in the last years, they are for sure promising in view of the forthcoming new industrial plan. But we know there's a lot of room for improvement, and this is what we hope to achieve with new plans that will be presented in approximately 10 days.

Our key message is, for what we've been doing over the year 2023, we have made a number of strategic change in recent months, and we have been working a lot over the last few months on the industrial plan. Actually, you remember from the previous meeting that we had over the last quarters, that we have promoted quite the transformation of the organization. I think we can consistently say that the numbers have been growing steadily. We are on track for the recovery fund of aerostructures that has been always a weak point over the last few years. We have a clear organization, stronger and simpler.

We have reduced the number of reports from 26 to 10, because of the reports to CEO, will improve the gender balance by the way. We appointed new key figures, such as the new Managing Director of the Cyber Division, the new Chief Innovation Officer, the new Chief Strategy and M&A Officer. We are investing a lot on digitalization, artificial intelligence, cloud computing and then analytics. And this is turning out to be the tool for improving our products. Concomitantly, we've been cleaning the portfolio of products and also we started a number of businesses and activities that were off core business, given the new directions that Leonardo is taking.

As you remember from our recent discussions, we successfully renegotiated the Space Alliance with our partner, Thales, so that we were able now to create the new Space division. This is the new business division in which we will consolidate the Telespazio company, the 2/3 of the joint venture that we shared with Thales. And on top of that, we have incorporated all the Space, electronic line of business into the new Space division. So this is now a rather robust business unit or business divisions for Leonardo, that allows us to get into the Space Alliance with a totally different approach. And there is -- and in front of us, there is a period of transformation.

As you know, Europe is discussing quite a lot about the future strategic choices for Space. So now -- how the structure, which is dedicated to space activities. Alessandra will show you a new approach and simplification of the financial results, so I'm not taking much time for that.
Let me go a little bit ahead because I would like to mention the work which has been done over the last few months for the international alliances. We are firmly convinced that the Leonardo can be a catalyzer for strong international alliances, in view of the future European space of defense.

Obviously, needless to say, it's going to be under the umbrella of the Atlantic Alliance. It's not the competition just to make a more robust alliance to be clear.
One of the main actions is dealing with the GCAP, the strategic fighter, in collaboration with Japan and U.K. That's a complex initiative, as you know, long-lasting, with an immense budget. We have gained a significant role in this consortium.

We will develop several platforms, so that includes across domain capability, radars, electronic warfare, electro-optic and infrared sensors, communication systems, system [ assistive ] technologies, simulation. So this is now under discussion with the partners. There has been a lot of work done for the land defense space, together with KNDS, primarily dedicated to the tank technology, but also into the future for the infantry vehicles and other strategic land transportation systems. I'm sure you remember that a few months ago, we have finalized also the new agreement with Fincantieri for maritime applications, primarily dedicated to the development of warfare and electronics for battle ships, and for the submarine applications. This opens up quite a broad market worldwide, definitely well beyond the domestic market.

And we have recently reopened the discussion with the colleagues of Hensoldt in Germany. They have change in the top management. So there's work on going. We're still very positive about the potential perspective of the Hensoldt and Leonardo collaboration.
More importantly, we have closed or we are exiting products that are off core business, Skydweller, the solar-powered drone are being canceled as the -- as a product line.

Similarly, we have interrupted our participation into the venture, the joint venture for Industria Italiana Autobus for electric buses, which was absolutely out of our core business. Things are doing quite well with DRS. You remember, we have sold some 8% of our stocks, but now we are discussing with DRS for the collaboration. Things are running quite well with our American partners. And well, least but not last, the 3 agencies have confirmed investor grade for Leonardo.

So we have to keep this as a very good result. And of course, we have to do our best to keep this aligned for the next 3 years and possibly to even improve the revenue.
Let me give you just a few bits of information about our ESG progress in view of the sustainability balance sheet. Considering emission in Scope 1 and Scope 2, our decarbonization strategy seems to be quite successful. We've diminished by almost 10%, 9.5%, to be precise.

The CO2 production in the Scope 1 and Scope 2 emissions, as I said, despite concomitantly to an increase of the production. So not only we increase the production, but we reduced the Scope 1 and Scope 2 emission, that's because we made a lot of work for optimizing, the manufacturing and also investing in the supply chain. We have a decrease, substantially, energy consumption, primarily due to the efficiency in our manufacturing line, and the -- we have increased the percentage of green energy that we use in the company, partially by [indiscernible] reduction, partially by having new contract with energy suppliers that are selling green renewable energy. We have decreased water use, water consumption and water withdrawal in our manufacturing systems. Concerning focus on innovation, another important ESG KPI.

We're still keeping very high our investment capability on research, development and product development up to 14% this year, compared to 12% last year. Of course, it's a considerable part which is product development and product optimization, but this is for a high-tech company is quite normal.
Data computing power per capita has been increasing by 4.3% as well as the storage capacity per capita underwent a sharp increase up to almost 14%. This means that we are -- massive investing in digitalization, both high-performance computing and cloud and sub computing together, and this is a mandatory for developing our AI strategy and product digitization strategy. Both diversity and inclusion, we have reached 30% gender ratio.

I mean we can do much better, but you have to consider where we started from. So we are strongly committed to improve this KPI as much as possible over the next years. And at the moment, 55% of the group funding are ESG linked. So we're careful with the perfection of the funding sources.
In summary, of this short overview, I think in 2023 was good.

We outperformed or we reached all the targets given by our guidance. We're progressing on strategy, and we're focusing all our efforts on the new strategic plan that will be delivered in the last 90 days. The aim is transforming Leonardo into a strong technology-based company.
Let me say something about March 12. Transforming Leonardo into a more technology-based company means basically moving towards multi-domain solutions across geography and across platforms.

And this means radically moving from a company, there are divisions working vertically on platforms into one company that works on a multi-domain with the digital continuum that essentially covers the interactions among the platform. It's a paradigmatic change in terms of technology, product and even competent organization. The second point is that we are strongly committed in strengthening our core business. Of course, we know that aircraft, helicopters, electronic infrastructure represent the core business we need to continue to boost the organic growth of our product to be competitive, including new services, new digitalization to adopting more and more digital technologies for the design of the new platforms, including services such as training, simulators or particularly maintenance. But in the meantime, we are now in the presence of a very, very special window of opportunity.

We have seen how defense is becoming a sort of a component of a much bigger challenge, which is global security, and global security means we have to develop a strategy that has to do with cybersecurity signal, monitoring and observational space. So while we are consolidating our core business, we have to develop simultaneously to pave the way simultaneously for future, and the future has to include a very strong capability in cybersecurity and a strong capability in space observations. We will make very selective choices and this will be the core of the plan that we will introduce you in a few days.
And I believe the data of 2023 are promising in view of what we are going to propose you in a couple of weeks time.
At this point, I would like to give the stage to Alessandra, who is going to give you all the details and numbers.

And then, of course, we'll be very happy to answer and address your questions and comments. Thank you for your attention.

Alessandra Genco: Thank you. Thank you very much, Roberto. And now let me talk you through the group financial results for 2023.

The preliminary numbers are good, and we have seen very positive results throughout the group as anticipated by Roberto. We have delivered in line with guidance and in some cases, above guidance.
First, I just want to mention how we are simplifying the presentation of our financial results going forward, showing a separate Space division, reflecting strategic importance and consolidating the contribution of Telespazio to reflect the greater influence we now have in this joint venture. This is how we will present going forward, and we have set out pro forma numbers to show you how this is going to look from 2023 as well as a comparison with the previous year '22.
So let's look at the key financial highlights for the group.

They show a very strong commercial and financial performance. Particularly order intake has been very buoyant, and we have seen continued strong commercial momentum across the group. Recognizing the fact that we have strong positions in both domestic and international markets, and the strength of our product across divisions and across domains.
Group order intake was EUR 17.9 billion, up 3.8%, actually ahead of guidance and resulting again in a book-to-bill well above 1x. Group revenues were EUR 15.3 billion.

So we've seen top line growth of 3.9% year-over-year, meeting our target guidance with positive performances in all areas. And that's the result of a very strong order backlog that we're starting to deliver at a faster pace than before, and being able to navigate around the challenges across the supply chain.
We have delivered a group EBITA in line with where we were planning to be, up 5.8% to EUR 1,289 million, with a group return on sales of 8.4%, reflecting a good performance across the entire group. This results shows we continue to manage well the inflationary pressures that were ongoing last year and believe that the worst is now behind us. And it also includes the current negative but improving effect of aerostructures.

Higher free operating cash flow of EUR 635 million was in line with expectations in beating our target, with solid cash generation across core defense businesses, good cash ins across the group as we deliver on contracts and the cash absorption of aerostructures falling in line with plan to EUR 264 million from EUR 293 million.
Net debt was reduced to EUR 2.3 billion on the back of improved free operating cash flow and the sell-down of 8% of our shareholding in DRS. So we have seen very positive results throughout the group, in particular in defense electronics and helicopters. These are 2 driving segments in combination with cyber, where we're seeing growing markets. We're delivering well on backlog, which now stands at a record level of almost EUR 80 billion, and we're improving free operating cash flow trends.

And the aerostructure recovery continues to make progress, and we are on track on the plan. Now let's go deeper into the results and performance at business level. Starting with Helicopters, which delivers about another year of robust performance. New order intake was EUR 5.5 billion, another extremely strong commercial result, below the previous year, but remembering that '22 contained the Jumbo Polish AW149 order that was EUR 1.4 billion.
We saw strong demand on the defense side and further evidence of the civil side, steadily recovering well.

Notable orders won during '23 include 18 AW169 for the Austrian Minister of Defense. 13 MH-139 for the U.S. airports and the growing number of orders on the civil side mainly related to the AW139.
Revenues increased EUR 4.7 billion, up 3.9% with a good buildup of deliveries rising to 185 new helicopters, up from 149 in the previous year. Offsetting the finalization of deliveries on the NH90 Qatar, all the other lines, especially the dual-use helicopters grew significantly.

And we also saw a significant increase in the contribution from customer support as the fleets are back in full operations.
EBITA was EUR 422 million, up 1.7%, with stable margin and return on sales of 8.9%, reflecting the mix and showing our ability to absorb the effects of inflation.
In Electronics Europe, we saw strong performance and positive growth across the sector in domestic and international markets and in particular, in Defense Systems. Very strong order intake in '23, with EUR 6.5 billion of new orders, an increase of 16%, making it a division that is growing fastest in order intake.
We saw growth across all business areas and strong demand continuing for both sensors and defense system solutions where we had an important series of contracts for the upgrade of platforms in armoured vehicles for the Italian army, the Ariete tanks and related logistical support.

Importantly, we signed a major U.K. order for the MK2 new radar for the Royal Air Force Typhoon fleet. We saw orders for the Italian army command post and an order for Kronos radars for the Italian Air Force. And in the Cyber sector, we are pleased to see more orders, including the order for the establishment of the Joint Operation Center, JoC, of the joint operational command of the joint forces, COVI of Defense.
Other orders came from political, military, economic, social information, infrastructure and information knowledge management.

Revenues here were EUR 4.9 billion, up 4.1% with positive growth across the sector. EBITA was EUR 600 million, up 8.5% with return on sales increasing further to 12.2% on the back of growth in all main domains plus cybersecurity and greater contribution from our joint ventures.
So Defense Electronics Europe is performing very well at both revenue and profitability level and we're seeing the results of volumes increasing operating leverage and more attractive cash cycle.
Now our joint venture MBDA also continues to enjoy very strong momentum. In 2023, it saw a very strong buildup of order intake and great prospects across all geographies and demonstrating a growing ability to deliver a significant growth rate and solid margins.

And with handful, we have begun to collaborate on projects across a number of domains, and we see significant opportunities in combining our efforts. Then speaking about DRS, Leonardo DRS, the company released its results 2 days ago. And here, we have achieved good progress in growing year-on-year, in line with expectations, benefiting from key areas of strategic focus, including force protection, integrated sensors enabled power propulsion. Also another very good year in order intake, increasing to 3.5% -- $3.5 billion in dollar terms.
DRS won a number of important contracts in the year.

Let me mention to you a couple. Supply of electric propulsion components for the next-generation U.S. Navy Columbia-class submarines, which, as you know, is a key area of major strength for the company which covers most of the components for the remaining 7 Columbia-class submarines, plus additional orders for the supply of infrared measures for the U.S. military.
Revenues grew year-on-year in line with expectations, up 2.2% to $2.8 billion, and EBITDA grew to $273 million with a return on sales at 9.7%.

All of this is reflecting still the effect of development stage contract, not yet at full margin potential, which is typical of the production stage. In aircraft, we saw continued strong delivery in profit and even higher margins. Order intake in the year was some EUR 2.4 billion, down 14.5%, as we continue to have a solid contribution from the fighter business and the cargo aircraft. But we saw a slippage of some order in the export market related to proprietary programs which we now expect to book in the first half of '24.
Revenues were lower by 4.8% at EUR 2.9 billion, as the previous year had benefited from the EFA Kuwait ramp-up, but profitability continued to be very strong with EBITDA of EUR 419 million and return on sales of EUR 14.3 million, up from 13.6% in the previous year, with the leading contribution to profitability coming from the Fighter business.

We're also building up the attractive customer support activities, and continue to work on proprietary programs to deliver continued growth and maintain our strong margins.
Looking forward, we see growth from export markets for proprietary platforms and ongoing strong contributions from the size of business, both Eurofighter and F-35. We see a solid outlook for the Eurofighter Kuwait, and all the other Eurofighter program.
There is a pipeline of potential new aircraft as well as spending on newer Eurofighter capabilities and upgrades. A clear technological road map is ahead of us to keep the platform at the forefront of European defense for the next 2 decades.

And on top of this, we have the opportunities in trainers and cargo aircraft, and the new important opportunities to gain key positions in the unmanned domain. Aerostructures continues to make progress on track with the recovery plan and reducing losses year-on-year. The shape of the recovery curve is in line with what we had expected, and the business is growing as a function of growth in the market and increasing delivery levels on all programs particularly at the important Grottaglie site, where we manufacture the B787.
New orders in the year were high at EUR 644 million, in line with expectations, and a significant increase of 55% from the previous year, reflecting the recovery in the civil aeronautic business across the board from Boeing to Airbus and ATR. Revenues grew 33% to EUR 636 million, and loss to the EBITDA level reduced by 20% to EUR 151 million.

This includes the contribution from ATR, which also made further progress, achieving almost EUR 1.2 billion in revenues for the first time since the pandemic, and also supported by a record year of services with revenues of over EUR 400 million as platforms are fully operating back to pre-COVID times. ATR saw a strong increase in aircraft sales, which rose 53%. The company delivered 36 aircraft in '23 versus 25 in '22, an increase of 44% that shows the appeal of the platform from a market standpoint and ATR's capability to convert this demand into deliveries. ATR contribution grew to a positive EUR 12 million in the year, on the back of higher deliveries, good performance in customer support and services and the acquisition of new customers and new routes opened with ATR aircraft. I want to spend a bit more time on Space in this presentation.

As you have seen, we will be consolidating to discuss in line with our management influence following the recent amendment of the joint venture agreement signed between the 2 CEOs, Roberto and Thales' CEO. Because we see our newly-created Space division as a strong growth area for the future, I want to give you a sense of our Space activities today and explain how we are going to disclose the performance going forward. The Telespazio joint venture specializing in space services, with sales of around EUR 700 million and high single-digit operating margin. Then the past joint venture specializes in satellite manufacturing with leading and profitable positions in the growing observation, exploration and navigation market but a portion is also referring to the commercial telecom market, which has been very challenging.
On the slide here, you can see full year '23 figures for the Space division restated on a pro forma basis that includes the full consolidation of Telespazio.

Sales were EUR 700 million, increasing 7.8% compared to the previous year. Orders were around EUR 760 million, slightly decreasing compared to '22, and EBITA decreased due to the tax performance negatively impacting margins, mainly related to the development costs in the manufacturing segment of the commercial telco business.
While Telespazio grew its operating results compared to '22, confirming the positive trend. Importantly, we have continued to make progress this year in improving our cash flow generation. You can see our increased free operating cash flow at EUR 635 million for the full year.

We make our targets in Q4, and it's an improvement of almost EUR 100 million year-on-year, with strong quality and benefiting, as expected, from a high level of cash and disciplined working capital management while continuing to invest in our core businesses.
This generation is driven by a robust performance on the defense and governmental side, while the aerostructure cash absorption is reduced from EUR 296 million to EUR 265 million, in line with the plan. The culture of cash is certainly more ingrained in our organization and across the group. While we are continuing to invest significantly to support growth for the years to come, we are also increasing our free cash flow generation. Another important area of progress in '23 was increasing our financial strength and flexibility, and this was evidenced by achieving investment-grade status by all 3 rating agencies.

We were pleased to see that all 3 have recognized our efforts and progress in terms of deleveraging. And the latest upgrades are a reflection of the improving financial strength of the group and our strong commitment to use cash flows to reduce debt. As you can see on the slide, in '23, we reduced gross debt from EUR 3.6 billion to EUR 3 billion, and reduced net debt from EUR 3.1 billion to EUR 2.3 billion, ahead of target. We also beat our target for our average cost of debt, which was 3.1% for the year. So to summarize the key points, as you have heard from Roberto and myself today, we have delivered our '23 target and guidance.

Our '23 preliminary results demonstrate good progress throughout the group. Helicopters continuing to achieve robust commercial performance and higher deliveries and customer support activity. Defense Electronics delivering very strong commercial performance and positive growth across all sectors. Aircraft showing strong delivery of profit and higher margins. Aerostructures continue to make progress on its recovery plan and Space putting in place the building blocks of our new [indiscernible].

It is a good foundation to move forward on, we have also been making good progress on strategic steps, which will be more reflected in our future results. We are very focused on our new industrial plan, which we will show you in a couple of weeks' time.
Thank you. And now we are happy to take any questions.

Operator: [Operator Instructions] The first question is from Alessandro Pozzi with Mediobanca.

Alessandro Pozzi: I have 2 questions on margins and then another one on JVs. The -- I think in your opening remarks, you mentioned that there was an inflationary pressure, of course, in 2023, but you managed to offset that. And I was wondering, I appreciate that we will have a full plan in a few days. But how do you see those pressures continuing in 2024, vis-a-vis your ability to reprice contracts?
And also on margins, you had a good improvement in aircraft -- can you give us more color on what are the moving parts and how much the EFA contributed versus the JFS into the margin evolution year-on-year. And final question on JVs.

In the opening remarks, you launched partnerships with KNDS and [ DAE ] on GCAP and on ground vehicles. I was wondering, when will we have an update in terms of the works that Leonardo might have in those big JVs?

Roberto Cingolani: [indiscernible], it work? But generally about this last question about the joint venture, this is now an almost daily job, we're producing with our partners there. There are different options on the table. We are studying in the business case, I -- could be either a long-term large commercial agreement, which we supply specific electronics business for the ground machines or it could be a real industrial joint venture where we produce a brand new machine, which is 50-50 or so. We will -- of course, we will disclose everything, by the time it will be clear the cost effectiveness and the advantages of the different solutions.

Our strategies and engineers are working on the analysis of the different scenarios, yes. So this will be -- I assume that in about 4, 5 weeks, there should be already first feasibility study that has been started now since a couple of months. So we should understand a bit better what is the situation. Concerning the margin in aircraft, primarily, I'd like to tell you that we are working, especially on the Eurofighter, this is the most, let's say, the most convenient, the platform having the largest margins for us. And so we are exploring markets that were not explored in detail in the past.

So there are a number of actions that we put in place recently. And the inflation, I think we survived the peak of inflation last year, both at Leonardo and of supply chain, which is, by the way, possibly the most vulnerable component of the production pipeline. Of course, this year and the next, we expect inflation to be less severe, less hard than in the past. It's, of course, in our contingencies, it's computed somehow. But I think the fact that we survived properly at the worst moment give us quite big expectations for the near future.

Obviously, more protection is needed for the supply chain, it's the weakest part of the pipeline, as you understand, very often, the pipe -- in the supply chain, we have small companies. And of course, for them, it's more difficult to sustain the pressure of the inflation [ wake ]. But I think the worst moment has been overcome already. But with this very qualitative approach, I'd like to give the stage to Alessandra, she might be more precise in terms of numbers.

Alessandra Genco: I think you have -- Roberto provided the key elements.

The inflation pressure that we faced in '22 and '23 is clearly -- now has been managed by the group successfully because as you can see from the margin levels, we have managed to increase the margins, notwithstanding the inflationary pressures on both labor costs as well as purchase groups. In '24, we expect to continue to see a certain level of pressure and the increase -- that, however, is factored into our pricing. As you know, we have especially on the commercial side, repriced our portfolio of products, so as to adequately reflect the inflation effects in the pricing. With respect to aircraft margin, yes, certainly, the fighter business remains a very good business. And we have also managed to be very lean in the organization.

The Aircraft Division is very concentrated in portfolio of products and managed to lower its controllable cost and further tighten its structure in order to increase margins in '23, remaining very best-in-class levels for this business segment.

Alessandro Pozzi: The EFA contract tails off in the coming years, how should we think about the mix within the aircraft?

Alessandra Genco: Well, the Eurofighter is an important component of the overall aircraft business, both in terms of the 4 nations, and we're working on the Spanish contract, for example, the German contracts as well as the export segment. We're delivering. We have delivered 9 aircraft to Kuwait in '23, and we see going forward a number of opportunities that we are going after in the international market.

Operator: The next question is from Virginia Montorsi with Bank of America.

Virginia Montorsi: So I have 2 actually. The first one would be on your agreements with Telespazio with Thales. You've mentioned there's a new agreement that has been signed with Thales' CEO. Could you just elaborate a little bit more in terms of what that means exactly? And then the second question will be on debt, you've obviously decreased your net debt to EUR 2.3 billion. Are you happy with this level of leverage? Are you thinking of going to a more -- to an interior level of debt, how should we think about your leverage profile?

Roberto Cingolani: Yes.

Thank you. So concerning the Telespazio action, as I told at the very beginning of the mandate, we're renegotiating with Thales' CEO, Patrice Caine, the fact that we could not consolidate the Telespazio balance sheet as opposed to what they do in Thales, with the cash revenues and then the cash balance sheet. So we made the alliance much more cemented this way. I have to acknowledge a strong collaborative effort from our colleagues in Thales, it was really well managed. In a few months, we managed to do something that appears to be impossible for 10 years, to be honest, I don't understand very well why.

But by the time I talk to Patrice Caine, that was quite easy. They understood completely. Now, so besides acknowledging the very open and collaborative approach of Thales, obviously now, we do have Telespazio at the industrial core of our Space division. This has been reinforced by incorporating the division the brand-new Space line of business, Space law, that was the -- before existing in the Electronics division. But those are the production lines that are working on robots and the components, hardware components for space applications.

So globally, these 2 components are creating a division that is a little bit below EUR 1 billion revenues from the EUR 8.9 billion revenues for 2024. So we know this is our starting point. And of course, we still have our participation in Telespazio, participation in Avio but this led us work with a totally different critical mass on the European market, at least, for new space services. And of course, in the new plan, I will make very clear what is the strategy, what is the priority we give. And I can anticipate there will be strong prioritization in terms of business.

So this expansion of what you will see in 10 days in the strategic plan for Space. Forgive me, you have another question, is that Space?

Alessandra Genco: Net debt.

Virginia Montorsi: On debt.

Roberto Cingolani: Net debt, yes. Sorry, I apologize.

We have 7 hours long Board of Directors today. This has been a long day. So you find a -- sorry for that. Now for the debt -- well, you asked actually whether we will participate. To be very honest, I have a twofold answer.

Relatively speaking, we are satisfied because if you see where we were 3 years ago, yes, we are, but we can do much better. And you will see in the guidance and you will see in what we're going to propose in 10 days we are much more ambitious about the debt. However, so far, there is a steadily -- a steady decrease of the number, and this is, let's say, the trend is the one we want. But we will go far ahead.

Valeria Ricciotti: Let's take a question from the web.

Christophe Menard from Deutsche Bank is asking regarding strengthening international alliances, why are you exploring cooperation opportunities in TiltRotor with Bell and not a European player? Can your cooperation opportunities with Bell go beyond with TiltRotor? If you reopen discussion with Hensoldt, why did you stay out of the capital increase?

Roberto Cingolani: Christophe, thank you -- these are 2 interesting questions. So without anticipating too much strategic issues, but let me clarify the TiltRotor business. As you -- I think as you've seen, as you've heard, the federal authorities in the United States, they have canceled the so-called FARA program that was dedicated to the fast, standard rotorcraft for military applications. So just a normal helicopter with a rotor, supposed to be very fast. The reason was that the American authorities and the civil authorities and the military authorities want to have a vehicle that fly at the speed of an aircraft with pressurized cabin, with a ratio of 1500 kilometers, and they take off and land vertically like a rotor.

So no standard helicopter can do this. That for us was a super good news because it actually demonstrated that our efforts over the last year. Our capitalization of our investment over the last year on TiltRotor was good. I mean we -- of course, we took our risk, but it was a good choice because now we are the only European company having a TiltRotor, close to certification, primarily close to civil applications, but to be -- that can easily be, not easily, but can be transformed also for strategic rescuing and military applications. And our only partners in the world is Bell, because Bell is the only one having a TiltRotor technology.

By the way, we share the original design and we developed independently to synergistic and complementary models. They have a big, heavy payload. We have the light payload machine. Our is [indiscernible], the other one is more, I would say, much bigger, but of course, for heavy duties. And now in the world, only Leonardo and Bell can merge and collaborate or make synergies about TiltRotors.

And the reason for our -- it is because we want to explore how we can take benefit of this synergy and this complementarity. That's one point. Concerning Europe, Europe doesn't seem to have at the moment, a TiltRotor long-term program within the national governmental or European authorities frame. Europe is still investing or still thinking to that. On the strategic NH90 machine version 2, the new military fast helicopter.

In that case, this is good for us because we have a considerable remarkable capability and scale in military helicopters, and we are, with Airbus, the key players in Europe. There is absolutely no problem in thinking to a Europe machine, a Europe standard rotorcraft fast machine for military application. That will be a totally different sport compared to TiltRotor, different functions, different characteristics, everything different. So we can play in both continents with a clear leadership. And this is what we are trying to do now.

Concerning Hensoldt, we didn't participate in the increase in recapitalization a few months ago, because at that time, the German government and the previous top management of Hensoldt didn't say clearly whether for them the possibility to make a Leonardo-Hensoldt alliance joint venture was still open. And I'm not sure you remember this. I'm not sure you heard it from me that -- but I personally went to the governmental authorities of Germany a couple of times. I spoke to Mr. Scholz, to Robert Habeck.

So many of the people there, Minister Pistorius. There were many contacts and at that time, it was not clear whether this idea of the joint venture was kind of a feasible or not.
So we said, okay, it's not good for us to invest EUR 76 million to stay at 25%. We better go to -- step down to 22.8%, which means basically the same. But of course, given the good relationship with Hensoldt, we never said -- we never closed the recapitalization of the company.

We were endorsing this. We understood completely the idea of why they needed this. So it was very collaborative. And I think, Hensoldt and the German government were very -- they appreciated very well the position of Leonardo, very transparent, very collaborative. But at that time, putting those EUR 76 million to get 25% participation that we had before would have been -- would have not changed very much our strategic design.

A few weeks ago, the new CEO of Hensoldt, [indiscernible], and asked for a meeting, a meeting with me. And we have a very long constructive and transparent discussion. He told me that they are reconsidering in a very open way in the possibility of the joint venture. I mean, of course, something might have changed politically, internally with the new management. I don't know, but that was an opening that we were very happy to hear.

That's why we are restarting now the analysis of the joint venture creation. I think, if you go back and see our press release when we endorse the recapitalization of Hensoldt without participated in the capital. Our last sentence was, of course, Leonardo is looking forward to see whether there will be any opportunity in the near future to go ahead with the creation of the joint venture. So we leave the door completely open. I should say there was even at the door, we were just there waiting for the progress of the situation.

The progress came. We are very happy and now we are discussing with the new top management what we can do together. The table is open. Our strategies are working together. We'll see.

I hope I can give you guys good news in the next month. But for sure, the machine restarted. I hope I answered you completely.

Operator: The next question is from George Zhao with Bernstein.

George Zhao: I guess first question on aerostructures, could you give us an update on your discussions with Boeing regarding the contract negotiations for the 787 you talked out last quarter.

Has there been any progress since your last earnings?
And second one, could you talk about your decision to sell the small stake in DRS in November. Given that you still hold over 70% stake, significantly more than what will you need to still maintain a majority stake? Would you consider others more sales to general proceeds?

Roberto Cingolani: Yes. Thank you. Thank you for your questions. So concerning aerostructure, yes, though there is still a negotiation ongoing, both with Boeing and Airbus, I think we got some 10% increase in the price of the 787.

I believe this is the [indiscernible] plus 10%. [indiscernible] you have the numbers. Okay, we cannot say more. But yes, there is -- we go in that direction, okay? My CFO is looking me with a very bad face, and I'm not supposed to say anything, but okay, this is going in the right direction. Concerning DRS, well, that was a very surgical action that we did because that capital is needed for specific merchant acquisitions that we are now examining and finalizing -- those are specific merchant acquisitions in -- that will add either new services or new technologies to areas of Leonardo where it is more convenient to make an M&A rather than to develop in-house, the new products or services.

Why we keep the 72% of DRS? At the moment, DRS is an important partner for us. It's an important outstation in United States. We believe it's important to be -- to have a presence, such a qualitative presence in U.S. We have a collaborative program. There is no point at the moment to step back from DRS.

And so we plan to continue like this, and we don't have, at the moment, any plan to make celebrations unless some very brand-new scenario would show up somewhere in the world, but we don't have anything at the horizon at the moment. So here we are, and here we stay.

Operator: The next question is from Ian Douglas-Pennant with UBS.
Ian Douglas-Pennant: First on cost inflation. Could we get an update on cost inflation, especially within aerostructures and with regards to the contract negotiations with Boeing.

Sorry, I realized my line was cutting out just now. So if you literally just spoke about that, I'll go back and read transcripts. Secondly, on space, it appears from playing back calculations with your results that Thales' [indiscernible] Spaces result was surprisingly strongly negative. Is that correct? And maybe you could talk about the outlook for that business as well.

Roberto Cingolani: Okay.

Look, considering the aerostructures negotiations to be honest, this is very price sensitive and the acquisition is still ongoing. It's doing well. Consider that there's a concomitant crisis with [ Spirit ] and with the manufacturing unit. So to be honest, although I anticipated that things are doing well, I do have difficulties at the moment in giving numbers. We hope we can give numbers very soon.

But just be aware that we confirm that in 2025 are going to be at the breakeven point, okay? Please forgive me if I cannot say more. But yes, this is what I can say now. Concerning Thales' and Telespazio. I would like to make clear that the space exploration business, which dealt with the 33% ownership of Leonardo within the Thales company, is doing very well with high margin, very good revenues. I think they are [indiscernible] also really doing well.

And the market is flourishing. Unfortunately, the other 2/3 that are basically dealing with SatCom, both satellite construction and services. They are in the middle of a strong crisis. And to be honest, this is not unique to Thales. This is same for Airbus.

It's same for most of the SatCom businesses around the world with the exception maybe with a market selling. So I'll be very clear, we are working in a very close contact with Thales and even Airbus because we are interrogating ourselves about the -- how can we restore the equilibrium in the SatCom business. To be clear, Leonardo is not involved in the SatCom business. And in that I can anticipate that I will make this very clear in the new strategic plan. They're not going to do SatCom, but for this strategic SatCom, which is our national security interest, which everybody has to do, but I don't consider this a big part of the business.

However, we are in a joint venture with our colleagues in Thales, and this is the time to get together and try to find a solution that also helps our colleagues in Thales to improve the business, which is a critical business. I mean don't forget that this market is going towards EUR 0.01 per kilobyte. This hopefully, cheap, is hopefully little. And if you have to be an infrastructure, you have difficulty and struggle in keeping in undergoing the cost of the infrastructure and of the service. Even Airbus has a similar problem.

So at the moment, there is a discussion ongoing with Airbus, Thales and Leonardo, trying to see whether there is something you appeal that we can see. And of course, trying to see what is the future layout of the space activity within the Space Alliance and also taking into account the possibility that Airbus joined the collaboration. I can't say more because this is work in progress. March 4, so next Monday, we have a meeting, the 3 of us, with our team because we are discussing exactly that issue. We are perfectly aware but I should say, Leonardo is the right choice in terms of technology, investment and our [indiscernible] with space exploration is doing extremely well.

We are also a bit sorry that we have to compensate losses. I mean, this is part of the joint venture. When you're in a joint venture, obviously, you have to take into account that sometimes things are not good for everybody. And it's our time now to how to say, mitigate the losses, but we hope we can correct this very soon. I hope I answered.

Operator: The next question is from Martino De Ambroggi with Equita.
Martino

De Ambroggi: Few questions on the '23 results, just to have a better understanding. If Alessandra, if you could quantify R&D capitalized net effect factoring and MBDA and other joint ventures contribution for what is consolidated equity. The second question, still on '23 results, because we talk about the cyber division. I don't know if you can provide us the starting point of the cyber division in terms of sales and maybe profitability, just to understand what's the size today for this business.

And the last question is on aerostructures. So I don't want to talk about price revision. And obviously, is going ahead, but there is already a guidance for '25 of breakeven point. Just to understand what is the path towards '25 and have an idea of what could be the improvement in '24 compared to '23 to achieve the target in '25?

Alessandra Genco: Sure, Martin. Okay.

Let me start with the list that I jotted down here on this sheet of paper. So R&D capitalized was around EUR 200 million in '23 for the group. Cyber sales and profit, cyber sales were around EUR 0.5 billion, north of EUR 0.5 billion, with a good profit level, which is growing significantly over the planned time. So I would say you have to hold a bigger breath and wait until the 11th of March, and you will learn everything you want.

Roberto Cingolani: [indiscernible]...

Alessandra Genco: Exactly. On the joint venture contribution. So the joint venture contribution has been overall very positive for all the joint ventures with the exception of Thales, which we already commented and Roberto told you a lot about it. So year-over-year, that's the main thing that I want plot for you. Finally, on aerostructures and the breakeven path.

So we're confirming breakeven in our structures by 2025. And the path is the one we have identified, in that the managing director of the division is closely following day after day. In '24 versus '23, you will see a slight improvement in performance because, as you know, the step-up and the step change would occur in '25 once we reach the serious number 1,407 when the ship set will be repriced. So the trigger event is temporarily happening in '25, therefore, '24 is still in a continuing process of improvement by a higher level of activity that will reduce the under absorption, nonetheless, the numbers will continue to be not very far from '23 levels.
Martino

De Ambroggi: Okay.

Just a follow-up on the R&D, EUR 200 million is the capitalized costs and what is the amortized, just to have the balance impacting EBITDA?

Alessandra Genco: That is the net effect, Martino.

Valeria Ricciotti: Let's take a few questions from the web. I'm selecting the ones that have not been asked so far. David Perry from JPMorgan is asking on restructuring nonrecurring charges for 2023. The rest have been already asked.

And there are other analysts, Christophe Menard and Ross Law asking about 787 and negotiation with Boeing that have been already asked. So it's purely restructuring plus nonrecurring for 2023 asked by David Perry.

Alessandra Genco: Okay. So David, the restructuring charges are approximately EUR 60 million, and they are associated with an expansion, expansion of the pre-retirement plan that we have signed in '22, with respect to the Leonardo or FDA and controlled Italian company, corporate staff functions and a portion is associated with the aerostructure accelerated retirement plan whereby the number of people adhering to the plan has increased. Therefore, we have adjusted the provision in our accounts for 2023.

On the nonrecurring line, we are booking expenses related to all contracts, one of which I'm sure -- well, you're both very familiar with them, is the Doha Stadium for approximately a combination of EUR 100 million, EUR 110 million, Doha Stadium and NH90. Those are the 2 largest components as we are closing down the position on the Doha Stadium, which was a very old contract signed in 2016, and the arbitration was completed last year with an overall positive effect for Leonardo, the remaining asset base that we had was zeroed out in '23, in a very prudent manner. We have upside if there are adjustments to the proceedings that are currently enforced. And the other element is the NH90 Norway, which was a 2001 contract, so even more dated, a contract where we deliver 12 out of 13 helicopters for the Norway client and NHI is the prime, and we are with Airbus following the mediation process. And conservatively, we have decided to zero out the outstanding asset position we had on the contract.

Notwithstanding that we have a very strong position from a legal process that our claims and our position is very strong, and we're confident that this will be resolved positively for Leonardo and for Airbus and for NHI. I see that I missed a question here for Martino, which was about factoring. So factoring, Martino, as you know, we have basically zeroed out our factoring, in Italy, we have no more factoring facilities and activities outstanding. We had still some level of activity in the U.S., which is, however, going down very nicely year-over-year.

Operator: The next question is from Gabriele Gambarova with Banca Akros.

Gabriele Gambarova: Again, on this aspect of factoring, Alessandra, what was the level last year? Sorry, if I don't remember, but...

Alessandra Genco: Factoring -- the group was around EUR 400 million, EUR 500 million, had about EUR 400 million to EUR 400 million of activity or factoring activity. This year, we are really close to really material levels.

Gabriele Gambarova: Okay. Very interesting.

And sorry, again, I checked on this aspect of the Doha Stadium, if I understood well, you should have something, let's say, a positive item in the extraordinary that could be offset by something negative on the NH90 front?

Alessandra Genco: No. So on Doha, we basically have -- we have cleaned up our position as a consequence of the resolution that the mediation process took last year. There is a potential upside to the extent that we will be recognized an additional claim that we have submitted to the judges.
On NH90, we have conservatively also build out our outstanding position, as the mediation process is still ongoing, however, we have decided to not have any open positions on our balance sheet. We have, at the same time, very strong convictions ourselves, NHI and Airbus, that the legal claims that were submitted by our customers have no grounds and therefore, our position will be recognized by the third-party judges.

Gabriele Gambarova: Okay. Okay. Sorry, just one question, one last question on ATR because it seems to me that the level, let's say, the pace of the recovery is pretty slow. I don't know if I'm wrong, but I understood that possibly expectations will be -- let's say, stronger in terms of recovery. Do you agree with this thinking or I'm wrong? I mean, with the situation, what you can see.

Alessandra Genco: No, it's not slow because even it's 44% year-over-year, Gabriele. So we delivered the ATR consortium, delivered 36 aircraft in '23 versus 25 in '22. So 44% outlook. What is slowing down the ascent to higher level is the supply chain, the company is doing well. However, there are key components in the supply chain that are delayed.

Therefore, in the assembly line, we are tied up and slowed down. However, the company is working really hard to resolve these issues together with the major suppliers. As you know, this is an industry-wide challenge that all players in aerospace are facing, and we're confident that we will receive positive news throughout '24 as these trends will slow down. It will take some time to be realistic, but I'm positive that in '24, the outlook will be better.

Roberto Cingolani: Gabriele, just for general comment, we know that in old class aircraft platforms and even helicopters, but for those very expensive, super strategic in relatively cheap platforms, even though now the traffic is recovering to pre-COVID levels, the supply chain is late.

There is some difference between the supply chain and the main manufacturer. And the more we're dealing with a cheap platform, the more this get [ jetlagged ] is important because the supply chain consists of more compact, in general. So we have seen this, unfortunately, in many cases. We discussed this also with our partner in [indiscernible] and also with Airbus. And it was clear that this is -- I mean, you feel this problem more on ATR than on a much bigger aircraft.

Valeria Ricciotti: Okay. Other question from the web, again from David Perry, JPMorgan, can we just have 2023 EBITDA of Telespazio France and Associates on the 2023 P&L.

Alessandra Genco: Well, David, if we can wait a couple of more weeks, you'll get all the details with all the results. I'm saying this also in respecting the timing of results presentation of our joint venture partners, i.e., Thales, Thales technically is going to go out on the 4th of March and -- or the 5th of March.

Roberto Cingolani: No, we release at 4th, just because we have to agree [indiscernible] strategy for the -- of the joint ventures, we say.

So the reason -- one of the reasons for the meeting on the 4th is also to give the same vision and view to the investors and the analysts. Sorry for that guys.

Alessandra Genco: It's a kind gesture that we are separately maintaining between companies. I'm sure we will appreciate that.

Valeria Ricciotti: Then I have Stefan [indiscernible] from [indiscernible] asking what was the contribution of working capital to free operating cash flow in 2023? And did you receive net positive customers per payment?

Alessandra Genco: So the contribution of working capital was positive.

We invoiced a number of very important milestones across the group, across divisions, and that allowed us to lower the level of working capital that we have throughout the board. So this is all good news. And even though we are actually buying in advance in some areas of the business, i.e., electronics and in some segments of the helicopters business and adding to inventory in order to make sure that the supply chain shortages are not impacting our delivery back. So notwithstanding the slight increases that we are proportionally putting in place, the level of working capital overall has gone down, thanks to a good delivery of milestone through our old programs.

Valeria Ricciotti: I think final question from [indiscernible], Helicopters division.

What was the underlying EBITA margin trend at development cost, how much development costs and relating to what? And should we assume the underlying margin increase as you deliver last NH90?

Alessandra Genco: Okay. [indiscernible], the way to think about margins in Helicopters is that we are clearly continuing to invest in the Helicopters business as we're building the platforms for the future. So 609 will be the future of the group and the company, the very advanced technological programs and the investment phase will continue throughout '24 and '25. With respect to margins, the Helicopter business has increased the absolute value of the margins, and we feel that we have good upside in the plan, also leveraging the significant contribution of customer support, which in '23 achieved a weight on total revenues of 40% plus. This is an all-time high.

And as you know, well, customer support carries really good margins as well as extremely positive cash conversion of margins into cash. So we're very happy about that. And I do feel that we will continue well on this path.

Valeria Ricciotti: This was the last question from the web. I think there's nothing else from the call as well.

Roberto Cingolani: If this is all, thank you, guys, for being here and look forward to seeing you in 10 days with the big news. Okay. Thank you. Thank you all.

Alessandra Genco: Thank you.

Bye-bye.

Operator: Ladies and gentleman, thank you for joining. The conference is now over. You may now disconnect your telephones.