Leonardo SpA

MIL:LDO

Earnings Call Transcript 2022-Q1

[Operator]

Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Leonardo First Quarter 2022 Results Conference Call. [Operator Instructions]

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.

[Valeria Ricciotti, executive]

Good evening, everybody. And thank you for joining us today on our first quarter 2022 results conference call. I'm Valeria Ricciotti, Head of Investor Relations and Credit Rating Agencies.

Today our CEO, Alessandro Profumo, will take you through our progress during the first quarter of this year; and then our CFO, Alessandra Genco, will take you through the Q1 financial results and our outlook for the full year. And we will then welcome your questions.

Before leaving the floor to our CEO, I would like to announce our first ESG Investor Day that will take place virtually on the 15th of June. Additional details will follow shortly.

And with this, I will now hand you over to our CEO, Alessandro Profumo.

[Alessandro Profumo, executive]

Many thanks, Valeria, and many thanks to all of you that are joining us for this first quarter presentation. Good evening, everybody. Let's start with the key points about our first quarter results and our recent progress. We have made a good start to the year and in line with our expectations.

Although, first quarter is normally the smallest contributor to the year, we have continued to achieve very good results. We said to you in March that we are back on a growth path. We are progressing well with our clients and doing what we said we would do.

First quarter orders, over EUR 3.8 billion, up 10.8% with no jumbo orders included. Group backlog at over EUR 36 million has supported growing revenues of EUR 3 billion, up 7.7%. EBITA of EUR 132 million is up 39%. Profitability has improved to 4.4%, up from 3.4%. And our cash flow is growing with a year-on-year improvement of EUR 300 million in the quarter, in line with the plan.

And yesterday, which is very important, Standard & Poor revised the Leonardo's outlook to positive from stable based on the recognition of the improving credit metrics. So we are on track and reconfirming the guidance we set out recently for the full year 2022.

Yes, we have seen arriving and concerning geopolitical tension during the first quarter. We continue to monitor closely in the crisis and conflict between Russia and Ukraine, and we share everyone's concern for the people affected. But what is very clear, it is very important pose Leonardo ahead, providing essential security and protection, preserving peace and security, contributing to the health and safety of people and nations.

But it is still too early to assess fully the wider impact that this tension and ongoing conflict will have on our industry and us as a company. There may be -- there may well be opportunities, but their impact for us will be likely go beyond this year and more in the medium long term.

In the first quarter of this year, we have seen continued strong demand from defense and governmental markets. We are continuing leveraging on our exposure in key domestic markets, and we are seeing good, continued demand in export markets as well. We can also be very confident of our key businesses' strengths and fundamentals. We are well positioned in markets that are committed to growing their defense spending. We are very well positioned in the European defense arena, and we have been moving towards closer European cooperation.

We remain cautious on the civil side, but we have a clear but gradual recovery path in our structure, as we talk about to you in our recent full year results. Airbus programs production is showing some sign of recovery. We are also already seeing slight improvement at ADR. And we have resumed deliveries to Boeing under the 787 program. All these factors give us a good confidence in the medium-term growth targets that we set out for you recently in March.

And we also continue to make good strategic progress and steps forward in important areas. We announced a few weeks ago the sale of Global Enterprise Solution for $450 million gross of taxes. GES, a start of Leonardo DRS, is a major U.S. provider of commercial satellite communication to the U.S. government. And last week, we also announced the disposal of our 50% stake in our joint venture Advanced Acoustic Concept.

The closing of both of these is targeted for the second half of this year. These disposals are in line with our stated strategy and are again delivering on what we said we would do with health of in our portfolio and make us more focused on our core businesses. The disposal also supports the execution of our disciplined financial strategy, both in the financing of the 25% acquisition of Hensoldt being funded in part by disposal proceeds and in part by cash generation. And this disposal support progress towards achieving our financial strategy targets, including the goal of achieving investment-grade ratings.

And as I just mentioned, the revision of the outlook to positive from Standard & Poor, which is a step forward in this direction. So in summary, a good start to the year, and we are on track to meet our target.

Thank you, and I now would like to hand over to Alessandra to talk you through our first quarter results in more detail. Alessandra?

[Alessandra Genco, executive]

Thank you, Alessandro, and good evening, everybody. It's 1.5 months since we spoke to you in the detailed full year '21 results presentation. And as you know, although Q1 is important to us as we look to start the year in the right way, it is, as always, our smallest contributor to the full year, and is important to bear this in mind.

We had a strong end to last year '21, and we have made a good start to this year, continuing our solid path on growth, improvement in profitability and strengthening of cash flow. Q1 results are in line with our expectations when we recently set out our guidance for the full year.

Continued strong demand for our products on the defense and governmental side has supported both our order intake and growing top line. We're leveraging on our strong backlog of EUR 36.3 billion with an order intake of EUR 3.8 billion, stepping up 10.8% on Q1 last year and with no jumbo orders included.

Then growth in revenues at EUR 3 billion, up 7.7% year-over-year with improved profitability and group EBITA higher at EUR 132 million, up 38.9% year-over-year and higher across the group. Pre-operating cash flow is growing in line with the plan at this stage of the year at negative 1.1 versus negative 1.4 last year. This is confirming what we have said before about both the improving trends and the improving quality of our cash flow. We confirm our strong liquidity position and our full year guidance.

Now let's look at the key group metrics for Q1. First, new order intake. We are pleased with our continued commercial momentum, EUR 3.8 billion of new orders in Q1 as setup on last year and nicely distributed across the group. Plus looking forward, we continue to see an attractive pipeline of opportunities.

Helicopters, more new orders in Q1 of EUR 863 million, fundamentally a consistently good commercial performance with a good mix of new orders, including the first order booked for the AW609 tiltrotor. Good continued commercial momentum for the AW139, and an order for the AW189 from the Chinese Ministry of Transportation Rescue department. And we are seeing strong signals of recovery in the civil market, especially in VIP and utility.

Defense Electronics again performed well. In Europe, it was especially strong with new orders of EUR 1.5 billion, which was in itself a very strong performance considering especially that Q1 of last year benefited from the postponement of some activities from 2020. We were particularly pleased with the excellent commercial performance in Defense Systems and with important new orders for new platforms and for upgrades.

DRS also continued its good commercial momentum with additional orders for the Mounted Family of Computer Systems for the U.S. Army as well as orders for vehicle protection equipment and systems.

In aircraft, order intake rose to $781 million, up 31% year-over-year and included an important milestone with the order for the design phase on EuroMale, a program which will also benefit Defense Electronics and Aerostructures. And we also saw a new order for the C-27J for Slovenia.

Aerostructures saw an increase of $94 million with increased orders on the Airbus A320 and A321 programs, despite the current very tough environment and position of major customers. So, overall a good commercial performance with EUR 36.3 billion of backlog, covering 2.5 years of equivalent production.

Now moving on to revenues. In first quarter, revenues were EUR 3 billion, up 7.7% year-over-year, confirming our growth path and with good performances across all divisions except Aerostructures.

Helicopters delivered revenues of $923 million, up 16.5%, growing strongly executing well on its backlog driven by deliveries on the NH90 Qatar contract and increasing total deliveries in Q1 to 19 machines versus 13 last year.

Defense Electronics Europe showed solid growth, with revenues up 2.6% to EUR 955 million. DRS has good revenue performance on track facing a very high comparator last year, which has benefited from an earlier order delayed from 2020. Aircraft increased top line revenues by 12% to EUR 571 million, growing again as expected and with a good contribution from IFA Kuwait and other IFA activities and a stable contribution from other platforms.

Aerostructure revenues were EUR 123 million, an improvement on last year of 10.8%. While we're seeing solid levels of activity on the Airbus platform, but still reflecting the current tough environment. So overall, a good top line performance in Q1, reflecting how we have, again, been delivering well on our solid backlog and continuing our top line growth path.

So moving on to EBITA and profitability. I'll explain the drivers by business in a moment, but the key points are Q1 EBITA was EUR 132 million, that's an increase of 39% over last year, with higher volumes and improving profitability and ROS at 4.4% versus 3.4% last year. This was an increase in all business sectors as well as the improved contribution from all strategic joint ventures. Despite we are no longer classifying COVID costs below the line.

Let's look at it at business level. Helicopter showed an increase to EUR 36 million, on track with expectations and note that its margins reflected higher pass-through activities where we are acting as prime. Defense Electronics delivered a good positive performance. In Europe, increased EBITA to EUR 91 million, up 15%, driven by higher volumes and significant improvement across all segments as per our plan and particularly in Defense Systems.

DRS delivered growth in line with our margin expansion plan with EBITA at $62 million, leading to a return on sales at 10.1% in the quarter. Aircraft increased its EBITA to EUR 52 million, up 10.6% with return on sales of 9.1% with a strong performance on the defense side, including 2 further IFA Typhoon deliveries to Kuwait.

Losses in Aerostructures were flat year-over-year at EUR 46 million, reflecting the expected continued reductions in volumes, leading to production sites running at lower capacity. ATR showed a slight improvement with negative contribution of EUR 10 million compared to negative EUR 14 million last year and 2 aircraft delivered in Q1 versus none the previous year. And we are expecting to see an increase in deliveries later in the year throughout '22 above '21 levels.

Then in our feed joint ventures, there was a better result in the quarter with confirmed good results in space services and improved manufacturing performance. Our MBDA mid-term joint ventures improved its contribution from $13 million to $16 million, a good performance. And we are seeing a high level of interest in MBDA products also in the context of the Ukrainian crisis and conflict. So overall, in Q1, we have grown EBITA and improved profitability for the group despite the continuing impact on the civil side.

Now moving to the below the line items. You can see we have benefited from a high EBITA. EBIT is up 64% to EUR 123 million. And in the quarter, there were EUR 9 million of nonrecurring costs related to COVID-19 now accounted for above the line in EBITA, and restructuring costs in [ PPA ] were in line with last year. Financial charges were EUR 30 million and taxes EUR 19 million, all giving a net result of EUR 74 million positive.

As we recently said in our full year results, cash generation is a key management focus. Our plan is to step up cash flow in '22. And in Q1, we have been on to do that. Our free operating cash flow in Q1 progressed in line with plan and showed the impact of our focus and discipline. And you can see a year-on-year positive increase in Q1 of EUR 329 million. At negative EUR 1.1 billion, it is an improvement and step forward, not just in its level, but also in its quality with better balance in seasonality.

So you have seen in Q1 we have made a good start to the year, and we are on track with our expectations. Our main businesses on the defense and governmental side are delivering strongly, and the year has started well, especially in order intake, revenue growth, higher profitability and improving cash flow.

As we said in March, we are going through a time of high complexity and volatility deriving from the geopolitical situation, combined with increasing pressures related to supply chain, raw materials and other input prices, all of which we are monitoring very closely. That said, we have made good progress and we are confirming the full year group guidance that we recently gave you in March.

You can see here on the slide, continuing good commercial momentum and strong order intake, top line growing as we leverage off on backlog. EBITA improving despite receiving softness in some continuing COVID affects and growing cash flow driven by defense and governmental business, more than offsetting the cash absorption in Aerostructures, which is itself gradually improving.

We continue to be cautious on the civil side. We are pleased with the good progress on Airbus platforms and the positive signs we're seeing with ATR while the B787 program still faces tough short-term challenges, as Boeing is working towards resuming its own deliveries to customers.

Our recovery plan is still working towards our stated targets in reducing the cash absorption over the medium term and breakeven by 2025. You have heard of our strategic progress earlier and we're confident of maintaining a solid financial capital structure post the 20.1% Hensoldt acquisition and confirming our earlier guidance of net debt at year-end '22 of EUR 3.1 billion, supported by the announced disposal of GES and AAC at DRS level.

So now to conclude, we are pleased with the start of the year. We are on track, and we're delivering our plans in line with our full year guidance despite the high complex and volatile external context while remembering that early in the year, it is only Q1 and our boldest quarter.

Thank you all. And now I will hand it over to Q&A.

[Operator]

[Operator Instructions] The first question is from Virginia Montorsi with Bank of America.

[Virginia Montorsi, analyst]

I actually had 3. First one would be on defense orders. I know you said it's going to take a little bit of time to see the new orders coming through given the new budget environment. Would you be able to give us a bit more color in terms of the midterm? Are we talking next couple of years? Do you think it's going to take a little bit more than that? That would be my first question.

Second question would be the dividends from joint ventures and how should we think about that particularly in MBDA that you just mentioned in the call for this year? And the third one would be inflation and what kind of pressures you are seeing right now and where -- how are you managing?

[Alessandro Profumo, executive]

Many thanks, Virginia. I will start with the first question. The time frame, I think what we have is enough in order to understand we hopefully will be even shorter, shall we say, 2023 to have an idea on what will be the allocation of the funds by the different countries. Then as you know, there are always important "bureaucratic processes", which are very understandable because in all the countries, there are approvals by different authorities and so on and so forth.

But I think at the time, we were talking about is the right one in order to have a good picture on -- for what will be the amount that will be allocated on a longer term perspective, for instance, you know that Italy that we want to go up to 2%. Italy is relatively small for us as a market more or less 17%, but they said that we'll go up to 2% in 2002. Progressively in order to will be a test level in 2028. This is something very important to understand the distribution of the money and manner which will be the programs on which this money will be allocated.

On the other 2 questions, let's go for Alessandra.

[Alessandra Genco, executive]

Thank you, Alessandro. So Virginia, on the dividends from joint ventures, what we expect for the full year is to see an increase versus last year with a resumption of dividends from the manufacturing space joint venture task in particular. And on MBDA, we continue to see the right fundamentals for a dividend distribution. So nothing fundamentally changing in the picture of dividend distribution for us.

Inflation remains a very hot and daily topic to manage it. We are seeing price pressures on all goods we are buying -- goods and services we're buying. And what we have done since I would say half of last year is to put in place mitigation actions, including extending terms of contracts with suppliers in order to contain the impact of inflation on our purchases. Evidently, the situation we are all facing before with the post-COVID recovery in the economy. Now the Ukrainian and Russian crisis, as well as, what's happening in China with lots of ships stuck in harbors is making the whole world more complex.

[Operator]

The next question is from Monica Bosio with Intesa Sanpaolo.

[Monica Bosio, analyst]

The first one is on DRS after the disposal of Global Enterprise Solution of end of ACC, which have been done at least the first at a very good multiple according to me. Would you see reasonable for the assets reorganization at the DRS level or any further potential disposal? Are you fine with the current organization? And in terms of net debt, I know that it's just the first quarter, which is the smallest of the year. But given the sound execution on global enterprise solution, would you see room for a bit of improvement going forward in your net debt guidance?

And the last one is on the financial charges for Alessandra. I was expecting something higher. So, maybe if Alessandra can share with others a rough indication of the financial charges by year-end.

[Alessandro Profumo, executive]

Many thanks, Monica. First of all, we are quite happy with the narrow direction, this disposal in order to have a more focus portfolio. We don't see other disposal because it's where the [indiscernible] which were not fully integrated, one. And the second one AAC, it was not even consolidated, is a business which we already own with Thales and so we had a good in call option and for us was by far better to receive as called by Thales.

The other one is a business, a good business, but challenged by the players similar to the one that built the business. Clearly, the fact that there is a relatively scarcity of such kind of business, the player were very interested because they are doing a very clear integration. So for us, I think that the timing has been really good because the deal was the business where perform should become under pressure during the time by the players like the one that bought GES.

Today, the business is based client. We have a really strong in [indiscernible] things we continue to work on the business. It's very important to say that you remember last year when we were discussing of the potential leasing in February of DRS1, the skepticism on the market was on the return on sales performance. Today, you have seen the numbers are even better than the one we were talking of one year ago. So really DRS is performing very well in the expected way. So what is not a case that we have achieved these results. Alessandra?

[Alessandra Genco, executive]

Sure. So on net debt, what we see on net debt, well, the figures that we have disclosed on sales proceeds from sales that you were mentioning, Monica, the GES and the AAC, are growth of taxes. So the bridge towards the debt guidance that we're confirming is mainly associated with that element.

On financial charges where we do see continued improvement in financial charges versus last year, the quarterly trends are, as usual, not always telling us the full story. In particular, the hedging element is the one that is going to impact us in '22 versus '21. So we confirm the guidance that we have provided a couple of months ago on full year financial charges. No news after the quarter.

[Operator]

The next question is from Alessandro Pozzi from Mediobanca.

[Alessandro Pozzi, analyst]

I have 3, and the first one is on the free cash flow improvement versus last year. I don't think that was driven by working capital. I think working capital probably increased even more probably than revenues year-on-year. So I was wondering that's probably a division that is delivering better cash conversion on best of the electronics, but I was wondering if you can maybe give us more color on that.

The second one is on [indiscernible]. I think it's been on news recently for potential increase in production capacity going forward. I was wondering whether you can confirm that. And also maybe if you can give us -- this is a good time to remind us what is the revenue opportunities for the F35 at the moment. I think it should be in the range of a few hundred million. So I was wondering how that is going to improve in the next few years with the production of more F35 and deliveries to Europe.

And the third one on semiconductors. I was wondering if that is going to be a critical item for you in the second half of 2021. A number of automakers are saying basically the shortage of ships is may continue in 2022? I was wondering how you are coping with that. That's all from me.

[Alessandra Genco, executive]

Okay, Alessandro. So on cash flow, so cash flow generation is mainly the result of higher cash-ins. Natural cash-ins at the level of factoring has gone down in Q1 consistently with the cash that we have seen throughout '21. And we have also accelerated payments to suppliers. So the effect that you see on working capital is mainly driven by the combination of the fact that supplier accounts payable has gone down because of accelerated payments made to suppliers.

And there is an increase in accounts receivables due to the fact that we are invoicing more. A portion of those invoices has already been collected in Q1. Another portion will become due in Q2 and Q3 depending on exact timing and payment terms. And you see that. So we're taking a picture at a point in time, which is when we are stocking up on the balance sheet to then liquidate and monetize.

We missed your second question on increase on production capacity.

[Alessandro Profumo, executive]

This was on the F35. So the F35 is clearly the fact that in Europe, there are many different options that are in the process of being finalized. Finland, Switzerland, Germany is an important step for us. As you know, there is a negotiation between the governments of this country and the U.S. government on where the production will be, but we are sure that the company will be importantly involved. It's also very important to say that the company, we have always to remember is the 3 business lines activity.

One is [indiscernible] where we have a stable production quite profit quite good. Then a second business line in the final assembly line. Today, we are assembling aircraft for Italy and Poland and we already discussion between the governments for having other countries assembling the aircraft here. Last but not least, which is very important company will be -- is and will be more and more the MRO center for European-based and this will become during the time, the more aircraft there are the more this side there is business. So this is clearly very business. And with that --

[Alessandro Pozzi, analyst]

Could you quantify how big it could become the F35 opportunity.

[Alessandro Profumo, executive]

No because, first of all, we have never quantified what is more the profitability of this business line. And then, as I said, there are not yet defined numbers, but even for the time one as to the fact we have never provided a revenue line. You see the aircraft business is an important component of the aircraft business.

Semiconductor. Semiconductor is clearly an area of concern. Our people did, I should say, a fantastic work on that because we have -- I'll say carefully. And so more than semiconductor, we are buying components that are [indiscernible] of the card that we have in the rather in the same. So these components is technical semiconductors that are very differentiated components. We have a very good base on the needs. We have a looking-forward perspective. So for this year, we don't have an impact. We are working on 2033. So we are very confident that we'll manage scarcity on one side, but as well the price component on the other side as Alessandra said before.

[Operator]

The next question is from Andrew Humphrey with Morgan Stanley.

[Andrew Humphrey, analyst]

Just a couple, if I may. Firstly, you clearly had a stronger order performance in Q1 than I think -- the Street was anticipating. I know you said there were no jumbo orders in the quarter. But can you quantify if there was a large inflow from prepayments than you were expecting? And if so, how much of that you'd view as exceptional. And I also wanted to ask about DRS, whether the sale of GES in the U.S. kind of changes any of your thinking around longer-term strategy for that business?

[Alessandro Profumo, executive]

Sorry, the first question is on…

[Andrew Humphrey, analyst]

Prepayments. Any exceptional prepayments in Q1.

[Alessandro Profumo, executive]

Prepayments -- the largest order we received is EUR 360 million by 67 technical an incredibly small prepayment because it's a mention order. So there are no major components of prepayment.

DRS, we are not changing the long-term perspective on the contrary. We want to be focused in order to be more and more strong.

[Operator]

The next question is from Martino De Ambroggi with Equita.

[Martino De Ambroggi, analyst]

The first question is on the Italian recovery plan, if you have any update for the contribution, which could come from the recovery plan in Italy.

The second is always on M&A. You answered just now on DRS, but just understand that the IPO is something that is still part of the potential optionality for DRS or after selling some assets is removed? And the same question is on the Oto Melara and vast optionality. I understand it is all frozen.

And last on the guidance, could you confirm what would be the pro forma guidance for the current year, excluding the divested assets in terms of sales, EBITA and free cash flow, in particular?

[Alessandro Profumo, executive]

We'll will start from DRS. Yes, the answer is still one of the optionality, which is always as you know, we update to continue the as one form in order to, in the case, be ready.

Second question, Martino, was…

[Martino De Ambroggi, analyst]

Oto Melara with the M&A.

[Alessandro Profumo, executive]

Sorry, M&A Oto Melara. It is not frozen. We are awaiting some answer from the other governments on the European programs. So today, we have to understand what the French and the German government will say potentially on the main battle tank program.

Then there is a question on [indiscernible], we have done an updated today with our Board. We have presented many different projects, we are not yet capable to quantify the amount of money we can receive, but we are following very carefully.

Today, we are still -- so we are always saying that we confirm the plan that we have presented. In the plan, there are no numbers for the P&L error. In the case, there will be an upside. But as you know, the government has to approve the programs that believe the tender so the process which is not short.

[Alessandra Genco, executive]

The guidance. I'll take the guidance pro forma for the sales, it's really unchanged, Martino, because AAT was not consolidated, and it was a joint venture with Thales, so not consolidated in DRS. GES also has a certain impact, but we also have to wait it for the portion of the year and closing will occur, which is going to be Q3 or Q4. So at the end of the day, we're not talking about any material changes versus the base guidance.

[Martino De Ambroggi, analyst]

Okay. Alessandra, I was asking if it's possible, in other words, to have an idea what was the contribution of these assets in order to have a clean starting point for the full year once they are fully divested.

[Alessandra Genco, executive]

Well, at the end of the year, I think we'll be in the best position to provide all details, Martino.

[Operator]

The next question is from Christophe Menard from Deutsche Bank.

[Christophe Menard, analyst]

I had 3 quick questions. First one is on Helicopters. You mentioned on the call that you're seeing some civil market recovery in utility and VIP. How should we be thinking about the mix effect going forward? And when do you think there could be a positive impact on margin? That's the first question.

Second question is just housekeeping. But FX -- did FX played the role in the strong growth of Helicopters in Q1, notably pound versus euro. And if so, how much?

And last question on the F35 to bounce on the earlier questions. When do you think that F35 margin levels could be at par with the aircraft division margins? Is it when MRO will start kicking in? Or could it be before?

[Alessandro Profumo, executive]

I will start from the last question Christophe. F35 to margins is very different from the other components of the division because if you take the Eurofighter there is also very different. We have 3 different components of Eurofighter dimensionals, Eurofighter which had certain margins.

So -- and we have to see if with the increase of the expenditure there will be other mention data there could be both the second macro area is Kuwait, which clearly is different from the Eurofighter when we provide this important business, but this is to base system or to Airbus. And so say in other word, the margins on -- for us on certain Kuwait national orders are different. And so it always a mix of this different components.

And there is a second area in the division, which is the own platform, 345-346 and again, the margins are different. The 345 is a new born aircraft were marginalities lower than with a more stable -- stabilize [indiscernible]. So this is a bit certain. All these words in order to say that it's different difficult to position the F35 Italy, the other [indiscernible]. In any case, there is a as we have seen in the division with a double-digit margins, which is stable.

The other question was on Helicopters on Civil market. This market is giving a positive sign, the 68s in in China for emergency media services and VIP helicopters. So are clearly important. Again, the marginality of the helicopter division is also related to the weight of the Qatar deliveries because the Qatar program, we have to remember is a form where we have more light more than 40% in terms of our prime role. So and on the 40%, we have certain margin on this in the remaining year portion.

We have a completely different margin. We are playing the role of time. We are not absorbing capital. So the more we have this program waiting the division at the more margin is diluted the higher than the return on capital expense. So you know that I'm really critical on the recon sales because you can be very profitable, but credit is small, while we like to be prime with strong orders, then we do the prime the margins are partial departments. So we have a fee as a time that because what is a capital allocated to different projects.

The positive sign on the same market are giving us the confidence on the fact that this packet that we were saying we will recover in 2025 as the recovery we think that this recovery will be short term.

[Christophe Menard, analyst]

On FX, did you have any impact in terms of balance, in terms of the translation?

[Alessandra Genco, executive]

Not material Christophe.

[Operator]

The next question is from Harry Breach with Stifel.

[Harry Breach, analyst]

Can I maybe just continue a little bit on Christophe's theme of FX there. Do I remember well, Alessandra, did you say on the last call that the impact for every 100 basis point change in the euro-dollar spot rate would be between EUR 10 million and EUR 15 million of EBITA?

Second question was just about helicopters really. Clearly, I understand the issue of the margin dilution from the Qatar NH90 cost. I was impressed in the first quarter, it seemed as if margins were pretty stable year-on-year. Is it just a question of the phasing this year of when we'll start to see more dilutions coming in? Any idea you can give us on that would be helpful.

And then my final question, maybe more for Alessandro. Alessandro, please forgive me if I didn't hear you clearly. When you spoke earlier on about the declaration, the intention in Italy to increase defense spending to 2% of GDP. First question, did I hear you say that, that 2% target was for 2028. And then secondly, are there any sort of indications on any sort of priority areas within that yet?

[Alessandra Genco, executive]

Okay, Harry. On the FX sensitivity, we confirm what you have summarized. Yes, that's fundamentally the same effect. So it's all translation effect, by the way, because we're translating the results of our U.K. and U.S.-based controlled entities into euros. Therefore, we are benefiting from this effect.

Otherwise, all the rest of our non-euro exposures are hedged as per the standard policy that we have in order to minimize/eliminate financial risk and focus on industrial management.

[Alessandro Profumo, executive]

On the -- yes, I said exactly what you were repeating, but this is not a ideation, it is an official declaration that Italy will -- today, we are at 154, if I remember correctly, not considering the piece of the military expenditure, which are allocated to the ministerial industry. So it has been slightly higher. So the Prime Minister said we'll go in 2028 up to 2%. -- will be a progressive growth, which is clearly interesting.

We don't have yet a clear view on how this will be allocated because the expected discount within the defense system within the MOD the allocation. We are sure that, in any case, it will be interesting for us because as you know, we power the domain and so as before as well as based on the side [indiscernible] question, we will have a clearer view, we think, in the next 18, 24 months.

[Harry Breach, analyst]

And Alessandro, so just to be very, very clear, the 2% of GDP target will include the spending on defense programs for the Ministry of Defense as well as the Ministry for Economic Development as well as anything that is elsewhere maybe in…

[Alessandro Profumo, executive]

We assume yes. We assume, yes, but you know better than me that usually it's important to give a sense of direction. Is a very relevant amount of in the case because then we stabilize the slide and is important because in many cases, for us what is a program is in the multiyear financial plan.

So the fact that there will be this growth will allow us to receive orders for a longer period of time in terms of the years, but you have the order -- you have booked the orders, so you have a stable future. So it is very, very important. And the amount of money, it's not easy even to spend all this money.

[Operator]

The next question is from Gabriele Gambarova with Banca Arkos.

[Gabriele Gambarova, analyst]

My first question is on tax rate. You saw that it was just 20% in Q1. So I was wondering what could be the tax rate for the all '22?

And the second question is more strategic. I was wondering if, let's say, the new situation with the -- I mean, the recent geopolitical evolution, the Russia-Ukraine war, in European mix, the European industry consolidation, let's say an easier, let's say scenario or it becomes more difficult to discuss potential tie-ups and mergers or creation of consortia.

And finally, if I may, the last one is on the AW609. I was wondering if you can update me on the timing for its introduction on the market and possibly the size of the backlog. And if you think it can be, let's say, a driver for growth for the Helicopter business?

[Alessandra Genco, executive]

Gabriele, I'll take the first question then leave the floor to Alessandro. The tax rate for the full year, the guidance is unchanged around 25%.

[Alessandro Profumo, executive]

Clearly, you see this number on a quarterly basis, it's always very difficult because it's similar to return on sales. So there is a certain volatility because it depends on which program you book what you deliver the milestones. So there are many elements.

European industry consolidation. And I think that you have seen that all the political leaders have said, we have to spend more, but we have to spend also better means with European programs. I think that this situation will increase the number of European programs during the time the days for further consolidation.

But we have to start from more European programs, which is the element also in order to spend data. In this perspective, is credibly strong because we are part of the call the main programs season next year.

Thanks. Thanks to all of you.

[Alessandra Genco, executive]

Thank you, everybody. And yes, this was the final question. Thank you for being with us today and for any follow-up. The IR team is always available. Thank you.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.