Leonardo S.p.a. (LDO) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining us for the update of Leonardo's Industrial Plan. I'm Valeria Ricciotti, Head of Investor Relations and Credit Rating agencies. Today, our CEO, Roberto Cingolani, will update you on the key initiatives and progress for strengthening our core business areas, plus the new initiatives that are paving the way to the future. The presentation is planned to last approximately 1 hour, then our CEO, together with our CFO, Alessandra Genco, will welcome your questions. Please note that we'll take questions from both the conference call as well as from the web. The supporting slide presentation is available for download by registering to the webcast, and all the industrial plan update materials are available on our website under the Investor Relations section. Please note that throughout the presentation we will be making forward-looking statements, so I invite you to refer to our safe harbor statement. Now I will hand you over to our CEO, Roberto Chigolani.

Thank you, Valeria. Hello, everybody, and welcome to the update of the investor plan. It's 1 year after the presentation of the plan; there's a lot new -- we have good news with the business and also a big change in the geopolitical scenario, so today I will try to tell you what's going to be the future of Leonardo over the next 5 years. First of all, let me recap the data of '24 and the original idea underlying the Industrial Plan. Our 2024 financial KPIs are shown here. The orders have been increasing by 12% from EUR 18.7 million to EUR 20.9 billion; revenues been increasing by 11% from EUR 16 billion to EUR 17.8 billion; EBITA has been growing from EUR 1.35 billion to EUR 1.52 billion, with a growth of 13%; return on sales been increasing from 8.5% to 8.6%, and the free operating cash flow has been growing from EUR 0.65 billion to EUR 0.83 billion, with a remarkable growth of 27%. Recap of the Industrial Plan, I mean, the vision, you remember, is very simple. We're going to develop a multi-domain interoperability that essentially puts together our legacy platforms -- aircraft, helicopters, electronics, maritime technologies -- with new technologies in the area of cybersecurity, space, high-performance computing, cloud computing. There is a twofold strategy under the plan. The first one is bridging the transition from defense to global security that you see here, and the second one, Leonardo wants to act as a catalyst for the new European defense space. Now the 2 pillars of this vision are, strengthening the core business. We have to make sure that our traditional product -- aircraft, naval technologies and the land technologies, electronics -- continue to be competitive and continuously improved. In the meantime, this means rationalization of our product portfolio, boosting our efficiency plan throughout the company and the corporate and increasing the capability in digitalization across all our businesses. The second pillar of the strategy is pave the way to the broader challenge of security, global security. This means inorganic growth, new technologies in emerging markets, creation of global alliances, and particularly cybersecurity, artificial intelligence, space technology, integration in our platform. So overall, this is the picture that you remember from last year, and let's see how we go for the implementation of the vision. I'm sure you remember we were separating the organic growth, so R&D, innovation and new product introduction, digitalization and servitization, so increasing the capability to have digital services associated to our platforms. Efficiency boost was based on group-wide efficiency and corporate cost reduction. Business and product focus rationalization, that was very important, you remember we quit some off-core business last year, and optimization of operations. Now this list that you see here is a list of accomplishment in green and ongoing activities that I don't have the time to comment, but you find those things in your slides, so I'm sure you can see them later. The last important point for the implementation of the plan is the inorganic growth [ theme ]. This means for us primarily creating global alliances and accelerating mergers and acquisition in emerging technologies and emerging markets. You've seen the new Space division establishment. I will introduce you for the next years the new joint venture with Baykar on unmanned systems, the Leonardo Rheinmetall military vehicle joint venture which has been established, the signed agreement for the JV on the GCAP, and there are a number of other activities that I will describe to you later in the course of the presentation. So let's see the first part, so how do we strengthen the core business of the company. Digitalization, efficiency plan and then a focus on aerostructures. We started with digitalization. To simplify, the digital continuum that we created in the company has been exploited in artificial intelligence and advanced simulation capability. This basically means extending the digital twin technology to most of our platform. We started with helicopters, but we are now extending those technologies to all other platforms. Then integrated business solutions, that means creating a digital backbone in the enterprise. So we have now -- planning and control based on digital technologies. We are trying to make the entire administration sector digitally based with advanced AI capabilities. Then the third area is the factory of the future. Factory of the future means smart manufacturing for product and process digitalization. This improves efficiency and flexibility in production. It's a long way, it's nothing you do in a few months, but we start seeing some interesting and encouraging results. Then integrated digital simulation. We will see later on the GCAP, the ISANKE and the ICS, the integrated communication systems, and the non-kinetic effect integrated into the sixth generation machine, the digital continuity, and the simulation for aircraft and helicopters, which has been now routinely used in all our productions. Another important action in the digitalization process has to do with the AI in defense operation. So this is the core of the dynamic cross domain command and control, to enhance the digital asset interoperability, which will be transversal to all our products. Finally, increasing the number and the quality of services which normally have a larger margin. And of course, they enrich the business offer of Leonardo, which is no longer only hardware, but it's also hardware plus software, so platforms plus services. Considering the efficiency plan, we have interesting news. Remember, we had a plan for EUR 1.8 billion savings over the 5 years of the plan. The first year, we accomplished a bit more than expected, EUR 191 million. That was an encouraging result, approximately 125 are coming from efficiency in the procurement, 15 are coming from efficiency in the corporate expenditure, 23 from troubles and 28 from business disposals. Now this means that this year we were a bit faster. We have a wallet for next year. We don't plan to increase this number. This has been evaluated to make efficiency but letting the growth continue, because we are growing. But just as an example, I want to give you a focus on the procurement savings. You see, this is a very exemplifying plot -- can you go full screen, please, guys? You see here in the picture that we have the expected curve for inflation, which was this one. So we were supposed in the last year to operate at average inflation in the range of 5.4%. Then due to the long-term agreement negotiations done by our procurement organization, we could expect somehow better performances, like having approximately 4.5% inflation. But then we started the efficiency plan, the saving cost plan that was very strong, very rigid. This is actually the effect. And you see the forecast was to go down in average cost like if the inflation were 3.3%. The green line now is the actual result of the year. And as you can see, we accomplished the results that we expected with the saving plan. So, so far, our saving cost plan essentially is equivalent to an average inflation rate of 2.9% on average on our expenditure. So that is encouraging. We plan to continue this way. So working a long-term agreement, putting very stringent budget target to our divisions and people and controlling the expenditure in a very rigorous way. Now let's go to the possibly most important part of the efficiency and the, let's say, organic growth of the company, the Aerostructure. Aerostructure is a topic of top priority in my agenda. It has a direct impact on optimizing our business organic structure and the financial performance of the company. This issue has never been addressed in a strong way, in a very -- in a very committed way over the last years. And I think now we have something really new that we can present to you quickly. We made the due diligence. We started in September '24. We made a new diligence in order to see what was the picture, the real picture, the actual picture of Aerostructure in 2024 and trying to find -- to select a group of international investors or industrial partners that could be involved in the aerospace sector and could be -- participate in a joint venture with us to create a new champion. Now the working group included the strategy and innovation, the Aerostructure division management, the HR group, the finance group and 2 international advisers -- particularly it was Bain and JPMorgan. We've been working very hard. We started the internal due diligence with this dedicated task force, we screened a number of potential partners, we have identified several of those that are interesting, and then we've been advancing in the discussion with the most promising partner. Now, the detailed analysis of commercial industrial synergies are ongoing, co-development of joint industrial plan and implementation road map is ongoing. We actually launched a multi-scenario industrial plan which is based on business diversification into new programs. Revision of makeup -- make or buy policy and investor setup, enhancement of the industrial efficiency and supply chain restructuring. Those are the key pillars of the action. As you can see, we are creating a strategic partnership for Aerostructures. We want to create a global champion in the Aerostructure sector. We're going to pursue all commercial and operational synergies unlocked by partnership to ensure a solid and sustainable business. Now which are the partner selection criteria? Volumes are to increase in the civil sector enabled by the partner levers; expansion in the military sector must be possible; business must be diversified, for instance MRO for civil and military fleets; investments sharing to support industrial plan implementation; enhanced cost efficiency by leveraging combined industrial capabilities; additional industrial synergies such as privileged access costs for strategy materials, better supply chain distributed in country with lower costs and so on. Now as you can see, we have assembled a high caliber team that includes both Leonardo personnel and top external advisers who've been working for this for quite a while. We have a clear strategy to build a global player, which necessarily involves a partnership that we have already identified. Our time line is well defined with specific milestones. Now we need time to execute the program. I will provide timely updates at every key milestone during the future quarters reviews. For today, my disclosures are strictly limited to what has been stated and presented in full compliance with the confidentiality agreements we have signed, and intend to fully respect this confidentiality. We are strongly committed. By the end of the year, I'm sure we will give you a very clear picture for this, for the solution, the definitive solution of the Aerostructure division. Let me go now to the second part of the agenda, which deals with paving the way to the future, which are the new initiatives that are supporting the consolidation of the core business, that is the organic growth, if you want, of the company, that I have quickly summarized so far. So first of all, I will tell you more details about the new Space division, then the joint venture on unmanned system with Baykar, the joint venture with Rheinmetall, the status, the joint venture with GCAP and the establishment of a new line of business that we named Leonardo Hypercomputing Continuum that you will see in a few minutes. So let's start with the -- pave the way to the future of the strategy, which is shown here. You remember, because this was already mentioned in some of the previous meetings in the picture of the multi-domain, the new things were the sixth-generation fighter, the unmanned systems for the sky domain; then we have the land domain, where there is the new initiatives for main battle tank and infantry vehicles; the naval combat system for the sea domain; and then the new Space division for the space domain. In the middle of that, we have the digital space of high-performance computing and cloud, where we developed the HPC facilities in the combat cloud and, in the cyber space, the cybersecurity-by-design strategy. Now to show you what this means. This is how -- what happens in the last year basically. A number of international initiatives have been launched, and the joint ventures have been created with important partners. So concerning the Sky domain, the sixth-generation fighter, the GCAP joint venture has been launched, and it's up and running now. So it's accomplished green mark. Together with BAE Systems and Mitsubishi, I will give you an update in a few minutes. There is a new about the unmanned systems. We have launched a new joint venture with Baykar, which is the first drone producer in the world. and you will see this in short time in a few minutes again. About the high-performance computing and digitalization domain, we have launched the Leonardo Hypercomputing Continuum, the line of business that you will see is dedicated to sell products that are related to AI and high-performance computing. And the Combat Cloud, we are working on Combat Cloud, having launched the multi-domain innovation app in the Electronics division together with the main army and with the Chief Commander under of the Army because we need to develop the requisites of the multidomain together with the Army of Italy. Now concerning the land defense, the Leonardo/Rheinmetall military vehicle joint venture is up and running, and you will see the update in a few minutes; the Orizzonte Sistemi Navali, which is the joint venture between Leonardo and Fincantieri in which we provide weaponization and command and control and electronics to the ships, has been reestablished, and it's working right now, a full regime. In the cyber space, we have a campaign of mergers and acquisition that we'll show you in a bit. And finally, in the space domain, we have the launch of the new space division. I will show you the program for the creation of the Leonardo constellation of low orbit satellites for Earth observation and a few news with our colleagues in Thales for the Space Alliance related to the end-to-end satellite services. So this is what happened in 1 year since we introduced the industrial plan for the multi-domain interoperability, having a clear idea that we have to develop this vision, as I described at the very beginning. And for doing this we need strong alliances, because no one can make on its own. And I think the history of the recent year or the recent months, it's really confirming that we need alliances, we need synergies, investment synergies, because apparently the geopolitical situation is very complex, and this is a way to accelerate development and to make the continent much more -- more safer than in the past. Now let's see, first of all, the new space division. The Leonardo space division intend to catalyze the group capabilities and to offer end-to-end solutions. So the space market is growing at 7% CAGR by 2030. There are untapped opportunities that are based on the use of advanced digital analytics, new business models and new satellite services. On top of that, there is a very promising military and governmental end-to-end solution market that is expected to generate considerable momentum in the space business for defense and intelligence as well as in the multi-domain environment, which is the strategy underlying the plan. Finally, our colleagues in Thales -- with our colleagues in Thales, we are now studying how we can capture those new opportunities, because the market is really important, and we're now discussing how to upgrade what we did in the last 20 years, the Space Alliance, in a sort of Space Alliance 2.0, because the market is growing, the needs and the requests and the demands are different, and we want to be ready to intercept most of those needs in the years to come. One thing that we are planning to do with our own investment, you will see in the capital allocation section at the end, I want to launch our -- another constellation, which is a low orbit constellation. It consists of approximately 18 military Leo satellites that are primarily funded by the Ministry of Defense, supposed to be a dozen of standard satellites plus 6 infrared satellites with infrared vision capability. Budget ranging in the range of EUR 900 million, of which EUR 508 million are already allocated by the Ministry of Defense, plus 20 civil low-orbit satellites for civil application, primarily in Earth observation, [ geolocalization ] and services related to monitoring. This is going to be something in the range of EUR 450 million in 3 years that comes from our successful operating cash flow availability and from our capital allocation, but I will be more precise in a minute. And of course, I have to acknowledge the fact that our smart factory for satellite construction in the Space Alliance [ frame ] is that, will be up and running in July '25 with the capability of producing 2 satellite week nominal. That we give a big impulse to our technology capability. Launch are expected in a window between '27 and '28. So we're going to work on those things in a short time. The strategic rationale for this idea is, first of all, our strategic positioning as European-leading space player and key contributor to national security. We plan to have full control of data policy, we're not limited by specific time slots or span windows. Of course, in conjunction with our ground services, AI services and all the technology we will develop in the space alliance, this enables all of us to provide as end-to-end solution to any kind of customer in the export market as well as in the G2G prospects. We can develop this thing, Space as a Service or satellite as a service offers, and we can leverage on public and private partnership. This is very important because there is an increasing demand of end-to-end satellite services all around the world in many different fields, from climatology to agriculture, to observation, infrastructure monitoring, and of course security and military applications. And this is something that -- it's unique in Leonardo because we can offer from the satellite to the AI to the cybersecure transmission of data to the analysis, the image reconstruction. And this kind of end-to-end service will be one of the most important driver of the space economy over the next 10 years. We created, therefore, a space backbone architecture, so we can integrate all the space layers with sensor capabilities that we have in the company. And this is fundamental for multi-domain integration across all segments, earth observation, connectivity. And these are solutions that are coming also from other divisions of of Leonardo, and of course it means that we can really integrate the technology offer of Leonardo in different fields in view of the multi-domain integration. Leonardo earth observation satellite constellation is pictorially represented here. Of course, you see there are optical satellite, satellite with RF antennas, edge computing capabilities. The entire span of technology will be integrated in those technologies. I'd like to remind you that we have the ground segment center that are already available and up and running. We can benefit of our capability in AI development and Leonardo data lakes, and of course we can also benefit of our capability in cybersecurity. Now one thing really new that we want to try, and this, we believe, for the future is very important, is to introduce cloud computing capability. So putting in orbit storage and computational capability, which means developing new HPC nodes in the satellite, new storage serving the satellites. And of course, all our satellites will be provided with the link for inter-satellite communication. So this is not going to be a small constellation isolated but will be interacting and interconnected to any other constellation that could collaborate with us. The launch schedule, as I told you before, is supposed to be -- and we're watching the windows -- could be in the '27, ground delivery and then the first launch, you see. And the second one, ground delivery and the launch in the mid-'28. Now to give you an idea, we evaluate the upside because of this investment in the range of EUR 1.3 billion over the budget plan. Of course, you have to consider that we are creating the future. We are building the future of the company. So we should not watch at the -- only at the next 4 years. But for the budget plan, this is the upside we expect. I will show you some longer-range forecast, but this is a remarkable number already. Concerning the second joint venture that I mentioned before, this is a brand-new thing. We signed the agreement just a few days ago after 5 months of very intensive work. It's a joint venture between Leonardo and Baykar. Baykar is the first producer of drones in the world at the moment. So basically what Leonardo is contributing, cutting-edge electronic systems, integration of payloads and effectors, swarming and everything dealing with the control capability in the drones. And of course, the fact that some of that technology will be developed in Italy, this simplifies EU certification. On the other hand, Baykar is designing and developing advanced UAV platforms, any payload, any size, different performances. They have an extensive portfolio offering all relevant UAV segments, and they have advanced and efficient manufacturing processes and capability that basically let us start the job immediately. We are already collaborating since a few years with Baykar because we are integrating some of our sensors in some of their drones, but this becomes something bigger, it becomes a consolidated structure in which we expect import/export market to be quite big. At the moment, as you know, Baykar has delivered more than 700 UAV in recent times with approximately EUR 2 billion of revenues in '24. This gives you a clear picture of what we do. Actually, the first column has to do with -- the first row has to do with the payloads. We're going to develop an immense amount of payloads for different drones. So the compilation of electronics you can find here, this is due to the capability of our electronic division to produce all those devices, all those electronic devices and sensors. The second, so integration of payloads done by Leonardo with a UAV platform done by Baykar. The second pillar of the agreement has to do with the integration and creation of missions -- we call missionization. I'm even not sure if this is the right wording, but anyway. So mission system development according to the request of the customer and payload integration, interoperability for multi-domain operation. Navigation in environments where there is no GPS signal. So basically autonomous swarmer drones can find -- they can locate themselves on the trajectory on the pathway in the absence of GPS signal. And advanced capability in this swarming motion. This has to do, of course, with the use of AI and related technologies for controlling the swarm motion of big groups of drones. The third pillar of the collaboration is certification. As I said, some of the integrated production could also be moved into Italy. And therefore, within the EU and NATO certification, we can exploit our product capabilities. We can, of course, reinforce production organization, design organization approval and system capability for detection and avoidance. All those things will accelerate both Leonardo in the market of UAV. I just want to remind you that Leonardo was not effective in the UAV market so far, and this is a way to accelerate, to close the gap basically. But also for Baykar it's a win-win situation, because the integration of all our payloads really helps a lot in terms of more competitive machine to be exported on a broader market. To give you an idea, there are different classes of of drones that Baykar is producing. So as you can see, there are different applications for actually monitoring, electronic warfare, strike systems. And all those drones produced by Baykar have now identified the correct payload from Leonardo for the integration. We expect this market to generate an upside of approximately -- this initiative -- an upside of approximately EUR 0.6 billion over the budget plan. And this is just the beginning of a curve that is going to grow, of course, because we know the demand is extremely high, and it's a growing demand, and the integration of all our electronics and with the different platforms of Baykar at the moment could represent the widest offer on the market for the years to come. Let me go now to the third joint venture, the one with Rheinmetall that has been finalized not a long time ago. You remember in the last quarter, I mentioned you. You know the story. I'm not wasting so much time -- so much of your time for the description. This is a 50-50 joint venture in which we have to develop new multi-domain main battle tanks based on the Panther platform, a new armored infantry combat system based on the Lynx platform. This you remember because we already discussed how we can take mutual benefit by the collaboration with Leonardo and Rheinmetall, we leverage on Leonardo's extensive capability in mission systems, electronics suites and weapons integration pretty much like with the drones, but in this case on land defense systems. Now the good news is that the company is up and running. We have identified a new CEO, Laurent Sissmann; and new Chairman -- Executive Chairman, David Hoeder. Those are 2 young, very talented guys, very committed. The governance of the company is very agile, and the company is now working. We already delivered -- one machine was delivered to the Italian Army. And actually, we are more or less in this area here. So around the beginning of the offering phase. And by the '25 there should be the contract award and then by '26 the contract execution. Now it's important that we give you an idea how this works. You get normally the contract, a year one, for 3 years you have to work, and then there is another contract coming and then another 3 years. So the curve of delivery of the machines as the one you see here. So in red is the infantry vehicle more than 1,000 units. And in gray is the main battle tank, approximately 2,070 units. Now the delivery profile is the one you see here. We expect a peak in production in the 2031. And now we are going because the integration is being developed over the next couple of years. So we expect to have an upside of approximately EUR 1 billion in the budget plan, '25, '29. But of course, we are preparing the future, as I said. So this is the growth of the budget plan for '25, '29, and then we'll go steady state with a much bigger number. This is the fastest you can do for such a new technology that will be interconnected to satellites ready for multi-domain and will be state-of-the-art in any respect. Fourth, the joint venture for GCAP. You already know a lot here because we informed you in the previous meetings. For the time being, it's important to know that the [ role for ] Leonardo will be specifically on the core and the heart of the electronics, ISANKE and ICS, the internal communication systems. But there are also other topics that will be developed by the consortium altogether, advances health capability, artificial intelligence, assist decision-making, digital twin native, integrated in combat cloud and cyber-attack resilient by design. So those are things that will be the challenges in the development. GCAP will drive the evolution of the combat systems in the next decade. And you understand that this is strongly based on the inclusion and the development of future core platform for electronic warfare, rather multi-mission systems, multisensor, multispectral data fusion systems. So this will be a great technology challenge. We expect leveraging on GCAP to generate strong progress in autonomous systems. So development of AI assistant decision-making capabilities, flight system integration, crewed/uncrewed interaction. That's a very important thing and has to do, of course, with the drones also that I mentioned to you before, advanced radars and sensors in very harsh and difficult communications. Communication, interoperable networks modular with cross-class security and command and control of new generation command and control. Now we expect, as you know, the GCAP first -- GCAP to last up to 2035 when there will be the first prototypes with an investment of approximately EUR 40 billion, but the 3 partners, about 1/3 is from the Italian Ministry of Defense. And the expectation is to sell approximately 300 platforms on the aircraft when the demonstrators will be tested and approved. Now fifth, I want to spend a few words about the new line of business, Leonardo Hypercomputing Continuum. This is something that came out very clearly because we are overwhelmed by request by different institutions, public and private. They want to install their own HPC. They want to have their own cloud capability. They want to develop their own dedicated AI routines and they don't want to go to the hyperscalers, primarily for security, but also because they want to have the control of their own infrastructure. This is through the public as well as in private. Now in recent years we have enabled more than 2,000 people to work on the HPC Leonardo, and there is more than 200 developers that are engaged in the development of algorithms and new capabilities. Now at the moment, what we do, we develop engineering simulation to improve design and performance of the next-generation platforms, so useful for the digital twins or for the small machine intelligence. We develop generative AI-based predictive and analytics to anticipate trends, but also to anticipate maintenance and services. And finally, we developed a specific algorithm for space applications. This is what we did so far. Now let's see what the Leonardo Hyperomputing Continuum can do as a new line of business. So first of all, we can serve on-premise HPC design and setup, which is the main request of most stakeholders, public and private, they want to define their requirements, they want to support for hardware acquisition services. They will customize these solutions, installation optimization, acceptance and testing. If you don't want to go to the hyperscaler and get everything in a black box and you want to really understand what you need and what you do, that's the way to offer on-premise HPC design and setup. Second, high-performance computing operational management. This means system management, production management and support. It's crucial. You need to have experience on those machines to teach the other to use them at best. Then, computing services. Those are all the high-value added AI and computing tasks that are based on the capability developed by the DaVinci computer. And finally, all the personalized enabling solution, so the high-level support in HPC technology, code development and other service application in identification, deployment of the technologies, HPC competencies and training of internal teams. Now why this is important? It's important because today, our target market is only ADS, aerospace and defense. But by this approach, we can enter markets like energy, health care, transport, financial services, public administrations, that need desperately those technologies. They need safe and secure technologies. They don't want to go to hyperscalers and they need somebody helping different institutions to become independent with the manager of those digital technology, AI-based technologies. Now this is actually a true market analysis that we did because of the experience we have over the last few years. We evaluate the upside of this initiative, this new line of business that will be very likely integrated into the Cyber division, which is the most, how to say, maybe the most suitable by proximity, by technical proximity, the upside we estimate for the next 3, 4 years is EUR 230 million. It's not a huge number, but this is something growing. And I think this is the first company that's launching this vision. Now let me summarize now what is the upside, because as I told you before, the consolidation of the core business was successful, was clear, but was relatively incremental, but initial. Now we're talking about the upside that we expect by those consolidated activities in the next 4 years. And this is conservative because we are not considering export -- nothing. We're just making the calculation based on the business profile that we are developing with our partners. In terms of order intake, you see here, from '25 to '29, we have a growth in gray is the Rheinmetall. This is Rheinmetall in green space. In the other gray here is Baykar, the UAV. And then in red, the hyperscaler -- the hypercomputing facility. Just for your understanding, the GCAP has been already introduced into the organic part because it was launched before and it's already introduced in the growth plan of Leonardo. So what we expect is a rather steady increase in the orders with a forecast of EUR 5.4 billion accumulated in the period '25, '29. In terms of revenues, we follow the same profile, approximately EUR 3.1 billion accumulated in the same period. And this is the upside we expect in terms of order and revenues due to the inorganic activities that was launched this year. It's 1 year of work with a specific strategy in terms of improving our capability to deliver on the multi-domain interoperability. Now to be honest, obviously, the first years are the most difficult. And we're launching, there is a static friction that we have to pass, but then there will be a dynamical friction. And as you know, in physics, this means less work to do. And we expect, therefore, that this is creating the future of the company up to 2040. This is the profile of upside that we expect only conservative. So with the exclusion of any export, which is not included here, we're not able yet to analyze this. But this is actually what follows the profile of -- the commercial profile of the GCAP or commercial profile of the Rheinmetall, the land defense systems, the commercial profile of the demand of the UAV. So we expect this to be a very solid [ credit card ] in the future because this will be an important component of the future development of Leonardo because of those new initiatives. Now let's see the group targets. Based on what I told you, 2024, you've seen at the beginning, We had EUR 20.9 billion orders, EUR 17.8 billion revenues, EUR 1.5 billion EBITA, EUR 0.83 billion free operating cash flow. In '29, this is what we expect only due to the organic growth. So we expect the orders to grow up to EUR 24.4 billion, revenues EUR 22.6 billion, EBITDA EUR 2.6 billion, the return on sales double digit, 11.7, and the free operating cash flow EUR 1.44. So '29 to -- if you compare '29, '24, the growth is remarkable, it's in the range of 17% for the orders, 27% revenues, 73% EBITA, 3.1% the ROS, and the free operating cash flow growing 73%. Now this is only the organic part without the upside that I've shown you before. And the upside that we've shown before, that I've shown before, is a conservative upside. It's only based on what we have now in our hands. So if we include the upside that I've shown you before, we go to those numbers. EUR 26.2 billion orders, EUR 24 billion revenues, EUR 2.8 billion EBITDA, ROS 11.8%, free operating cash flow EUR 1.53 billion. This is our expectation, and this is the upside that I mentioned to you before. I like to say conservative, because this doesn't make any assumption on future expansion in terms of export and other things. It's just based on what we have now in our portfolio. Let's see, therefore, how we can represent the entire evolution. Those are the orders for the entire group from '23, when we started, to '29. In green there is the upside part that I mentioned so far, in red the organic. So we expect basically in the -- 1 year ago, when we presented the plan, '24-'28, we had a CAGR of 3.9% and and a cumulative order expectation of EUR 100.5 billion. Now with the new evolution in terms of organic as well as inorganic growth, we have an expectation '25-'29 of EUR 118 billion and a CAGR of 5.8%. This is for the orders. With the backlog that should pass EUR 50 billion already in '27. In terms of revenues, same trend, 1 year ago we had a forecast at the end of the plan of EUR 95 billion with a CAGR of 5.9%. Now with the inclusion of the inorganic part, which is the green, and the red is organic, we expect accumulated revenue target of EUR 106 billion with a CAGR of 7%. None of those things ply on jumbo orders or important countries where we concentrate most of the business, it's rather -- it's rather smooth and transversal, well distributed. EBITA will grow by 13% up to 2.64 -- 2.83. The green is again inorganic forecast. The return on sales is going to be double digit between the end of '26 and beginning of '27. And we expect to go 1.8, multiplication factor of 1.8, of the EBITDA compared to '23. And finally, the free operating cash flow growing 15% and being doubled by '29 compared to '23 with a CAGR of 15.2%. Now guys, I want to be very clear with you because I think we need to be extremely straight on those things. If you see here, imagine that with this growth that is due primarily to the good -- the good financial performances of most division, we could largely compensate even the losses that were coming from the well-known exogenous effect connected to partly the Boeing crisis in Aerostructures and partly to the Satcom business in the Space Alliance. So that, for us, is a very important point because the company was growing so well that we could neutralize, almost cancel, the exogenous effect that we're reducing our EBITA and our free operating cash flow. Yet, we are very optimistic now because the -- as I mentioned before, though -- without giving details because of the confidentiality we have to guarantee to our partner, the Aerostructure situation we believe is going to be a change in the disruptive manner. And we are working quite intensively with our colleagues in the Space Alliance to recover promptly this exogenous problem of the Satcom. So despite those 2 exogenous problems, our EBITA has been growing very much. That means that our organic growth and inorganic growth have largely compensated the exogenous effect. But we are going to improve for sure. This is something that we are happy for this year. Meanwhile, we find the solutions to the exogenous problems. But I think it's also very promising for the future. Now I don't think this is enough, however, because many of you often ask what could be the future, what is the geopolitical situation and so on and so forth. So we attempted an analysis of what should we expect from the surrounding world. Now let me try and exercise a very conceptual estimate of upside from the EU defense expansion increase. You all heard about the momentum that Europe is giving to defense in terms of market, investing more money, trying to pass -- to overcome the fragmentation among the 27 member states and so on and so forth. Now I want to give you a very simple criteria, very simple [ grade ], to estimate what could happen to our financial KPIs. Now let's imagine Italy increases next year or in the next years by 1% of GDP the expenditure in defense. Our GDP is 2,000-some billion. So 1% is approximately EUR 20 billion. Normally, between 30% and 50% of that is procurement and the rest is just salaries for the Army. This 30%, let's say, of procurement is captured by Leonardo, normally 1/3 of that procurement is captured by Leonardo. So basically, we expect that per 1 point of GDP increase of defense expenditure in Italy, because of the fraction that goes into procurement and because of the expected capture rate that we have of that procurement fraction, we expect an increase, an upside, of approximately EUR 2 billion, EUR 3 billion per point of GDP. That's a very simplistic analysis. I mean if we change the procurement rate or if we change the capture rate, you just change the multiplication, but as a criterion, it's very simple. 1 point GDP extra investment in defense, EUR 2 billion, EUR 3 billion upside in our forecast. Now if you do the same calculation for Europe, 1 point GDP of Europe is approximately EUR 160 billion. With 30% to 50% procurement and a capture rate, which is approximately 4% at the minute, we expect another EUR 2 billion, EUR 3 billion upside per point of European GDP invested. Now this 4% is going to grow, because I'm not considering any export, nothing. We are even not considering how we could be more competitive with the joint venture, just taking now a picture of the situation. That means obviously, that we have a basic analysis to perform. Now what is happening now? We are moving from defense. So increase of defense spending, driven by geopolitical threats and urgent needs for the [indiscernible] strategic autonomy to a new normal in which Government will reinforce critical infrastructure using innovative technologies. So we believe that at the moment we have the expenditure, which is this line here, this one, the expenditure in the conventional defense, which could grow, let's say, 1% -- only Italy 1%, let's say, of GDP over the next years, every year. But in the meantime, there will be another growth, which is the one of the nonconventional defense technology, which are cybersecurity, global monitoring, resilient broadband communication, data valorization, HPC, AI and so on. Now even with the progressive stabilization of an international conflict, let's say the wars -- we hope the wars will finish. But anyway, we will have to refurbish the arsenals, we have to make our defense effective because we know that after the wars near Europe, we have to protect ourselves much more than in the past, especially if the relationship with the NATO alliance will change, and the Americans will give less effort in protecting Europe, so we should really take care of our own security. And of course, in the meantime, we have to give time to the digital technology to grow and to be integrated into the defense. So standard defense is going to accelerate maybe, but it's going to grow anyway. And in the meantime, digital will grow. And this is the new normal. The new normal will be a continent in which digital technologies and conventional platforms, conventional defense, should be integraed and both markets will grow with different pace with different synchronicity but will grow. And even if tomorrow, we stop all the conflicts, we're going to refurbish the arsenal, make defense effective and give time to the digital approach to defense to grow. Now this means that we cannot stop investing in defense, but we should consider defense, as I said 1 year ago, not a standard convention defense, but the global security approach to defense. That's why I wanted to show you our forecast how to reach 2040. Even though with the -- not with a high precision, you have to know that these things are growing and are growing in a solid way, because the future of the defense compartment in the new normal, and of course the future of Leonardo, is strongly linked to those concepts. And we cannot ignore that this will be the way to pursue, for Leonardo for sure but I think for most of the other defense companies, because this is a transformation we are experiencing now and the transformation is ongoing. So we have to merge, to integrate the 2 approaches. Therefore, if you get this point, of course, it's very general, very qualitative. If in '24 we had revenues for EUR 17.8 billion, if we had the organic growth of EUR 4.8 billion, and if we add the EUR 1.4 billion upside from the new initiatives, we land in '29, up EUR 24 billion. So this is what you have seen today in a very schematic way. Now imagine that Europe and Italy as well are increasing 1% GDP, 1% investment in defense, 1% of GDP investment in defense. That could easily bring another EUR 4 billion, EUR 6 billion per year onto this account. That means we reach the EUR 30 billion roughly. Now the question is, are we able in 12, 24, 36 months to be a company that goes from EUR 17.8 billion into EUR 30 billion or so? That is the basic question we have to answer. That's why we need to start thinking to what I call the Capacity Boost. We need to strengthen our delivery capacity. We need to launch the [ digital ] program to reach full capacity, while improving profitability, of course. And this is actually like what we call the Capacity Boost. We have to think to a capacity boost in the new normal, which is very cross-disciplinary, it goes from digital to hardware platforms, because under the umbrella of the multi-domain interoperability, this is what we need. And if the demand will be so big, we have to deliver on time. And as you know, one thing is that you increase by 20%, your orders in 5 years. One thing is that you double them almost double. So this is something we have to carefully consider. And of course, stay tuned. I don't have an answer now. But since we analyze the geopolitical situation, I think it's time to think about those change for the future. One year ago, the multi-domain interoperability sounds like something new, and we were trying to make the saving plan, the efficiency plan, try to strengthen the core business and in the meantime to pave the way to the future. In 1 year, we have the joint venture launched. We do see the future with a different perspective. We are more convinced that this is the way to go. And of course, we have to be ready. We have to be ready to face this future. And this is something Leonardo has to do. There is some urgency and this is something Leonardo has to do very well. I close with a few things that I'm sure you are very much interested in, disciplined capital allocation. That was one of the mantras and it stays as one of the most important things. So this year, we got EUR 5.6 billion of operating cash flow and the sale of the UAS, the under Marine business, bring us to EUR 6 billion availability. Now our idea is approximately 50% will be invested in organic growth. So paving the way to the future by strengthening the core. This is always the same issue, and therefore we believe approximately $3 billion, including the constellation of satellites, including the improvement of all our legacy capability on legacy products, including the improvement of the digital part. Then 15% to 20% inorganic growth. This is approximately EUR 1.5 billion focused on strategic areas of growth, including M&A. Then our proposal is 15% to 20% shareholders' return will be approximately EUR 1 billion. By the way, I'm talking in 3 years -- sorry, I should have said this before. This is for the 3 years, '25-'27, of course. So approximately EUR 1 billion in shareholders' return. This year, the proposal you will see in a minute is to increase dividend by 90% in 2025 with commitment to rise remuneration over the plan also through share buyback. Finally, less than 10% will be in debt repayment for approximately EUR 0.5 billion. So as you see, we are strongly committed to growth, organic and inorganic, because we want to pursue the strategy we told you before. But we also want to bring Leonardo at the level at the average European dividend that our peers have. And then, of course, taking care of the debt repayment because we want to keep our rating with the rating agencies as good as possible. Because I told you about the inorganic part, let me inform you about how our M&A approach is growing. Actually, only 11 months and 3 weeks passed since I proposed to you the plan. In this year, we identified 20 targets, 20 companies that could be suitable for our M&A, with the criteria, you remember, not being more expensive than 15% to 20% of the turnover of the division that was interested in the purchase. The focus was on cyber and space domain, in finding distinctive technology or products that could fit with the Leonardo portfolio strategy, and trying to improve our international footprint to access the global market. We made 3 offers, and we lost. Competitors made better offers, so we've lost. 5 offers are still ongoing. 12 due diligence were stopped because we didn't find the -- those companies promising enough or useful enough for our strategy. So we will insist in -- there was a lot of work in less than 12 months, a lot of work for the due diligence, the analysis. But we're now confident that some of those are close to the good news. That's why we want to keep a remarkable amount of money, about EUR 1.25 billion, EUR 1.3 billion for inorganic growth, because the M&A will accelerate further our new technology strategy. Concerning the shareholder return, this is our proposal. In '23, we were spending EUR 80 million every year. And you remember last year I doubled, EUR 160 million. This year, I propose 90% increase going to EUR 300 million every year. That means that the dividend per share will go from EUR 0.28 to EUR 0.52 with a 37% increase. This brings us to the payout ratio of 40% and the dividend yield of 1.7%, which is on average with the good peers at European level. That was my target, to be in the average of the European defense companies, because it was a shame not to be competitive in this respect. But as you have seen, this is possible because the numbers are good despite the exogenous effect that we canceled fortunately, but will improve anyway. And I believe this is a good signal to the market on one hand, but also is fully compliant with our idea to invest in growth, organic and inorganic, while keeping the debt definitely under control. I conclude with a snapshot on sustainability. Leonardo is keeping -- wants to keep its leadership in the sustainability ranking at large. Today we are, in all the most important ranking, highest scores in S&P Global. Dow Jones, we're confirmed for the 15th consecutive year in a row, highest ISS ESG. We have a fantastic track record, I'd say, top 1% in EcoVadis, higher score in CDP. So what we did actually, we accumulated CapEx and OpEx investment for EUR 280 million in the sustainability plan. Those are real numbers. So it's a real commitment. There are 20 top projects accounts for 85% of the total investment, and we expect approximately EUR 140 million of revenues from space and cyber sustainable solutions in the plan. Actually, I want to give you some targets. We accomplished 70% of major tenders, including ESG criteria by 2028. More than 500 key suppliers are trained on strategic sustainability topics by 2027. In terms of digitalization, we are increasing by 40% the computing power per capita and the storage capacity per capita in 2025 versus 2020. Minus 53% Scope 1 and 2 emissions by 2030 versus 2020, minus 52% emission per flight hour equivalent from our solutions in 2030 versus 2020. This is biofuels, there's a number of technologies we are developing. 58% suppliers by emissions with science-based targets by 2028, a reduction of 1/4 of water withdrawal in manufacturing by 2030. Minus 15% waste production by 2030. Those are versus 2019. Those are actions in progress. Those are already up and running and accomplished. So we believe that we are trying to do our best to make Leonardo a strong company with a very solid future, trying to fix the last couple of things that have to be fixed, we call exogenous problems, but we're going to do this for sure. We're creating a vision and a technology concept that today should be oriented to guarantee defense but must evolve into something much more important, which is global security. And we should see in the future, global security as a combination of defense, of course, but security in the cyber space, in the energy space, in the food space, you will see. There will be strong -- will be difficult, of course, but will be a long journey that we have to do all together to guarantee security in the continent. And I think under the net umbrella to be a much more reliable partner of the United States to guarantee the Western society, secured Western society and hoping to have a more peaceful world around us. So thank you very much for your attention, and we go for the question-and-answer as soon as we can now.

[Operator Instructions].

I would start from the conference call. Yes, please, operator, go ahead.

Alessandro Pozzi, your line is now open.

Okay. A very helpful presentation. We knew the bar was going to be very high given the value that we've seen in Leonardo shares, also both across the sector, but I believe your long-term financial targets were anyway above expectations. Now you provided the sensitivities and actually to the long-term plans, but I was wondering how much of the ReArm Europe plan you have captured into your '28, '29 targets? Are you assuming in a base case that defense spending as a percentage of the GDP is not moving, or do you expect some sort of, let's say, acceleration in the defense spending across the years? And also related to that, you've talked about capacity boost, you mentioned potentially up to EUR 30 billion of revenues in 2029, 2030. Not sure if you can deliver that given the capacity constraints at the moment. But I was wondering, do you think Leonardo can, let's say, unlock the supply chain and deliver those revenues within a few years by investing in new capacity? That will be the first question. The second question on Aerostructures. Can you maybe talk about the, EBITA -- basically, what your assumptions are behind the 2025 EBITA for the division? But also we've read in the newspapers that potentially there could be another partner as well, Saudi Arabia. Can you potentially talk about how that could help the recovery of Aerostructure as well. And maybe if I have time, just the last one for the -- for Alessandra. Clearly, there is an increase in cash flow generation driven by top line and EBITA. I was wondering also what are the factors including potentially tax payments, interest payments and working capital or what should we assume for those in the plan?

Yes. Thank you. Concerning the first question, well, of course the numbers of the so-called ReArm EU are still very tentative. Apparently, the overall number is something between EUR 600 billion and EUR 800 billion, a part of those from the cohesion funds. So it's difficult to make a forecast. But if you assume this on a 5-year span equivalent to 1 point GDP per year, I think the very simplified algorithm that I presented during the presentation is that we could expect an upside in the range of EUR 2 billion, EUR 3 billion per point, excluding any export or any other positive contribution. This is just a minimum estimate, very conservative. And yes indeed, I confirm the point could be how to run time in case the size of the orders and the size of the business would grow so fast over the next 2, 3 years or so. That's why I confirm that the reason to introduce the concept of Capacity Boost was meant to be to tell you that we are ready to face the problem if there will be such an increment of the volumes, such an increment to the demand, we have to be ready to improve our delivery capability. And this is why there is a team now which has been formed in the last few days, that over the next couple of quarters, by the end of the year, should present a sort of internal due diligence and identify the right actions. And of course, we do have to invest. That's why the capital allocation this year has a clear scheme and over the next years organic will mean primarily investing on capacity. I mean needless to say that what is inorganic today will become organic in 1 year or 2 years. So we don't plan to have forever inorganic growth at that size. So we will definitely, over time, reinforce the organic growth, and this will include for sure, investment to improve our capacity. It's a big challenge, of course, but at the end of the day, it's not a bad problem to have at the moment. Concerning Aerostructure, we plan to have a definitive solution by this year. So I can't say more, as you understood from what I said before, but the main criteria, the main accomplishment we want to propose our volume increase in the civil sector through the partnership, expansion to the military sector, maybe not in the first year but rather quickly, a strong diversification of the business, depending on the characteristics of the partners, investment sharing, and of course enhancement of cost efficiency. Those things must be accomplished in parallel by tuning and properly design the partnership, and we're working for that.

So building on what Roberto was telling you.

[indiscernible] 2029, for example -- oh, go ahead.

Okay. And...

On the 2029 revenue -- yes, sorry, go ahead.

Alessandro go ahead. Otherwise...

On the 2029 revenue target, is that based on a increase in defense spending across Europe, and to how much?

No. As I said, when I've shown the table figure in the 30th slide, Slide 30, the forecast of 2029 actually includes only the conservative upside that comes from the joint venture, so the inorganic growth that I described before. There is no inclusion of any other extra upside due to the ReArm EU or everything because we don't have numbers. And as well, it would be, at the moment, very imprecise to assume a specific increment spending in Italy without having the numbers. So all the numbers we've seen from '24 to '29 are based on our organic growth plus the upside given by the joint venture that I've described one by one during the presentation there is nothing else. I hope I clarified.

Okay, Alessandro. So on the drivers of the EBITDA in Aerostructures in 2025, as you know, Boeing has declared officially that it's ramping up production on its main program, the B787. And what you will see and you will see reflected in the number is the result mainly of a lower under-absorption of fixed costs in the division due to a ramp-up in the production rate, which we expect to rise to 7 series per month. We have a solid relationship with Boeing. As you all know, we are in constant dialogue with the company, and we do feel that the production profile that they have put forth for the current year is one that can be achieved given where Boeing stands on its recovery path. Now moving on to your question on free cash flow drivers, certainly around -- along the plan. As you have seen, we plan to double free operating cash flow throughout the plan time. And the main drivers are certainly operating leverage, higher profitability on the programs and [indiscernible] on working capital on programs while supporting the growth that we are experiencing throughout all our core businesses, from helicopters to defense electric to aircraft. And while also continuing to invest in the direction of boosting our capacity and our capability to deliver the growth plan. That's an element that I want to stress, because in our investment plan we actually have higher levels of commitments versus the previous land, and we are delivering the same amount of cash. And that's by virtue of the really strong performance that our core businesses have projected both in the year-end 2024 results as well as moving forward throughout the plan.

Let me take two questions from the web, both from David at JPMorgan. The first one is, thanks for the sensitivity analysis of the Italian defense spending. Please, can you share with us what the Italian government is currently thinking on defense spending in the next few years? And the second one is, for your divisional guidance, is the starting point 2024? If I adopt all the guidance per division, I get to higher than EUR 24 billion sales, [ EUR 2.8 ] billion, in 2029. Am I doing the math correctly? Should I assume the CFO has included a buffer in the group guidance?

Okay. I'll start with the first question, David, and then I will give the stage to Alessandra. So as you might have seen from the news, every day we get some piece of information -- new piece of information about the ReArm Europe and the contributions of the different member states. Just a couple of days ago, our Ministry of Finance has announced the possibility to allocate quite an amount of money for defense expenditure. However, at the moment details have not been released, whether this is kind of borrowing money or a grant, we don't know. So in this moment, it's difficult to make predictions. We have presented our ideas to several institutional representatives in the Ministry of Defense, and of course the Ministry of Finance is our major shareholder. They know what we are doing. Over the next weeks, I think we will clarify a different possibility of investments in different strategic sectors such as space, land defense, and so on and so forth. But this is going to be done in the next few weeks.

Okay, David. So divisional guidance, we start to look at the 20 -- we start from 2023 because that's where we started the journey together with Roberto. So that's our starting point, and the horizon of the plan is throughout 2029. So you are correct. This is what we're doing at group level. This is what we're doing starting from division, one after the other, consolidating the group. You are correct. There is a buffer that we're keeping centrally, and that's the result of mainly 2 things. The one is that there are natural eliminations across divisions. Let me give you an example. When the aircraft division or the helicopter division, as platform [indiscernible], buy from our electronics divisions sensors, electrooptics, radar, and communication equipment, and they put it on their platform, there is an intracompany revenue stream that has to be netted out to avoid double counting. So that's a portion of the elimination effect. And clearly, in a world where multi-dominion will be the case for Leonardo, that's going to grow, and that's also going to encompass new divisions such as space that will be contributing to the overall development of the business and revenue generation, as well as cyber to a minor extent, a key contributor to the overall solution suite that we're offering to customers. The second element beyond elimination is the central buffer that is a result of an assessment that we run on risks and opportunities associated with the delivery of the plan. And as we know, as CFOs would like to keep it always in our planning.

Okay. Let's take some other questions again from the web. Both Carlos from Bank of America and also Ian from UBS are asking to provide some color about the EUR 500 million M&A in 2025, whether do you have targets in mind already for 2025. That means you can be precise? Or should we see this level as indicative? And is this cash to potentially set up the joint venture in Aerostructures?

Yes. Thank you for the question. So in Slide 38, when I made a focus on the M&A activity, I mentioned that there are 5 offers that are ongoing, means that we have nonbinding offers already launched to 5 different companies. Those have been analyzed in detail during the due diligence phase, mostly dealing with cybersecurity, not exclusively, but mostly cybersecurity. And yes indeed, should those offer being accepted, all of them, it wouldn't even exceed EUR 0.5 billion. So I would say we do have a pathway for the year. I don't think we should consider at the moment any payment for the solution, the Aerostructure problem, on the other hand.

Then again, two questions from the web, Nick from Agency. Could GCAP entry into service be accelerated? 2035 feels slow in the context of recent events. And is there an opportunity for European suppliers, including Leonardo, to take market share in the future from U.S. defense contractors in Europe? Which segments offer the best opportunities?

All right. Honestly, I think the technological challenge of the GCAP makes it very difficult to anticipate the service of the aircraft before 2035. I think the challenge is to have, if I remember correctly, 10 prototypes flying by that time. And then, of course, testing them and seeing which are the pros and the contras, problems to fix. And of course, in the meantime I think we should also start being operative and the development of the AI part of the drones, the adjunct fighters. So in some sense, I don't see this very realistic. But I have to say that this is quite normal in the development of such a complicated platform. And I don't -- I'm not aware, at least, of other programs for 6th generation fighters that are ahead of us. So in some sense, the challenges is really high, and I think the timing is even short. Sorry, there was another part of the question. It was about the market share of the American companies investing in Europe. Honestly, I'm not sure this is simple at the moment. I would suggest waiting to see the development within the net alliance of the relationship and the collaboration among the 2 continents. For the time being, I think we are already fully committed in creating big enterprises at European level. I'm not sure we can manage at the moment similar initiatives with American companies. But of course, we are flexible. We have to be very quick in the response. So should any very good opportunity for the business show up, we will be ready to catch it.

Okay. Let's take a question from the conference call now.

Our next question comes from Martino de Ambroggi with Equita.

My first question is on the Capacity Boost in view of the EU rearm plan. Where do you see the most likely bottlenecks and in which division? And in your Slide #38, you talk about organic growth of finance to EUR 3 billion. I imagine this is the CapEx plan. So roughly 1 billion per annum. But is it enough to sustain the growth coming from ReArm? And I suppose there is also the hiring of engineers as another issue to be considered. The second is still on the Aerostructure. I don't know, Alessandra, if you could share with us what is the trajectory of the free cash flow for this division stand-alone over the breakeven point of arrival. And I imagine it is difficult to say today, but the definitive solution that could be announced by year-end would mean breakeven anticipated into '26, maybe '27, just to have an idea in terms of free cash flow, in particular.

Okay. I'll start with the Capacity Boost. Generally speaking, where we do see the most relevant difficulties is in the hardware, particularly the very complex platforms, where the footprint in a plant is very important. I mean if we have to deliver 170 tanks or inventory vehicles by 2032, 2031, I mean those might need an expansion of the plants. For electronics, in terms of volumes, we have to increase substantially sensors, cameras, radars production, because as you have seen, we're involved in the GCAP, we're involved in the land defense program and the drones. But there, I mean, increasing the production volumes is slightly different compared to the case of the aircraft or the tanks production. Software is less a problem, it's more brain driven. I would like to remind also that there might be some bottleneck in the production of specific devices such as high-power electronic devices. That's why we're planning to build our own foundry facility, expanding our electronic foundry, because we need to fabricate chips and electronic circuitry with the high-power materials and stuff like that. So in general, I would say that the next few months will be dedicated to a very tight discussion with our production division to see which are the most delicate elements in the production chain. And of course, investment could be either in terms of expanding the plants or in terms of efficiency in the production or, as I mentioned before, in having capability for the chip fabrication. This will be clarified over the next few months. What is clear now is that we have to ask ourselves how can we improve our delivery capability in the shortest time possible. Yes, this is concerning the issue of capacity boost. You want to say something about the Aerostructure?

Sure. So on the EUR 3 billion, if you want me to add, Roberto, the EUR 3 billion of investments. So the EUR 3 billion that we have, Martino, are encompassing the initiatives that we see in the baseline plan as well as the new initiative that we have identified and that Roberto has described to you in detail stream by stream. With respect to the boost...

The satellite constellation and part of -- for the high-performance computing upgrade, which is, by the way, not very expensive, most of the satellites and then all the other CapEx distributed over the divisions. Sorry for interrupting.

Thank you for complementing. So absolutely, that's the general framework. Now we will start an exercise that will go in detail, division by division, and understand what kind -- if any, what kind of investment should be made by Leonardo as well as by its supply chain, because as you well know, bottlenecks sometimes can be outside of the prime contractor within the supply chain. So we need to identify where those bottlenecks potentially, if there are bottlenecks, are residing and help throughout the chain smoothing them out and get to the delivery in due course. On Aerostructures, and on the free operating cash flow trajectory and on your question, Martino, whether the breakeven could be anticipated, well, as you well know, the breakeven of the division is mainly driven by the production pace of the B787 program, which is anchored on an exogenous factor, which is the Boeing operational level. That's outside of Leonardo's control, as much as we have, as I mentioned before, a very constructive and continuous dialogue with the customer. What we do now see and what the customer is telling us is that '25 will certainly be a year where there will be a step-up compared to a really trough year such as '24 has been, but it will take some time for the production line to go back to its full potential. And considering that aspect, considering also that we're talking about programs that have experienced a certain rise in raw material costs that are part of our cost base, imagining to anticipate the breakeven is something that, as of now, we do not have in our projections.

Okay. If I may just comment on M&A you discussed before, because multiples in the sector are becoming more and more expensive every day. So does it -- jeopardize your targets? And maybe are you committed and willing to pay the multiples that now the market is asking for these kind of assets?

Yes. Look, that's a very good question. If you see on Slide #38, at the very bottom, there is a square where we said, actually, we did an extensive scouting, but our effort was not yet materialized with an M&A as we were always overcome by some competitor around Europe. Well, targets identified, sometimes lack technology or product maturity, yet they have multiplicating factors that are increasing 13, 14, 15, 16, especially in cyber I mean. So we might possibly consider for very specific cases in which the added value of the acquisition is really important for Leonardo, in those specific cases we could be a bit more flexible and eventually offering a bit more than the 15% of the turnover of the division. But we want to be very careful with this. I mean, we believe that discipline in the capital allocation is the fundamental parameter. If we find something really super, we might breach a little bit better, going slightly -- putting slightly more than 15% or so. But so far, we didn't find anything like that. However, I should say, out of the 5 offers that are still alive, let's say, nonbinding offers that we launched -- these are all abroad, no one in Italy. We actually found a couple of very, very interesting value propositions. So let's see what happens now, but maybe some of those could be [ valuable ] for an extra effort. But we have to be very disciplined. I mean, this is clearly the key point.

Again, a question from the web, Ross at Morgan Stanley. How quickly can you add the capacity across each of your divisions if defense spending picks up? And how much would that cost you in terms of additional CapEx? Then on Aerostructures, has there been a delay to your plan? I think many were expecting you to announce a partner today. But instead, this is now expected by the end of 2025. So the reason for it taking longer would be helpful. And then GCAP, the status of Saudi Arabia and GCAP, and buyback, what do you need to see before considering launching this?

Okay. So let me answer, first of all, on Aerostructures. I'm not supposed to announce any alliance by the end of '25. I'm supposed to give you the solution up and running by the end of '25. At the moment, we are strictly bound by a confidential agreement that was required by the partner in non-negotiable form, and we have to respect this. So please allow me to -- not to give details. But I'm not going to announce a partnership, I'm going to announce a solution, which will be -- which must be up and running by the end of the year. I'm sure you understand that in this big international operations, sometimes a strong confidentiality is required, and we guarantee that we would have been absolutely respectful of these requirements by the partner. Now let's go to the other questions, because I didn't want to leave anything ambiguous, I'm sorry if I gave this impression.

Okay, GCAP.

Okay, GCAP, Saudi Arabia, our position is unchanged. Leonardo believes that any contribution from fourth countries, fourth, fifth partners could be very valuable, because this is a global challenge. So we were in favor for Saudi Arabia to enter in the team, but this is, of course, a political decision. The industries can only help in evaluating what could be the additional value and the synergy among the companies. And we do have ideas in this respect. But of course, it's a political decision that we can support in case there will be an opening, and we will support in case of opening. The first question was...

Capacity Boost.

On Capacity Boost. Now the answer, how fast can we -- to the question of how fast can we in view of the ReArm Europe or any other increase in defense expenditure, now I mean, I believe that on space can be okay. On cybersecurity, we can be fast. This is primarily software oriented. Electronics, we are already working on the capacity increase, primarily because Electronics division mostly involved in the new joint ventures. Obviously, where we might have a slightly longer times is where the hardware is very big, like aircraft or like helicopters, because there, you understand, making a new reduction line is a huge investment, not necessarily in terms of money, but in terms of logistics. So you need a new space, you need new areas to build. And I think this requires a very careful analysis done together with the division. So I'm not able to answer in detail because we realized over the last few weeks that this could have been the next challenge for Leonardo and we are reacting as prompt as possible.

The buyback.

About the buyback, the position is very simple. We reported that to our Board that we're going to increase the dividend this year, and this was for us an important target because Leonardo wants to be in the average of the European peers in terms of dividends, basically. Now we very transparently announced to our Board that it could be good to know that we can propose to the assembly the possibility to have buyback over the next years, during the plan. So for this, we will follow the rules that are standard. And so we will make a proposition to our assembly in the next weeks. But for the year -- for this year, what we plan is to -- an increase of 90% of the dividend to reach the average value of the European peers.

Okay. The next question from Charles at Citi. To us, the percent of GDP is spent a different way. Is your 2029 forecast based on 1.5% of GDP for Italy as per 2024 and circa 2% for the rest of EU plus the U.K.?

Now at the moment, we did an even simpler approach. The baseline is 1.52% of the GDP, which is what today Italy is spending in defense. And then we simply said, every 1% increase of GDP increase in spending in defense would correspond to something like EUR 2 billion, EUR 3 billion, and simply add it over the years. Is that the lowest level analytic approach you can have, yet without considering export, without considering any other upside, with a very conservative approach, they're really minimal, yet this clearly indicates that we need to ask ourselves how to increase our delivery capability, which is on one hand a good new, on the other hand is a challenge that we have industrially faced and solved.

Then another question from Gabriele at Intesa Sao Paulo on aircraft. Does your updated plan factor in a margin slowdown due to the end of the Kuwaiti contract like the 2023-2028 plan, or the situation has improved?

Okay, Gabriele. Well, let me remind us all that the margins at the Aircraft division are top margins, both at Leonardo level as well as across a benchmark of peers, aircraft producers. So we're very, very happy with those margins. And every year, we see that they consistently deliver what they have mentioned and potentially what they have projected, and potentially they do even better. The mix is the element that is resulting into the margin that you see at division level. And there are higher quotas of proprietary products versus Eurofighter Kuwait that is now coming to an end. I would also, though, like to remind you that Aircraft is anchored on a very strong position throughout the fighter business, both in Eurofighter, which as you have seen lately, has experienced a second life. Between '24, '25 and going forward, we do see more than 100 aircraft already ordered or to be ordered by the core nations, Germany, France, and more recently Italy, in sizable numbers. So what we have told you last year is confirmed in the actual report, and I can confirm you that it will come to fruition throughout '25 and going forward, as well as the export opportunities, on which all of us as partners of the consortium are working very strongly and with strong determination, are avenues for continued growth and continued support of the aircraft divisions throughout the plan horizon.

Then a question again from Nick at Agency Partners. Would the incremental revenues from defense budget growth be likely to expand overall margins, or would you expect customer governments to limit margin expansion?

I would say that the volume effect will be determined as what we have experienced, and what we have shown you is that by leveraging a higher level of volumes we have an ability to improve our margins. As we stand today, we are not aware of any margin caps put by governments on potential new contracts. We're clearly here to serve our main customer needs in the spirit of serving the major goal that as industry we are serving for our core nations. But clearly, we will be having a constructive negotiating dialogue with our customers in the future, and I would think that we have the potential to have reciprocal benefits and synergies.

Okay. Can I add something? I mean, obviously, you have to consider that generally, the government doesn't put margin caps. We've never seen this in the past -- in the past. Not forgetting that there is -- there are extra opportunities at European level, because this is also something we have to consider that we could call export in some sense, that were conservatively not included in our forecast, but I think those could also be promising in terms of margin, least but not last, I think we should not forget that digital expenditure will also increase on the same footing as a military platform purchase. And there, the margins are much higher. By nature, they are more related to services. So if you put all things together, I would be very surprised to see margin are decreasing with such an increase of volume. I would expect a reasonable amount -- increase of margins, especially because we have servitization that is increased into the platform business basically. Which is the new normal by what we said before, hopefully.

Okay. Next question from Yannis at Aperture Investors. We have spoken a lot about upside from the new JVs. But what about upside potential from the existing organic business, where do you see the most upside potential in a 2-year view and from which product line or application? Could you please rank the top 3 that's seeing the highest demand?

Yes. So clearly, space has a nice pathway now on its own. Cyber is growing. I mean, very likely this will not be the largest in absolute value, but the derivative is very promising. Helicopters is continuously improving its efficiency, so revenues to cash conversion, order to revenues conversion, and it is a constant improvement that helicopter is doing. And I would say, aircraft at the moment is in the situation that Alessandra described just 2 minutes ago, but we know that at the European level, there is quite a batch of Eurofighter that is going to be ordered over the next few years by different members of states and that will be -- according to my vision, electronics is growing, will go more and more, because it is the glue at the center of the joint ventures at the moment. Helicopters is growing because of the increasing efficiency you will see year-by-year improving. Aircraft, looking for the track of the Eurofighter will have, for sure, big benefits. Cyber space, they have their own news story, and I think they are promising. In absolute value, maybe this will not be the largest number, but the derivative is very promising.

Then second question, again from Yannis. I'm surprised you show more upside from Space division than the joint venture with Rheinmetall or the inventory with Baykar. Why do you see such strong upside from the new Space division? What will the new Space division look like? Do you intend to compete more directly with SpaceX, for example, for the Italian contract that was recently in the press?

Okay. Thank you for this question. It's very interesting. It's very important. In Slide #22, the last slide dealing with the Rheinmetall joint venture, I quickly reported the Italian deliveries schedule for the inventory vehicles and for the main battle tanks -- well, it's this one. You've seen this before. And now it's very interesting to see that the peak of delivery will be 2030, 2031, 2032. Right now, we are here because now we are developing the integration. So actually numbers are not so big. The upside is going to be maybe EUR 1 billion. I don't remember by memory, but it's something like that. But you see the peak after the integration will be at the beginning of the new decade, where we expect to deliver 160, 171, 120, 130 vehicles. And of course at that point you will get much bigger number in terms of revenues, margins and so on. So this is inherent and the difficulty of integrating such a gigantic platform with a lot of payload. Concerning space, it's a totally different business because this is services. After being fabricated the satellites, most of the business is services. And therefore, it is inherently faster than any hardware platform-related activity. Concerning Baykar, our forecast at the moment is very conservative. The agreement was signed March 6, so 5 days ago. We just had the possibility to introduce the macroscopic big numbers but we are -- the technical tables are now working on the [ war share ] in a very detailed way. And I'm sure we will have a few corrections but of course, the global volume, the total volume during the budget plan in the period, let's say, the 4 years, will be approximately the one we have seen with a different distribution. And also there, you will see a bigger number by the time the integration will be successfully completed. At the moment, integrating a lot of payload with the new platform, either flying or ground platform, it takes a bit of time for the integration and some refinement and adjustment. So you will see a much better number in a couple of years. Let's say that we are preparing a solid future. You don't measure this in the next 24, 36 months, but we are preparing this. That's why we were plotting a forecast up to 2040.

Then I would think together two questions. On Leonardo's Leo constellation, can you please expand further on what public and private partnerships entails? Would you be seeking partnership with the existing European satellite operators to some extent, like Eutelsat for example?

Yes. The constellation that we are designing is meant to be, first of all, primarily Earth observation constellation. And all the satellites will be designed and produced with the inter-satellite links. So the idea is that this will be interconnected to any other constellation, no limit -- I mean we can be interconnected to whoever we want, so being part of several networks -- because this, of course, multiplies the positive effect of having a constellation in the low orbit for all the services. So having said this, the constellation is meant to provide the basic opportunity for us to offer end-to-end solutions. So in principle, we can make a product package that gives data, our data, all the analysis of the data, ground services, and this is something that very few in the world can offer, and we believe it's a very convenient and attractive business model for many countries, not only for Italy. So we count on export for this model. And of course, we're going to do this with our partners in the Space Alliance, the space partners because, obviously, this is something we develop within the Space Alliance.

Okay. Then final two questions again from Yannis. The first 1 on your JV with Baykar, is it a 50-50 split? What is the commercial scope of the joint venture? Will you jointly sell to the European market or also international markets excluding Europe? And then on Aerostructures, do you expect the partnership will make the division break even by second half of 2025?

All right. So concerning Baykar, yes, we are inspired by the Rheinmetall joint venture that was also described in detail to our Turkish partners. Yes, in principle, it should be something like 50-50 with a very clear work share, and this once again relies on the strong synergy. They make the flying platform, we make all the payloads, weapons, radar, sensors, command and control and everything. Now the integration actually makes, of course, it makes a much more advanced unmanned system, and this can be custom tailored depending on the demand. Of course, it can be produced also in Italy, not only it can be integrated also in Italy, not only in Turkey. So we can for sure accelerate certification and simplify the procedure to sell in Europe as a certificated drone. We don't have any limit about import/export but the standard geopolitical rules assigned by the states. And of course, we believe this can be a very aggressive approach in terms of UAV technology. And the idea is to -- yes, to distribute those machines in Europe as well as abroad. The second question, sorry, was about the...

Aerostructure breakeven second half of '25.

Let us work on the final solution of the problems, and together, along with the final solution, there will be a very well-defined business plan. I don't think I can answer now. I don't have -- actually, I don't have enough visibility on the numbers to make a forecast at the moment.

Thank you. This was the final question. So thank you for your time today. As usual, the IR is available for follow-ups.

Thank you.