Leonardo: Good start to the year with Orders up 36%YoY. COVID-19 impact began in March. Safety of employees preserving business continuity a top priority. Not yet able to quantify impact in 2020. Retained confidence in solid medium-long term fundamentals

Rome  07 May 2020 18:44 Inside Information

Results at 31 March 2020

Good start to the year

  • Strong order intake at € 3.4 billion, up 36%
  • Key businesses on track, excluding COVID-19 impact
  • Solid Backlog at € 37 billion, ensuring coverage for ca. 2.5 years

COVID-19 impact began in March

  • Leonardo facilities designated strategic and all running
  • Some slowdowns in production activities, lower productivity, lower efficiencies and delays in deliveries
  • Revenues at € 2.6 billion (-5%YoY), EBITA at € 41 million (-75%YoY) and Net Result negative for € 59 million
  • FOCF, in line with the usual seasonal trend, negative for € 1.6 billion

Quick and effective responses and actions

  • Top priority: safety of employees, preserving business and production continuity
  • Supporting institutions in the fight against the pandemic
  • Mitigating actions and recovery plan addressing new market opportunities, increasing production efficiencies, reducing costs and investments
  • Strong liquidity position: additional € 2 billion credit facilities signed for a total liquidity of € 5 billion

Not yet able to quantify full financial impact in 2020: 2020 Guidance suspended 

  • Civil portion of the business expected to be impacted by air traffic heavy slowdown (Aerostructures, ATR and civil Helicopters); civil business reported revenues of ca. 18% in 2019
  • More resilient military and governmental markets

Continued focus on delivering Industrial Plan: retained confidence in solid medium-long term fundamentals

Leonardo's Board of Directors, convened today under the Chairmanship of Gianni De Gennaro, examined and unanimously approved the results of the first quarter 2020.

Alessandro Profumo, Leonardo CEO stated “First quarter 2020 results were in line with expectations before the COVID-19 impact in March. We reacted immediately to the pandemic with the primary goal to fully ensure the health and safety of our people while preserving business and production continuity. We have slowed down activities but never stopped, as we are a strategic business for our clients in key countries. We are supporting institutions with our products and technologies, using helicopters in EMS roles to move patients, C27J aircrafts to move medical equipment and providing secure communications. Our satellite services are ensuring connectivity and cyber security is supporting remote working and preventing cyber attacks. We are not able to quantify yet the COVID-19 impact in 2020 but we strongly believe in our solid fundamentals and remain fully focused on executing our Industrial Plan to create value for all our stakeholders”.

After a solid beginning of the year at commercial and industrial level, the results of the first quarter 2020 were affected, starting from March, by the first effects of COVID-19, which influenced the Group’s performance. In particular, there were:

  • slowdowns in production activities as a result of the actions implemented, in line with the Government instructions (review of industrial processes and work organization in order to guarantee the social distancing and environment sanitization), to protect the workers’ health with the consequent reduction in the production hours developed in March and lower efficiency;
  • less progress on programs as a result of the abovementioned slowdowns, restrictions on the movements of the resources and the impossibility of accessing customer sites, as well as the lower efficiency caused by the reconfiguration of part of the activities in the smart working mode;
  • deferment of deliveries due to the impossibility by the customers to perform the testing and acceptance phases of the machines, with particular reference to the ATR aircraft and civil helicopters;
  • this quarter saw the first signs of a drop in demand in the civil market caused by a severe slowdown in the transport sector worldwide that is impacting aircraft manufacturers and consequently will affect the production volumes of aerostructures as well as sales forecasts for civil helicopters and ATR aircraft;
  • as of today negligible effects on the supply-chain that however remains an element to which the utmost attention is paid.

The Group reacted promptly to the new scenario by implementing a series of measures primarily aimed at guaranteeing the full protection of the workers’ health and safety, while preserving the continuity of its production relating to those business sectors considered strategic in the main countries in which the Group operates. In this context, monitoring and action plans have been developed to assess the impacts of COVID-19 on the various business areas and to limit its effects. From an operational point of view, the initiatives include actions aimed at recovering adequate productivity levels through the gradual increase of the workers’ presence in the sites in safe conditions, the greater efficiency of remote processing with further investments in digital means and infrastructures, the review of work calendars to support the recovery of the delays accrued, in agreement with the trade unions, in the second half of the year. In parallel, the Group is carrying out a profound review of its cost base and investment level, reducing or delaying all initiatives and expenses not strictly necessary or strategic, in order to mitigate the effects of COVID-19 on the results of the year. At the same time, the credit lines were increased to ensure adequate financial liquidity for the Group. 

Note that the first quarter registered an excellent commercial performance, not yet affected by the crisis due to COVID-19, confirming the good positioning of the Group’s products and solutions in the relevant markets.

The primary changes that marked the Group’s performance compared with that of the previous year are described below.

  • New Orders, amounted to EUR 3,421 million showed, compared to the first three months of 2019 (€ 2,518 mln), an increase of 35.9% essentially due to the Helicopters and, to a lesser extent, to the Aeronautics
  • Order Backlog, amounted to EUR 37,000 million ensuring a coverage in terms of equivalent production equal to about 2.5 years
  • Revenues, amounted to EUR 2,591 million, showed, compared to the first three months of 2019, a slight reduction (€ 134 mln, equal to 4.9%) mainly related to the slowdowns recorded in the Helicopters and in particular to the lower deliveries attributable to the abovesaid effects from COVID-19
  • EBITA, amounted to EUR 41 million (with a RoS of 1.6%), showed, compared to the first quarter of 2019, a decrease of € 122 mln due to the mentioned effects from COVID-19
  • EBIT, amounted to EUR 30 million; showed, compared to the first three months of 2019 (€ 156 mln), a worsening equal to € 126 mln (-80.8%), mainly due to the decrease in EBITA, in addition to a slight increase in restructuring costs.
  • Net Result before extraordinary transactions, equal to the Net Result negative for EUR 59 million, in addition to the EBITA worsening, was also affected by the higher impacts of financial expense
  • Free Operating Cash Flow (FOCF), negative for EUR 1,595 million, (negative for € 1,114 mln of the comparative period). Such performance, although confirming the usual interim trend that is characterised by significant cash absorptions in the first part of the year, was partially affected by certain critical issues that have arisen in the last month of the quarter as a result of COVID-19
  • Group Net Debt, amounted to EUR 4,396 million, increased compared to 31 December 2019 (€ 2,847 mln) mainly as a result of the negative FOCF performance

COVID-19 effects on Leonardo Business

As already highlighted in the 2019 Annual Financial Report, the COVID-19 emergency is impacting on the regular and ordinary performance of the Group's business activities, in a global context of serious economic recession and high uncertainty. The Group is not able to assess the full impact at this stage and so considers it prudent to suspend the 2020 Guidance disclosed in March.

Moreover, Italy was the first western country to be involved in the pandemic and therefore the Group since the first quarter has been more affected than others by the consequences of the measures issued by the authorities to contain the risk and protect the health of workers.

The measures taken to contain the spread of the virus and the effects of the health emergency affect the Group's production activities, program execution, supply chain and the possibility for customers to withdraw products and systems. On top of this there are the effects that the crisis will have on demand in the markets in which the Group operates, and in particular in that of the civil aeronautics.

The Group reacted promptly to the new scenario by implementing a series of measures aimed primarily at guaranteeing the full protection of the health and safety of employees, while preserving the continuity of its production, relating to business sectors considered strategic in the main countries in which the Group operates. These initiatives concern interventions aimed at (i) gradually recovering adequate productivity levels, (ii) limiting, through a thorough review of its cost base and level of investments, the economic and financial effects of COVID-19 and (iii) ensuring adequate financial liquidity to the Group.

The uncertainty about the severity and duration of the pandemic and the measures to contain the contagion as well as the impacts on the productive, economic and social fabric of the numerous countries in a state of partial or total "lockdown" in which the Group operates does not allow at present a quantification of the effects on the Group's performance in 2020.

The Company, as soon as it is able to see the full level and duration of impact, will promptly update shareholders.

The Board of Directors, taking into account the Company’s backlog and the commercial performance achieved in the first quarter, believes that the Group's medium-long term prospects remain intact. 

Key Performance Indicators


(*) EBITDA this is EBITA before amortisation, depreciation (net of those relating to goodwill or classified among “non-recurring costs”) and adjustments impairment.

(**) EBITA is obtained by eliminating from EBIT the following items: any impairment in goodwill; amortisation and impairment, if any, of the portion of the purchase price allocated to intangible assets as part of business combinations, restructuring costs that are a part of defined and significant plans; other exceptional costs or income, i.e. connected to particularly significant events that are not related to the ordinary performance of the business. 

(***) EBIT is obtained by adding to earnings before financial income and expense and taxes and taxes the Group’s share of profit in the results of its strategic Joint Ventures (GIE-ATR, MBDA, Thales Alenia Space and Telespazio).