Leonardo: responding robustly to the pandemic also benefitting from military/governmental business. 1H 2020 resilient performance, with Orders at € 6.1 billion. FY 2020 New Guidance and confidence in medium-long term fundamentals.

Rome  30 July 2020 17:55 Inside Information

Results at 30 June 2020

Responding robustly to COVID-19

  • Quick and effective action plans protecting employees, business and supporting customers
  • Business has held up operationally
  • Positive mitigating actions and recovery plans in place

Benefitting from business mix with strong military/governmental weighting, although seeing impact on civil side

  • Military/governmental proving very resilient
  • Strategic relevance in domestic markets
  • Impact on civil segment and JV’s
  • Short-term impact on civil deliveries, programme execution and productivity

Resilient 1H 2020 Results in face of unprecedented challenges

  • Strong commercial performance: New Orders at € 6.1 billion
  • Solid Revenues at € 5.9 billion
  • EBITA at € 292 million, reflecting COVID impact
  • FOCF negative € 1.9 billion, in line with expected seasonal trends and partially affected by COVID-19

Robust response to COVID-19 and business resilience gives confidence in New FY 2020 Guidance (assuming no virus resurgence and no further lockdowns)

  • Order Intake at € 12.5-13 billion
  • Revenues at € 13.2-14 billion
  • EBITA at € 900-950 million
  • The Group has the objective to reach a neutral FOCF
  • Group Net Debt at € 3.3 billion

Proven medium-longer term fundamentals and strengths

  • Significant backlog of € 36 billion
  • Strength of products and technologies
  • Confidence in markets, customers
  • Support of key stakeholders

Leonardo's Board of Directors, convened today under the Chairmanship of Luciano Carta, examined and unanimously approved the results of the first half 2020.
Alessandro Profumo, Leonardo CEO stated “I want to express my thanks to all our people at Leonardo for the commitment and effort during these trying times. The first half results showed that we have remained resilient in the face of extreme market conditions, with a strong military/governmental domestic commercial performance. We have responded quickly and robustly to COVID-19 crisis and to the new scenario proving that Leonardo has strong foundations to leverage on. We continue to actively manage the situation well with mitigating actions and recovery plans in place. Our robust response and business resilience give us confidence in FY 2020 New Guidance. Despite pandemic challenges, the medium-long term fundamentals of our business remain unchanged and we remain confident in executing our Industrial Plan to create value for all our stakeholders”.

The results recorded in the first half-year of 2020 underline the Group’s resilience in a context without precedent, with a commercial performance that confirms the same levels as in the last year benefitting from orders in the government/military sphere from national clients against certain postponements of the export campaigns and the drop in the civil sector demand.
Revenue volumes are basically in line with those of the half-year 2019, supported by a solid Backlog and the growth of the EFA Kuwait programme and of Leonardo DRS, which have been able to offset the slowdowns caused by the pandemic.
The industrial performance, even if affected during this half-year by the effects of the COVID-19, has begun to highlight the first signs of stabilization also as a result of initiatives implemented to guarantee the full business operations. The profitability is affected also by a lower contribution from the JVs and a mix of activities characterised by programmes under development or in which the Group operates as a prime contractor, with profit margins below the average but which are essential to the current and future positioning of the Group’s products and technologies.
The cash flows, in addition to being affected by the usual interim performance characterised by significant outflows in the first part of the year, were partly affected by some critical issues that arose mainly in the second quarter due to the COVID-19 pandemic, which entailed an increase in working capital with a consequent cash absorption.
Following the solid results recorded in terms of sales and manufacturing at the beginning of the year, the Group’s performance for the first half-year of 2020 began to be affected by the effects of the COVID-19 pandemic from March. In particular, the following effects were reported:

  • A slowdown in production activities following the actions taken to protect the health of workers in line with the Italian Government’s recommendations (revision of manufacturing processes and work organisation to ensure social distancing, sanitisation of premises). This slowdown led to a reduction in production hours developed with related lower efficiency, in particular in March and April, with a gradual recovery from May. The half-year saw an average drop of 13% in production hours compared to expectations that, although mitigated by the initial effects of the measures aimed at recovering adequate productivity levels, was more marked at the entities with a greater incidence of manufacturing activities, such as those of the Aerostructures, Helicopters and Aircraft Divisions
  • Less progress in the programmes, especially in the European component of the Defense & Security Electronics division, in the Aircraft division and to a lesser degree in Helicopters, as a result of the aforementioned slowdown, restrictions on the movement of resources and the impossibility of accessing our customers’ sites, as well as of an initial lower efficiency due to the reorganisation of some activities in smart working mode
  • The first effects of a decline in demand in the civil market due to the dramatic slowdown in the global transport sector, which is now having an impact on aircraft manufacturers and which consequently affects Aerostructure production volumes, as well as sales forecasts for civil helicopters and ATR aircraft. This factor, together with the impossibility of our customers to carry out the testing and acceptance tests of the machines, led to the postponement of deliveries, particularly with regard to ATR aircraft and civil helicopters, as well as a decrease in the production rates of the Aerostructures Division, particularly on the B787 and ATR programmes
  • Negligible effects at the reporting date on the supply chain, which nevertheless remains deserving of the utmost attention

As already highlighted in the results as at 31 March 2020, 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. 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. 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, saving controllable and labour costs, in order to mitigate the effects of COVID-19 on the results of the year.
The primary changes that marked the Group’s performance compared with that of the previous year are described below:

  • New Orders, amounted to EUR 6,104 million, remained substantially in line with the first half of 2019. Specifically, the significant increase in the Helicopters sector (48%) was offset by a decline recorded in the Defense & Security Electronics and Aeronautics sectors, which had benefitted from major new orders during the first half of 2019
  • Backlog, amounted to EUR 35,920 million, ensures a coverage in terms of equivalent production equal to about 2.5 years
  • Revenues, amounted to EUR 5,878 million, remained in line with the first half of 2019 (€ 5,962 bn), showing a decline in the Helicopters sector, mainly due to fewer deliveries attributable to the abovementioned effects of the COVID-19 pandemic, which was offset by higher volumes on the EFA Kuwait programme of Aircraft and at Leonardo DRS
  • EBITA, amounted to EUR 292 million, (with a ROS of 5.0%) showed a decrease of € 195 mln compared to the first half of 2019, which was mainly due to the abovementioned effects of the COVID-19 pandemic
  • EBIT, amounted to EUR 227 million; showed, compared to the first half of 2019 (€ 462 mln), a reduction of € 235 mln (-50.9%), mainly due to a decrease in EBITA, the recognition of costs incurred to comply with the Government’s guidelines on COVID-19, including those for the protection of workers' health and to support the Governmental bodies in managing the emergency, as well as to some external costs incurred because of the difficulty in stopping the performance of some specific services
  • Net Result before extraordinary transactions, amounted to EUR 59 million, was affected by a fall in EBITA, as well as by the higher impact of financial costs for the period, associated with exchange rate hedging
  • Net Result amounted to € 60 mln included the effects of the space business of Vitrociset, classified among Discontinued Operations
  • Free Operating Cash Flow (FOCF), negative EUR 1,889 million (against a negative value of € 1,050 mln in the first half of 2019). While confirming the usual interim performance characterised by significant outflows in the first part of the year, this trend was partly affected by issues that arose mainly in the second quarter as a result of the COVID-19 pandemic, which entailed a significant increase in working capital with a consequent cash absorption
  • Group Net Debt, of EUR 5,074 million, showed an increase compared to 31 December 2019 (€ 2,847 mln), mainly as a result of the negative performance of FOCF, as well as of the impact of the following main events on the net financial position:

o Acquisition of Kopter Group AG in April with an impact of € 198 mln on the Net financial position)
o Acquisition of an additional amount of Avio shares in June for € 14 mln
o Payment of a dividend of € 81 mln in May
o Increase in new leases for € 54 mln

Guidance 2020
The regular and ordinary performance of the Group's business activities is being impacted by the COVID-19 crisis, in a global context of serious economic recession and high uncertainty. Even in this context, Leonardo confirms its resilience, based on a solid Order Backlog and on the ability to react promptly to this new scenario, and it remains confident in its business fundamentals.

In summary, the effects of COVID-19 are expected to show an impact on 2020 performance - compared to expectations before the outbreak of COVID-19 - as described below:

  • slowdowns of activities aimed at finalising commercial negotiations, mainly due to travel bans, leading to the postponement of the acquisition of some orders, mainly in the export component, with a consequent impact on production volumes and related margins
  • drop in demand in the civil market, which is expected to continue well beyond the end of the year, leading to lower new orders, revenues and margins
  • slowdown on programme execution, following the slowdowns in production activities caused by actions taken to protect the safety of workers, travel bans and the inability to access customer sites, impacting Group revenues and consequently margins
  • reduction of productive hours resulting from lower presence and lower efficiency, (although mitigated by the actions aimed at recovering adequate productivity levels in the second half of the year) leading to a lower absorption of fixed costs with consequent impact on EBITA

These effects are expected to be partially offset by actions promptly implemented by the Group. In addition to the progressive recovery of adequate productivity levels, these actions aim to achieve savings on controllable costs and on labor costs as well as a reduction in net investments. Actions taken are progressing according to plan and are on track to deliver the expected positive effects.

Based on first half results and the review of the projections for the second half, and assuming no covid-19 resurgence and no further lockdowns, Leonardo expects for full year 2020:

  • Orders in the range of 12.5-13.5 billion, this estimate reflects the downsizing of demand in the civil market and some postponements of export campaigns due to the effects of the pandemic, and it confirms the important orders in the military/governmental business, mainly by domestic customers
  • Revenues in the range of 13.2-14 billion, substantially in line with 2019 despite the effects of the decline in the civil market, which has affected deliveries in Helicopters and the production rates in Aerostructures, and lower activities on programmes caused by COVID-19; this also reflects the expectation of an acceleration of activities in the second half of the year and confirms the Group's resilience, leveraging on a solid Order Backlog and the high exposure to the military/governmental business
  • EBITA in the range of 900-950 million, confirms the solidity of the business fundamentals despite this particularly challenging context, affected by the aforementioned impact of COVID-19 on volumes, deliveries and absorption of fixed costs, partially mitigated by savings associated with the reduction of controllable costs and labor costs
  • The Group has the objective to reach a neutral FOCF , thanks to a constant focus, even stronger today, on the achievement of invoicing milestones on programmes together with optimisation of working capital and investment levels; this is expected to offset the lower collections associated with the postponement of cash-ins related to milestones and deliveries, as a result of COVID-19 as well as the lower cash advances associated with delays in export order acquisition

Below the FY 2020 Guidance, assuming no virus resurgence and no further lockdowns:

FY 2019
Outlook 2020 (**)
Orders (€bn)
12.5 – 13.5
Revenues (€bn)
13.2 – 14.0
EBITA (€m)
900 - 950
FOCF (€m)
heading to neutral
Group Net Debt (€bn)
ca. 3.3 (***)

(**) Exchange rate assumptions €/USD 1.15 and €/GBP a 0.88.
(***) **Including 0.1 bn higher IFRS 16 effect, Kopter acquisition (ca 0.2 bn and dividend payment


Key Performance Indicators

(Euro million)
1H 2019
1H 2020
Chg. %
FY 2019
New orders
Order backlog 
EBITA (**)
(3.2) p,p
EBIT (***)
EBIT Margin 
(3.8) p,p,
Net result before
extraordinary transactions
Net result
Group Net Debt
(6.0) p,p
(8.6) p,p,
Workforce (no.)

(*) 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).