Leonardo Spa Ord

Good evening. This is the Chorus Call Conference Operator. Welcome and thank you for joining the Leonardo Fulia 2023 Preliminary Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Valeria Ricciotti, Head of Investor Relations and Credit Rating Agencies. Please go ahead, Madam.

Good evening, ladies and gentlemen, and welcome to our FULIA 2023 Preliminary Results Conference Call. Today, our CEO, Roberto Singolani, will take you through the important progress that we achieved during the last year and how we are positioned looking forward. And our CFO, Alessandra Genco, will then take you through the full year 2023 preliminary results. We will then welcome your questions. It should be noted that the approval of the Leonardo's draft annual financial statement and consolidated financial statement as of 31st of December 2023 is scheduled for 11th of March 2024. Therefore, the information throughout this call is to be considered as preliminary and referable to the current day. The preliminary results of the 2023 financial year have not been audited by the independent auditors. As you know, we will be holding an investor day in Rome on the 12th of March to present the Leonardo Industrial Plan, and included in that, we will also then be presenting our guidance plus our medium-term target. Now, I will hand you over to our CEO.

yes thank you valeria hello everybody and thank you for convening this evening to this call and once again thank you for accepting that we anticipate the preliminary results just because we don't want to accumulate too much information on on march 12 and we will have the investor day uh so uh in short in pills then i will lead the stage to Alessandra, for the detailed presentation, I think we conclude the 23 with good numbers. The orders have been growing by almost 4% year over year, up to $17.9 billion. This is ahead of our guidance 2023. The book to build is in the range of 1.2 times bigger than the, as a factor, 1.2 per year. And our revenues are growing by 3.9% compared to last year, reaching 15.3 billion. This is in line with the guidance. It's reasonably consistent with our strong backlog. The EBITDA margin has been growing by almost 6%, 5.8% year over year, up to 1.29 billion. This is in line with the guidance. And the free operating cash flow has been growing by 17.8% compared to last year, up to 635 million. This is ahead of guidance. Finally, the net debt has been reduced by 23% compared to last year. Also, this parameter is ahead of guidance. In general, we think the results are good, mostly representative of actions that have been taken in the last years. They are for sure promising in view of the forthcoming new industrial plan, but we know there's a lot of room for improvement, and this is what we hope to achieve with the new plan that will be presented in approximately 10 days. Our key messages for what we've been doing over the year 2023 We've made a number of strategic changes in recent months, and we have been working a lot over the last few months on the industrial plant. Actually, you remember from the previous meeting that we had over the last quarter that we have promoted quite a transformation of the organization. I think we can consistently say that the business has been improved. The numbers have been growing steadily. We are on track for the recovery plan of our structure that has been always a weak point over the last few years. We have a linear organization, stronger and simpler. We have reduced the number of reports from 26 to 10 because of the CEO. We've improved the gender balance, by the way. We've appointed new key figures, such as the new managing director of the cyber division, the new chief innovation officer, the new chief strategy and M&A officer. We are investing a lot on digitalization, artificial intelligence, cloud computing, and data analytics, and this is turning out to be the tool for improving our products. Concomitantly, we've been cleaning the portfolio products and also we have stopped a number of businesses and the activities that were off-core business given the new directions that Leonardo is taking. As you remember from our recent discussions, we successfully renegotiated the space alliance with our partner Thales, so that we are able now to create a new space division. This is the new business division in which we will consolidate the Telespatial company, the two-thirds of the joint venture that we share with Thales. And on top of that, we have incorporated all the space electronic line of business into the new space division. So this is now a rather robust business division for Leonardo that allows us to get into the space alliance with a totally different approach. In front of us there is a period of transformation. As you know, Europe is discussing quite a lot about the future strategic choices for space, so Leonardo now has a structure which is dedicated to space activities. Alessandra will show you a new approach and simplification of the financial results, so I'm not taking too much time for that. Let me go a little bit ahead, because I would like to mention the work which has been done over the last few months for the international alliances. We're firmly convinced that Leonardo can be a catalyzer for strong international alliances in view of the future European space of defense. Obviously, needless to say, this is going to be under the umbrella of the Atlantic Alliance. It's not a competition. It's just to make a more obvious alliance, to be clear. One of the main actions is dealing with the GCAP, the strategic fighters, in collaboration with Japan and UK. That's a complex initiative, as you know, long-lasting, with an immense budget. We have gained a significant role in this consortium. We will develop several platforms, so that includes cross-domain capability, radars, electronic warfare, electro-optic and infrared sensors, communication systems, system of system technologies, simulation. So this is now under discussion with the partners. There has been a lot of work done for the land defense space together with KNDS, primarily dedicated to the tank technology, but also in the future for the infantry vehicles and other strategic land transportation systems. I'm sure you remember that A few months ago, we have finalized also the new agreement with Fincantieri for maritime applications, primarily dedicated to the development of warfare and electronics for battleships and for submarine applications. This opens up quite a broad market worldwide, definitely well beyond the domestic market. And we have recently I reopened the discussion with the colleagues of Enso in Germany. They have changed the top management, so there is work ongoing. We're still very positive about the potential perspective of the Enso and Leonardo collaboration. More importantly, we have closed or we are exiting products that are off-core business. Sky Dweller, the solar-powered drone, has been canceled as a product line. Similarly, we have interrupted our participation in the joint venture for Industria Italiana Autobus for electric buses. which was absolutely out of our core business. Things are doing quite well with DRS. You remember we have sold some 8% of our stocks, but now we are discussing with DRS for further collaboration. Things are running quite well with our American partners. And, well, last but not least, the three agencies have confirmed an invested grade for Leonardo, so we have to keep this as a very good result, and, of course, we have to do our best to keep this alive for the next years and possibly even to improve the rating. Let me give you just a few bits of information about our ESG progress. in view of the sustainability balance sheet. Concerning emission in scope one and scope two, our decarbonization strategy seems to be quite successful. We've diminished by almost 10%, 9.5 to be precise, the CO2 production in the scope one and scope two emissions, as I said, despite concomitantly to an increase of the production. So not only we increase the production, but we reduce the scope one and scope two emissions. That's because we made a lot of work for optimizing the manufacturing and also investing in the supply chain. We have decreased substantially energy consumption, primarily due to the efficiency in our manufacturing line, and we have increased the percentage of green energy that we use in the company, partly by self-production, partly by We have a new conflict with energy suppliers that are selling green renewable energy. We have decreased water use, water consumption and water withdrawal in our manufacturing systems. Concerning focus on innovation, another important ESG KPI, we're still keeping very high our investment capability on research development and product development, up to 14% this year compared to 12% last year. Of course, there's a considerable part which is product development and product optimization, but this is for a high-tech company, it's quite normal. Data computing power per capita has been increasing by 4.3%, as well as data storage capacity per capita underwent a sharp increase up to almost 14%. This means that we are massively investing in digitalization. both high-performance computing and cloud computing together. And this is mandatory for developing our AI strategy and product digitalization strategy. About diversity and inclusion, we have reached 20% gender ratio. I mean, we can do much better, I know, but you have to consider where we started from. So we are strongly committed to improve this KPI as much as possible over the next years. And at the moment, 55% of the group funding are ESG-linked, so we're careful with the selection of the funding sources. In summary, this short overview, I think in 2023 was good. We outperformed or we reached all the targets given by our guidance. We're progressing on strategy and we're focusing all our efforts on the new strategy plan that will be delivered in about 10 days. The aim is to transform Leonardo into a strong technology-based company. Let me say something about March 12. Transforming Leonardo into a more technology-based company means basically moving towards multi-domain solutions across geography and across platforms. and this means radically moving from a company that has divisions working vertically on platforms into one company that works on a multi-domain with a digital continuum that essentially governs the interactions among the platform. It's a paradigmatic change in terms of technology, product, and even company organization. The second point is that we are strongly committed in strengthening our core business. Of course, we know that aircraft, helicopters, electronics, air fracture represent the core business. We need to continuously boost the organic growth of our product to be competitive, including new services, new digitalization tools. adopting more and more digital technologies for the design of the new platforms, including services such as training, simulators, or predictive maintenance. But in the meantime, we are now in the presence of a very, very special window of opportunity We've seen how defense is becoming a sort of component of a much bigger challenge, which is global security. And global security means we have to develop a strategy that has to do with cybersecurity, monitoring and observation from space. So, while we are consolidating our core business, we have to develop simultaneously, to pave the way simultaneously for the future, and the future has to include a very strong capability in cybersecurity and a strong capability in space observations. We will make very selective choices. And this will be the core of the plan that we will introduce you in a few days. And I believe the data of 2023 are promising in view of what we are going to propose you in a couple of weeks' time. At this point, I would like to give the stage to Alessandra, who's going to give you all the details and numbers, and then, of course, we'll be very happy to answer and address your questions and comments. Thank you for your attention.