Valeria Ricciotti: Good afternoon, ladies and gentlemen, and welcome to our full year 2024 preliminary results presentation. I'm Valeria Ricciotti, Head of IR. Today, our CEO, Roberto Cingolani, will take you through the important progress that we achieved during last year, and our CFO, Alessandra Genco, will then take you through the full year 2024 preliminary results in more detail. We will then welcome your questions. Please note that the call will last no longer than one hour.

Throughout this call, we may be making forward-looking statements. I invite you to refer to our safe harbor statement in the presentation slides, which also applies to this call. Please also note that the approval of the draft statutory financial statements and the consolidated financial statement of Leonardo as of 31st of December 2023 is scheduled for 11th of March 2024, and therefore, the data reported in this presentation should be considered un-audited, as the audit process by the appointed auditor has not yet been completed. Lastly, as you know, on 11th of March, we are planning to present an update of the Leonardo industrial plan. And included in that, we will then also be presenting our 2025 guidance plus our updated medium-term targets.

And now I will hand you over to our CEO.

Roberto Cingolani: Thank you, Valeria. Good afternoon, ladies and gentlemen. Happy to be here again and to meet you those digitally. As last year, we're going to introduce you the results of 2024 slightly before the presentation of the industrial plan.

We just want to decouple the yearly activity with the future activities. For the 2024, we are quite satisfied. I should say, new orders this year have broken the barrier of €20 billion, in particular, €20.9 billion, the preliminary data for the orders which is 12.2% higher than the data of fiscal year 2023. Actually, this generates a backlog of orders that exceeds €44 billion, which represents quite an improvement compared to last year. Definitely, revenues are growing substantially from €16 billion last year to €17.8 billion this year with a change -- a positive change of more than 11%.

This actually, it's quite an important increase in the transformation of orders into revenues that depends, primarily on the work for the efficiency that we have done throughout the company and also an improvement of the situation of the supply chain, which was quite generalized through all the products. The EBITDA has increased up to €1.52 billion as opposed to €1.35 billion in 2023. So the increase in the EBITDA is 12.9%. The return on sales has increased by 0.1% to 8.6%. And we should say that the performance, which is quite good, compensates the losses that were generated by the exogenous problems that we had, particularly with the Aerostructure division because of the Boeing crisis and with the SATCOM business connected to the space alliance with our colleagues in Thales.

So in some respect, this means that we were managing quite well those two exogenous problems, and the numbers seems to be very encouraging. The free operating cash flow increases by 26.7%, reaching €826 million. Just to remind you, our guidance was €770 million. So this is a substantial increase. And the net debt is reduced down to EUR 1.8 billion, starting from EUR 2.3 billion last year with a reduction of approximately 22.7% I mean, to be honest, guys, though the numbers are very encouraging and well above the guidance, we still feel the urgency to find solutions for -- primarily for Aerostructures.

This is something we will discuss in detail with you on March 11 at the occasion of the presentation of the new strategic plan. And of course, reducing the problem in the SatCom business together with our partners in the Space Alliance, but this is actually already in progress. Let me recap the main point of the plan, the vision and the corresponding actions. You remember the plot at the center of the slide, this is dedicated to the vision of the cross-domain interoperability that merge all the platforms that are created by Leonardo that are immersed into a digital continuum supervised by central artificial intelligence that means primarily high-performance computing and cloud computing, supervised by a space cloud and a space network of satellites that actually control the actions of both the platforms and of course, in a volume space, which is cybersecure by design. So that was the, let's say, pictorial representation of the vision of the strategy.

In order to implement the strategy, we have two main actions. The first one is strengthening the core business. So we've been working to the constant improvement of our product portfolio making our platforms more interconnected and more and more innovative and competitive. And of course, we made a specific focus on enhancing effectiveness and operational efficiency across all the businesses of the company. Actually, we have closed a number of low-margin or of core business activities.

And of course, we've been facing the challenge of Aerostructures as I will -- we will tell you in more details in the days to come. We believe we have identified an international investment partner that is involved in aerospace and defense to co-invest in a possible new industrial initiative about Aerostructures. So stay tuned because this will be hopefully communicated in more details very soon. Within the industrial plan that you've seen already March last year, the implementation highlights are reported in this slide. You remember, I'm sure that strengthening the core business was based primarily on what we call the organic growth that is improving research and development, technology innovation, introduction of new products, introducing a massive digitalization throughout the portfolio and increasing servitization and customer proximity in all our platforms, helicopters, aircraft and so on and so forth.

But the second pillar of this part of the plan was applying an efficiency boost that is increasing the efficiency group-wide and a corporate cost reduction, rationalization of the product portfolio, particularly in electronics and also withdrawing programs that were not very strategic or of core business and improving the -- optimizing the operations at industrial level. In this slide, I'm sure you don't want to see item by item, this list of accomplishments. In green, those are the completed actions. In yellow, you find the actions in progress. Those are not all the actions, but are some of the most significant just to witness the kind of activity that we carried out in the last 12 months.

The second part of the implementation plan that was paved the way to the future basically is dealing with the inorganic growth that we plan for the future of Leonardo. This will be developed through a steering of global alliances, pursuing merger acquisition strategy and tackling emerging markets and developing new technologies in different fields. Here, again, you see the Leonardo Rheinmetall joint venture was established just a few months ago, going to start soon. The partnership -- the new partnership we're going to develop over the next weeks with the team, the Bicar team for advanced drones. The joint venture agreement finally completed with the GCAP consortium in Japan, U.K.

and Italy and the new Space division that has been constituted and the renegotiation of some of the collaborative agreements with our partners in Thales. So those things belong to the future. And on March, you will see how this is -- how this will be developed. And of course, you will see all the numbers that connect the financials KPIs that are connected to such a group of initiatives. Now the efficiency plan you see in this slide has been pursued with a lot of commitment by all the company.

We're supposed to accomplish €150 million savings in 2024. We did slightly better. We computed €191 million savings. So we are slightly ahead on schedule, but we confirm the €1.8 billion saving plan that we communicated in the plan. Actually, interestingly, you can see that procurement, a reduction of €125 million in procurement, about 40% of that -- about €74 million of that was in the divisions and about €51 million through the central direct procurement, about €15 million savings coming from the corporate just making efficiency in the headquarter, about €23 million savings are coming from travel efficiency and €28 million from disposal of old businesses.

This is actually what we did during the year. It's interesting to see in the small plot that you see on the right-hand side of the slide that if we compare our procurement profile, our expenditure profile with inflation profile, which is the gray line, the negotiation of long-term contract by the Leonardo procurement structures already ensured some savings, the red line versus the green line. But the additional pressure made on cost savings is represented by the dotted line. That was really quite a sharp initiative done internally to the company, resulted in a substantial and a remarkable saving, which you can see through the small -- the green line. And basically, if I could make an indirect comparison, this is pretty much like the inflation where 2.7% rather 3% or 4%.

So we are quite satisfied about the organization, the saving plan, and we will continue in applying the pressure on the division on the headquarter to improve the efficiency boost and of course, to ensure the proper global saving that is reported in the histogram next year, we're supposed to have extra €110 million on the actual numbers. If we go to the next slide, you see in a few snapshot what the divisions, the performance of the divisions. Those are quite encouraging. Electronics has been growing by almost 12% in orders, about 9.4% in revenues, and the EBITDA has been growing by 21%. Primarily, this is because of the strong commercial momentum and delivery across all domain land, sea, Eurofighter and now the forthcoming main battle tank and infantry.

The portfolio rationalization has been completed in Phase 1, about 13% of the products have been withdrawn. And then the disposal of the underwater armament system to Fincantieri, the ship company, was also a remarkable achievement for the Electronics division. Finally, we have to account for the strong performance of DRS and the start of the Rheinmetall joint venture. Helicopters has now collected €5.8 billion orders, plus 6% compared to last year with exceeding the barrier of €5 billion revenues, the growth of 11% and the EBITDA growing by 10% up to €465 million. This is primarily connected to the good performance on most platforms with the first firing campaign of the AW249 and the new launch, the performance improvement program on cooperation and the customer support programs that have increased the service level throughout all our platform.

And this, of course, increases -- progressively increases the margins of our helicopters. Aircraft has been growing by 20%, almost 21% in orders. Revenues are slightly reduced, but this is because some big orders, specifically Eurofighters for Italy, Spain has shifted to the right. So it's slightly anti-phased with the financial profile. But anyway, EBITDA is plus 10% and we have to -- actually no, sorry, EBITDA is almost constant.

But we have to remember that there is a solid order intake for the Eurofighter that will be materialized next year with Italy, Spain. And there is an increase in GCAP contribution. On top of that, there is a new initiative for the 346 aircraft, which will be now ordered for the new acrobatic fleet of the Italian aviation. On top of that, we should also mention that IFTS, so the training facility in Sardinia is growing constantly and has reached now the 100th degree delivered to the pilots. About Aerostructures, despite the Boeing prices, numbers are slightly better.

There was a top line improvement driven by the progressive commercial aviation market recovery despite the Boeing issues. So we have agreed a repricing of the B787 fuselage and there are new strategic plan ongoing, however, that will be presented soon. So cyber has been growing substantially, plus 20% in orders. It's approaching €1 billion €0.8 billion this year. It's a remarkable growth.

Revenues, €0.6 billion, plus 9% and the EBITDA has been growing by 36% I think the solid commercial performance of this year is due to the focus of the industrial plan of the cyber division in defense, government and policy forces. And those are strategic markets where the business is by far well focused and with a high margin. The portfolio of cybersecurity has been streamlined and now we are starting to develop our own products. So the new product release is coming. And finally, there is an increased leadership on sovereign cloud applications for the public administration.

which seems to be extremely promising. There's more than 470 customers only at the national or domestic level that need cyber protection and cloud technologies for the future. Finally, Space. The Space Division, as you remember, was launched at the beginning of last year. After one year, revenues -- orders are around €0.9 billion, growing with a growth of 25%.

Revenues around €0.9 billion with a growth of about 30%, €29.2 million and EBITDA, which is growing by 21.2%. Telespazio is fully consolidated. We continued our improvement across all business lines and the new Space Division is established with a brand-new team, brand-new top management and an industrial plan. The industrial plan with financial KPI will be introduced to your attention on March 11 at the occasion of the update of the plan. Those numbers seem to be very encouraging.

And of course, they gave rise to the global figure of Leonardo that I gave you in the opening of this call. Least but not last, I'd like to mark the significant process towards sustainability targets. All our KPIs in sustainability have been growing. Actually, we still keep the top positions in the most important sustainability ranking around the world. Upstream and downstream Scope 3 decarbonization targets have improved.

Scope 1 and 2 market-based emissions have been reduced by 4.4%. Water withdrawal has been reduced by 5.7% compared to last year. Waste production has been reduced by 1.5% compared to last year. There is a boost on innovation that you can quantify by an increase in data computing power per capita, which has been increased by 12% and data storage capacity per capita, which has been increased by 49%. And the total R&D spending has been increased up to 13% of revenues of the group.

Gender equality, we did a lot of effort in this direction, 17.7% of female managers increased up by 15% in 2023 and 23% women hired with same degree, which is a substantial increase compared to the past. We achieved this year the UNI/PdR gender certification until 25, 2022, which is a good accomplishment for sure in aerospace and defense. And finally, 64 of our financial sources are ESG linked, which means that our sustainable finance program is progressing with some success. I conclude just telling you that on March 11, we will discuss the future. The number of 24 are encouraging and promising.

We have identified a small problem that we have and we are targeting and finding solutions. We will tell you more in detail, how the organic growth has been accomplished. We'll give you a bit more details about the efficiency boost and the solution we are envisaging for Aerostructures. I can't say much more now for obvious reasons. There is work underway.

And then we will dedicate a lot of room to the second part of the program, pave the way to the future, the new initiatives. So details on the program on new Space Division, the new line of business in AI and high-performance computing, the international joint ventures about drones, land, technologies, Sixth Generation Fighter. And finally, we will introduce you our targets and capital allocation strategy, defining the 2025 group guidance. I hope this was not too synthetic, but I think that most of the big stuff will come in a couple of weeks. I leave the stage to Alessandra, that will give you more details and more explanations, and we'll stay waiting for your questions later.

Thank you very much for your attention, guys.

Alessandra Genco: Thank you, Roberto, and good afternoon, everybody. I'm very pleased to be presenting to you this afternoon our preliminary full year numbers. The 2024 group results are very solid. We continued our strong commercial and financial performance, especially in our main Defense and Security businesses, seeing orders coming through at good pace and leading to good growth in order intake.

We also continue to deliver of a backlog now at €44 billion, driving volumes and single double-digit top line growth and operating profit growth, as well as improving free operating cash flow driven by better core business performance and good cash management, also reducing net debt. So we're continuing the positive trends that we have reported to you in November last year. We saw stronger performance in our Defense & Security business, and we accelerated our efficiency plans, as you have heard from Roberto, meaning that we are able to offset the external challenges in the B787 program in the Space Telco segment. And this has enabled us to meet or even exceed our full year group guidance on all our key metrics. So you see this solid performance with group order intake growing 12% to €20.9 billion, better-than-expected commercial performance across electronics and helicopters offsetting some postponements in aircraft and better-than-expected performance in DRS driven by broad-based customer demand.

All of this reflecting good momentum in domestic, as well as export markets and growth in orders is again well balanced with a good spread geographically and across business areas and without any concentration in any single country or customer and no jumbo orders. Book-to-bill was 1.2 times. Group revenues increased 11% to 17.8%, and we delivered on our solid backlog across the group, increasing volumes also thanks to a more normalized supply chain, allowing the ramp-up of our activities and a special boost in DRS, reflecting a supportive market in the US and increasing international demand, combined with the translation effect. Our EBITDA on the basis -- on this basis is in line with our guidance, €1,452 million, driven by core businesses and acceleration of savings, offsetting external challenges impacting Aerostructures and the Space Telco business. We also show you here the EBITDA at €1,525 million, €1.525 billion, up 12.9% with a return on sales of 8.6%, slightly ahead of our EBITDA guidance.

And this is with the new view we are taking. I'll explain this more in detail later. Essentially, going forward, we will be using this approach, so that we can align the accounting treatment of our joint ventures -- strategic joint ventures with the rest of the consolidated entities. And we are now -- we will be from this 2024 report onwards, coherent in our reporting approach. And as this represents the way we, as management, look at operating performances throughout the group, both at our joint ventures -- strategic joint venture, as well as our consolidated entities, taking out any volatility experienced on nonrecurring items.

As you have seen, we have also continuously improved our cash flow and reduced net debt. Free operating cash flow was €826 million, up 26%, in line or above our group guidance. Net debt was down €0.5 billion from €2.3 billion to €1.8 billion on the back of improved free operating cash flow and notwithstanding the fact that we doubled the payment of the dividend in 2024. Now let's move on to a discussion of the single sectors. Helicopters, we saw positive momentum where order intake was €5.9 billion, up 6.4%.

Revenues exceeded the €5 billion threshold for the first time and grew 11% to €5.2 billion with EBITDA up 10% to €465 million and return on sales steady at 8.9% Order intake continued to be strong in both governmental and civil sectors in addition to the defense market. Revenues grew above €5 billion for the first time, mainly driven by the delivery of backlog, which now stands at over €15 billion with further increased activity on new volumes helicopters, as well as customer support, service and training. EBITDA growth reflects higher volumes and also a more normalized supply chain. During 2024, we delivered 191 new helicopters versus 185 last year. So good performance and strong commercial momentum.

Next, Defense Electronics. In 2024 showed a standout performance across both Europe and the US to Leonardo DRS, strong double-digit growth in new orders and revenues and a material step-up in profit. As we showed at the half year, the number of this slide for defense electronics have been restated to exclude Cyber & Security Solutions and also the space line of business now accounted for in the Space Division. So starting with electronics in Europe, very strong new order intake, €6.6 billion, up 11.8% book-to-bill of 1.4 times, showing good growth across all domains and leveraging on our key strength in our integration capabilities. Revenues up 9.4% at €4.8 billion, reflecting mainly the delivery of backlog across segments and EBITDA growing to €714 million, an increase of 21% with return on sales stepping up to 14.9%, thanks to growing volumes and the good performance of MBDA, which we recall is included within the performance of the sector.

Electronics, Europe was again a key growth driver for the group with continued good performance. Moving on to DRS. Also, this company had a very strong year, thanks to a broad-based demand, both in the US and internationally with significant increases in new orders, revenues and profits. Revenues also stepped up 14% to $3.2 billion on the back of delivery of programs and strong execution in key strategic areas such as advanced infrared sensing, force protection and tactical radars, as well as a more normalized supply chain. EBITDA grew to $325 million, an increase by 19%, with the ROS growing to 10%, reflecting higher volumes.

Moving now to Cyber & Security Solutions. You can already see in last year results, a fast growing business with new orders of €833 million, up 20%, revenues of €648 million, up 9%; EBITDA €49 million, up 36%, book-to-bill well above one, and continuing its positive trajectory with increasing volumes and profitability. Order intake growth was mainly driven by domestic markets across the board, while revenue growth reflected the higher order volumes and improved profitability was mainly driven by operational leverage. Moving then to aircraft. Here, we continue to see good delivery of profit and high margins driven by fighter programs.

Order intake was €2.9 billion, up 21% and revenues were €2.9 billion, broadly in line with last year if we exclude pass-through activities and postponement of orders to 2025. Profitability continued to be very good with EBITDA of €470 million and return on sales of 14.6%. The division continues to be very profitable, anchored on its strong fighters business, both Eurofighter and JSF. With Eurofighter experienced a renewed boost from additional supplies and upgrades to Italy, Germany and Spain and potential export campaigns as well. Turning to Aerostructures.

Over the year, order intake increased and revenues of €746 million were higher as activity increased. Volumes on the B787 were higher in 2023 with 49 fuselage delivered in 2024 versus 39 in the previous year, but still below the rate we would want that to be. The division recorded a loss in 2024 of €151 million, including the effect of ATR. The recent challenges faced by Boeing that have been widely reported had a consequent impact on Aerostructure profitability as cash flow. Specifically on ATR, we saw deliveries of 35 aircraft versus 36 the previous year and a slightly higher contribution.

Now moving to Space. Here, we have been putting in place the building blocks of our new focus business division, which we see as a growth area for the future with sizable opportunities for us. And we now include the full consolidation of Telespazio plus the Space line of business previously accounted for in the Electronics division. We saw a good commercial performance in 2024. And in the consolidated perimeter, including Telespazio and the Space LoB, new orders were higher at €957 million.

Revenues grew to €906 million, and the performance was solid throughout the business that belongs to the division. The lower EBITDA of the division as a whole reflects the performance of the telco satellite segment, [indiscernible], which continues to face the same challenges that we have discussed in previous quarters, with some complex development programs in a highly competitive market. As we expected and mentioned in the half year results, the tax operating performance impacted materially the division. Importantly, we continued to make good progress in improving our cash flow generation overall at group level with solid cash flows across core Defense and Security businesses and good cash-ins across the group as we delivered on contracts. We accelerated the saving plans, and we had a tighter control and prioritization of investments.

All of this mitigated the higher-than-expected cash absorption in Aerostructures. On the debt side, as I mentioned to you, we continue to be executed on our disciplined financial strategy, and we are fully committed to maintain investment-grade status while supporting growth and shareholder returns. In 2024, you can see that we recorded strong operating cash flows, leading to €500 million of deleveraging, and we reduced gross debt in the two-year time frame from €3 billion to €1.8 billion, keeping our cost of debt at circa 3%. So that's the operating and financial performance all across the group businesses showing solid results. I mentioned earlier the new approach for joint ventures within EBITDA.

Going forward, we will be aligning the accounting treatment of our strategic joint ventures with the rest of the consolidated entities of the group. So, it better represents the way we look at operating performance, excluding volatility of non-recurring items. You can see more details of the adjustments here. The main effect is the exclusion of extraordinary non-recurring costs and PPA from the proportion of net income of strategic joint ventures. Going forward, these costs will be recognized among the items accounted for between EBITDA and EBIT, so below the line, as we do for all the other controlled entities.

So, we're now making a coherent representation of the phenomenon. This change will have no impact on cash flow or on any other KPI. You can see the change here. In 2023, there was €25 million of restructuring, non-recurring and PPA of the strategic joint ventures, which was included in our EBITDA number. For 2024, these items were exceptionally higher at €73 million, mainly due to the decision to stop the development of the ATR STOL version plus some additional restructuring in TAS and some non-recurring costs in MBDA and NSOD [ph].

Going forward, we will be including these costs below the EBITDA line, consistent with what we are doing on the other consolidated businesses. And from 2025 onwards, we expect the level of these costs to normalize at circa €30 million per annum. This new accounting approach for our strategic joint ventures will also offset the consolidation of the underwater business at EBITDA level. Going forward, please note that we will be deconsolidating our underwater activities, accounting for approximately €30 million in terms of EBITDA and free operating cash flows per annum. So, to summarize the key points, we have delivered a very strong 2024 set of group results and achieved or exceeded our 2024 targets and guidance.

Our preliminary 2024 results demonstrate progress throughout the group. We saw stronger performance in our core and security businesses, and we accelerated our efficiency plans, meaning that we were able to offset the external challenges in the B787 program and the space telco segment. We are pleased with the commercial momentum in defense and security, and we continue to see good prospects for new order intake. We expect performance this current year to be consistent with the plan we set out last March. While our top line continues to benefit from the easing of supply chain pressures, meaning we expect revenues to be slightly higher this year or almost in line with 2024.

On EBITDA, we expect a solid performance across the core defense and security businesses to continue to offset the ongoing impact from the external challenges in aerostructures and space telco. On free operating cash flow, we continue to see solid cash generation and progress in line with the plan we set out in March 2024. We will be giving you more detailed 2025 guidance on March 11th, along with the roll forward update of the industrial plan. We have also been making good progress on strategic steps, as you have heard from Roberto, which will be reflected in our future results. Thank you, and we are now happy to take your questions.

Operator:
A -

Valeria Ricciotti: Our first question today comes from Alessandro Pozzi from Mediobanca. Your line is now open. Please go ahead.

Alessandro Pozzi: Hi there. Thank you for taking my question.

I have two. The first one is -- well, I'd like to try to ask one about Aerostructures. In your opening remarks, you mentioned that you have ongoing negotiations, without naming names though. I was wondering whether the plan is the same as the one we announced in Q3, I mean, carve-out of the divisions. Or is it a plan to have maybe multiple partners involved in different programs to diversify away from the 787? And also on this point, I was wondering whether you have received the new delivery schedule from Boeing on the 787? And the second question is more broader.

I think Munich has been a bit of another wake-up call for Europe. Probably the European Commission is activating the escape clause, which could see much higher defense budgets in the coming years. And I was wondering how fast this could translate into order intake for Leonardo. Italy, for example, as well is also thinking about anticipating the 2% target of defense spending versus GDP. And I was wondering compared to a year ago, I guess the outlook is substantially different.

And I wanted to maybe have your thoughts on how fast this could translate into order intake for Leonardo? Thank you.

Roberto Cingolani: Yes. So thank you for the question. Concerning Aerostructure, please allow me not to give details. I mean, third quarter of last year, I was very clear about the strategy.

Now, I mean we keep the promise. We have identified a potential co-investor that is involved in Aerospace and Defense. There is a very tight negotiation ongoing. So this is -- unfortunately, I cannot disclose more, but we are fully committed, and I hope I can disclose very soon how things are developing. So if I may, I mean, you can say what I said on the third quarter, I was very clear and that we are working in that direction, and so this is a state right now.

We are talking something that is in progress in these hours in these days. I hope you understand. I can't do more. I can't say more at the moment. Concerning your second question, excuse me?

Alessandro Pozzi: Yes, that's okay.

Fair enough.

Roberto Cingolani: Okay. Thank you very much. Yes. Concerning your second question, the good news seems that there was a wake-up call, as you said, because of the geopolitical situation, what Trump is doing with Russia, the role of China and actually the actual embarrassment of the European institutions.

I think the good part of this is that, it seems clear that Europe now has to increase the spending in defense, very likely reaching or passing 2%. This is not only a need, because Russia is a threat at the border of Europe, but also because if you want to be a stronger leg in the NATO Alliance, in the North Atlantic Alliance, we need to be stronger, more reliable partners of the NATO team. With this in mind, I'd like to tell you that Italy, for sure, will be increasing the defense expenditure, especially because now Europe seems to have accepted the idea that the extra investment in defense will not be included into the Stability Act. So will not be a part of the national debt and national deficit, yearly deficit. So this is -- this means that there is much more freedom.

There are more degrees of freedom to invest in defense. This is not only Italy it's the entire Europe basically. So you can imagine a rather massive investment from different countries in Europe in defense. With such a scenario, you have to consider that Leonardo is quite a big operator. We absorb a large part of the procurement and the investment in defense in the country, but we're also very competitive at the European level.

So not limiting Leonardo at the domestic market, but consider Leonardo as a European entity, the higher will be the investment at European level. And of course, the higher will be the possibility for Leonardo to grow fast. Now concerning the time for order to revenues return, which is basically what you said, I think this depends very much on the kind of procurement and the kind of orders we are dealing with. I mean, platforms such as main battle tanks or infantry vehicles, aircraft might take two, three years for delivery at the moment. Other technologies such as sensors, radars, light weapons, satellite services might be much faster in terms of return after the order.

So I think as long as there is more action, more activity, more availability of funds Europe-wise, we're going to have a very favorable and positive situation. With this in mind, which is favorable for Leonardo as a group, I'd like to point out that I think you've seen this by my travel agenda, this is in the press very often. We are widening our geographical fingerprint. We are opening discussions with Saudi Arabia, with the Emirates. I'm back from the Emirates.

Last night, I was traveling back from Emirates. We have a domestic market in US is full perspective. I think we are expanding our geographical footprint. And this is exactly what we need to increase the export capability of Leonardo, especially now that we are very competitive on a number of products, and we are very competitive on the application of digital technologies, AI, Swarm Intelligence on the multi-domain. So I believe this is a very promising landscape for Leonardo.

Alessandro Pozzi: Okay. Just a follow-up on the Aerostructures. Did you receive a new updated plan for the 787 delivery in 2025?

Roberto Cingolani: Yes, of course, we -- the road map of the 787 delivery plan has been very difficult over the last 10 months. We had a number of re-visitation with Boeing, but then the delivery pace was reduced several times. There was a renegotiation on the price.

But of course, this depends on how many shipments we do every month. Right now, the rate is very low, much lower than expected by this time of the year. But of course, it does not depend on us. It depends on the situation of Boeing. So we are actually continuing our delivery, but the delivery is quite low at the moment.

The repricing has been agreed, but this is not enough. I mean, the problem is getting more substantial than shipment and pricing at this stage. It's getting much bigger.

Alessandro Pozzi: Okay. Thank you.

Roberto Cingolani: All right. Thank you.

Valeria Ricciotti: Let's take a few questions from the web, putting together some of them around defense spending. Jeff from Blue Grotto is saying -- is asking, whether we have already begun to see an acceleration in orders from EU countries given plans to increase defense spending as a percentage of GDP. And Andrea from Banca Akros is asking, whether do you think the defense industry and also its supply chain are ready to face a so huge increase in military spending or new plants have to be opened and the production increase will be more gradual?

Roberto Cingolani: So can you say it again the first one, that I missed it?

Valeria Ricciotti: It's whether we've got an acceleration in orders in the EU.

Roberto Cingolani: No, we don't see yet an acceleration of orders in the EU, primarily, because EU is now trying to find the strategy to face the complex geopolitical scenario. But -- notwithstanding this, I believe that Europe soon will grow the demand. I mean, of course, you've seen many countries especially those at the border with Russia are very worried. We heard about -- well, I mean, okay, without entering into details, but we know that some of the border countries are rushing to increase their investment, because they want to have a solid army and solid defense system, because they're afraid of possible invasion by the Russians. This is the case of, for instance, the northern countries in Northern Europe.

So this is serious. I mean, concerning the second question.

Valeria Ricciotti: Second question is the production increase and supply chain pressure.

Roberto Cingolani: The production increase and supply chain pressure. Well, I mean, obviously, should the volume increase by a factor three, four, obviously, we will need to have more production capability.

And not necessarily this means investing on new plants. In most cases, this means making joint ventures and industrial alliances, not only within Europe, but also outside Europe, because there is a lot of production capability in other countries that -- I mean, they have the capability to produce, but they don't have basically the orders. So alliances among industries in different countries can help this. The supply chain is recovering after the terrible period of COVID. Some of the supply -- a part of the supply chain is doing much better now.

Once again, it depends now whether the increase in orders will be a factor 10 in one year or it will be doubling in two years. This -- we will see by acting over the next months. I think Leonardo is ready to increase the production rate because of the massive digitalization, the efficiency in the production, but we're also ready to invest in something new if needed. Of course, it has to be a long-term strategy for investing in new productions. I think our numbers at the moment our financial capability allows us to have the limited but well-designed investments for enhancing our capability in production.

Valeria Ricciotti: Thank you. Question from Ian, at UBS and then from Christophe Menard at Deutsche Bank. The first one is great to hear progress is being made on 787 partners. Have you signed an agreement? Or are you in advanced discussion currently? And then, …

Roberto Cingolani: Yeah.

Valeria Ricciotti: …what is the implication of the first phase of 787 fusel pricing? And can you update us on the progress made on potential acquisitions?

Roberto Cingolani: No, guys, I mean, I'm really in a condition that I cannot disclose details on the Aerostructures, because we are discussing seriously what to do next.

I beg you to be patient for a few days, because I'm not talking something we're going to disclose in three months. We are working in these days to see whether there is the possibility to get a long-term agreement for something, which is industrially very, very serious. If not, of course, we will go back to the simple negotiation of shipment and the single component pricing, but I wouldn't be satisfied because I think we need a new industrial view of the aerostructure problem, and this is what we are working to at the moment. Please stay tuned. It's not -- you don't have to wait very much.

Hopefully.

Valeria Ricciotti: Okay. Another question from UBS. Can you give us any high-level comments on the conversation you had with the Ministry of Finance in November? You mentioned this on the Q3 call as being important on the capital return potential.

Roberto Cingolani: Yes.

Well, I mean, we have maximum support with our main shareholder. Of course, what I told simply was that we were struggling to make -- making our best effort to have good financial KPIs by the end of the year. I think we accomplished them. We have good free operating cash flow, good cash flow at the end of the year. We have now -- you will see in the revisit – in the updated plan, a well-focused capital allocation scheme.

Of course, I have to discuss this with our main shareholders. We got all the support for that. We had all the support in boosting our international joint ventures. So I think our main shareholders, which is the Minister of Finance was extremely supportive, extremely supportive, 100% supportive without any attempt of control. I mean they just wanted to see which was the strategy, where we are going, and we got actually all the support for that.

And I think the numbers we have presented today are very good to start immediately with the New Year, a smart capital allocation with selected investment for the future growth, a solid longstanding growth in new areas that are crucial for the multi-domain interoperability picture vision that the industrial plan presented last year. We're really on the track.

Valeria Ricciotti: Let's take...

Operator: Our next question comes from Ross Law from Morgan Stanley. Your line is now open.

Please go ahead.

Ross Law: Hi, everyone. Thanks so much for taking my question. Two, please. The first is on Defense Electronics Europe and the margin at 14.9%.

I realize there's a bit of an element of distortion due to the new EBITDA definition, but it is very strong. It's well ahead of your medium-term guidance set at last year's industrial plan. So the question is, is this sustainable at around 15%? And the second question is just on the updated industrial plan on the 11th of March, when you're presenting new targets. Will these bake in an assumption that Europe spends above the 2% of GDP on defense? Or will it simply reflect progress that you've made over the past year in terms of order book efficiencies and so on? Thanks.

Roberto Cingolani: Okay.

So I will give you a short answer to the first one, then I give the stage to Alessandra and I will be back to the 2% -- to the financial forecast with or without 2% in investment. I definitely believe that our electronic effort is sustainable. We -- this is the easiest area where we can increase production. It's not -- does not need massive CapEx investment for production. By the way, we are investing in a new foundry because for some specific electronic components, we want to be completely independent, small numbers, high-end components that we better fabricate on our own rather than purchasing from other countries.

So yes, I'm optimistic in this respect, very optimistic, and we have also collaborations throughout Europe that can help, but I don't think we will need -- we will have a bottleneck for electronics. So those numbers are sustainable. I give the stage to Alessandra, whether she wants to add something about that. And then I go back to your second question.

Alessandra Genco: Yes.

I completely support what Roberto said on the potential Defense Electronics. Just a technical qualifier, as I said in my original remarks, the margin of Defense Electronics Europe includes the results of MBDA. So there is a comparison that you have to make apple-to-apple, which is between the number that we have shown last year in the industrial results presentation, which includes -- which has only the Defense Electronics Europe division. And in the annual report on March 11, you will have the breakdown of the individual component. what is the contribution of MBDA as well as Hensoldt within the sector performance.

So that margin is reflecting of both MBDA and Hensoldt.

Roberto Cingolani: Okay. I go back to your second question. So first of all, everything has been done and all of our financial forecast for the updated plan are done under the existing conditions. So we're not having any doping in the forecast.

So present conditions, just our portfolio of orders, just the new joint ventures that I will explain in detail with their forecast in terms of orders, revenues, cash generation, margins and so on and so forth. This is without any favorable assumption. On top of that, I would like to mention that everything you've seen today did not include -- of course, did not include any inorganic growth. And we will show you next week, not only the data of the organic growth, so what we would have accomplished anyway. And then on top of that, we will add the inorganic growth that comes from the new joint venture, the forecast financial policy joint ventures and new initiatives.

So it will be very easy to distinguish what is new and what is just incremental to the legacy production. With this in mind, should any increase in the GDP in the defense investment happen over the next 6 months, of course, I expect numbers to increase. But this is not included because we will give you the bare -- we will present the bare clean data that are -- with the present geopolitical situation.

Ross Law: Great. Very clear.

Thank you both.

Roberto Cingolani: Good. Thank you.

Operator: Our next question comes from Martino De Ambroggi from Equita SIM. Your line is now open.

Please go ahead. Martino

De Ambroggi: Thank you, and good evening, everybody. The first question refers to one of your last statement concerning inorganic growth because in the press release, you mentioned that bolt-on acquisitions are delayed, not specified. So my question is, is it due to valuation reasons considering the sector environment? Or are you looking to larger acquisitions rather than the small bolt-on acquisitions that you indicated in the business plan? And another question on this is, could you eventually use paper considering current prices? And maybe also considering asset swaps referring to other divestitures in size, considering the underwater system like or something similar?

Roberto Cingolani: So yeah, thank you. Let me tell you, in short, when we were last year proposing, let's say, a disciplined capital allocation strategy, we said we're going to have merger and acquisition, very prudent, keeping the size of the possible acquisition below the 15% to 20% of the turnover of the division that is making the purchase, okay? So in general, if I have a division that has a turnover of €1 billion, I don't want to have that division to make an acquisition for another company that is absolute turnover.

It should be between €100,000 and €150,000. That was just for a matter of prudency to be -- to have everything under control. And then, of course, joint ventures, those are much bigger. Normally, they don't need money. It's just an industrial joint venture based on a very clear work share like Rheinmetall, like the others, you will see.

So that's a different story. Now during this year, we had the M&A team working on more than 20 due diligences in, let's say, small, medium enterprises, primarily in cybersecurity space and some unmanned technologies. Now to give you an idea, the cybersecurity division this year has turnover of approximately less than €1 billion. So the size should have been typically €100 million, sorry. Space is also below €1 billion at the moment.

So the size of the acquisitions, the range should be around €100 million, €150 million, not more. You understand that, that was a basic constraint to be disciplined in the allocation of our capital. We made 20 due diligences. We made eight nonbinding offers, three were lost because the competitors were offering more. Five are still on the way, ongoing.

And of course, 12 were stopped. The due diligence was not favorable. We were not evaluated as interesting opportunities. Now let's see what happens with the five ongoing nonbinding offers. But of course, I have to say that in the meantime, our financial capability has been growing a little bit.

The size of the division has been growing. So we have more flexibility to buy something bigger. So I think for the next year, we could be more flexible. We have less stringent constraints, stringent requirements. So we could be even more -- it could be stronger in the action and then maybe trying to buy something which is bigger, more expensive.

But we have to see what happens with the five nonbinding offers that are presently ongoing. To be honest, it was a hell of work for the 20 due diligences. We expect that this will be easier. But when you go on such a fragmented market with many small companies, it gets very difficult to make the analysis and to decide what is good and what is not good. So that was the lesson learned.

We can be more ambitious, looking at something slightly bigger maybe. But we have also learned a lot about this comparative analysis of more companies in the specific domain of cybersecurity space. So I believe very soon, you will see something happening also for M&A of small companies. Martino

De Ambroggi: Okay. So no need to divest assets for these kind of acquisitions?

Roberto Cingolani: Yes.

No, for sure, I cannot say -- I can say that I see very hard at the moment to exchange paper even shares. I don't think this is something we can do at the moment. We have enough capital to do what we need for the time being, then we will see in the future, okay?
Martino

De Ambroggi: Okay. Thank you. And if I may, just on the jumbo order for Armoured vehicles for the Italian Army.

Mr. Mariani mentioned that the signature and the process is accelerating. So just to understand, first, if it was already -- in which way it was already included in the previous business plan, if it was included? And what are the timestamp – the time line?

Roberto Cingolani: As we said many times, there was no inorganic inclusion into the financial forecast last year. Now the point is what Mariani said is that we are now converging towards the identification of the requirements of the Army, specific requirements based on which the bid will be -- the tender will be launched. We have constituted a joint venture.

We're looking forward receiving the -- what's called the -- the security allowance for the company to purchase -- for a foreign company to purchase military equipment. In the meantime, we have made a temporary -- it's called RTI. It's a temporary group of companies that act on behalf of the joint venture because this temporary group of companies has the certification for the security. We believe that the deal will start in the next few weeks because the Army is accelerating. There is a lot of urgency in that.

For your information, one machine has been already delivered to the Army because they're already making -- they're already practicing on one of the infantry vehicles. So times will be -- the time is very short. I mean it's not a matter of months, it's a matter of weeks. Martino

De Ambroggi: Okay. Thank you.

Roberto Cingolani: Welcome.

Valeria Ricciotti: This was the final question. So thank you for your time today. As usual, the IR team is available for follow-ups, of course, all related to full year 2024 preliminary results. Let me remind you that the plan will be presented on the 11th of March, including the full year 2025 guidance.

Roberto Cingolani: Thank you, guys.

Valeria Ricciotti: Thank you.