Leonardo SpA

MIL:LDO

Earnings Call Transcript 2023-Q1

[Operator]

Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Leonardo First Quarter 2023 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 2023 results conference call. I'm Valeria Ricciotti, Head of IR 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.

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

[Alessandro Profumo, executive]

Thanks, Valeria. Good evening, everybody, or good morning if you are in U.S., and thank you for taking the time to join us today. Let's start with the key points about our third quarter results and our recent progress. We are pleased to announce results, we show a good start to the year, on track with continued strong commercial momentum and financial performance. It's further evidence of what we have said recently in March. We are continuing to deliver on our promises with growing commercial success, strong delivery and execution. Making the group stronger, more resilient and sustainable and importantly, in a better and stronger position to capture new opportunities.

We have continued to step up and accelerate our commercial performance, achieving very strong order intake of EUR 4.9 billion in the first quarter, up 29.3% in the first quarter of last year and adjusting 2022, excluding the contribution of GES and this is excluding any jumbo orders with a book-to-bill at 1.6x. We have continued strong program delivery and grown our top line, with revenues in the first quarter of EUR 3 billion, up 2.6% on a perimeter adjusted basis and delivered solid EBITA, with a strong performance of EUR 119 million, up 4.4% in our business division plus DRS, reflecting the perimeter adjustment and excluding the expected slow start to the year of our strategic joint ventures, which were down EUR 21 million year-on-year but are expected to improve during the year. And please note that the first quarter is normally the smallest contributor to the year.

We have again improved our free operating cash flow to negative EUR 688 million in the first quarter, up almost EUR 400 million on the same period last year, confirming the good progress we are making on improving our cash generation. Our net debt is down EUR 1.1 billion versus first quarter 2022 at EUR 3.7 billion, firmly progressing on our deleveraging plan. And first quarter results confirm the trends of our main group defense and governmental business and the continued recovery in Aerostructure. We are on track and are confirming the guidance we have set out recently for the full year 2023.

Moreover, 2 days ago, we have also finalized the disposal of the smallest ATM business unit in U.S. So in summary, in the first quarter, we have continued to deliver and showing that the group is stronger, more resilient, sustainable and is better set up to capture best growth opportunities.

And I'm also very proud to say that Moody's has just, today, upgraded Leonardo to investment grade, recognizing a strong execution through the pandemic, the deleveraging track record, solid growth prospects in defense activities in light of the tense geopolitical context and conservative financial policies with a commitment to further delever the balance sheet. And you know the investment grade is one of our key targets set in the industrial plan.

As you know, my own experience in Leonardo is coming to an end. After 6 intense and beautiful years, I should say fantastic years that have been filled with strong purpose and immense fulfillment. I will pass the baton to my successor, aware of having contributed to building a stronger company over this period that is capable of facing the future with a long-term perspective. It has been an outstanding experience, both personally and professionally. And I thank you most sincerely for the wonderful journey we made together.

And with this, I want to hand over -- you over to Alessandra to run through the first quarter results in more detail. Alessandra.

[Alessandra Genco, executive]

Thank you, Alessandro. And I can speak for myself as well as for everyone in Leonardo in thanking you for the very significant contribution to Leonardo over the last 6 years. We have so greatly valued your leadership, direction and purpose. It's 1.5 months since we set out our detailed full year '22 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 it's important to bear this in mind.

We had a strong end to last year '22, and we have made a good start to this year, continuing our solid path of growing commercial success and increasing new order intake, strong program delivery and strengthening of cash flow. With Moody's upgrading Leonardo to investment grade, thus recognizing results achieved, our increased financial strength and the solid outlook.

Q1 results are in line with our expectations when we recently set out our guidance for the full year, confirming the strength of our main core businesses with continued strong demand for our products of defense and governmental, supporting both our order intake and growing top line and the gradual recovery path in Aerostructures being on track.

Let me show you the key highlights. Order intake of EUR 4.9 billion, stepping up 29.3% on Q1 '22, adjusting '22 to exclude the contribution of GES, which was sold by Leonardo DRS in August '22. And this performance does not include any jumbo orders. We're leveraging on our strong growing backlog, driving growth in revenues at EUR 3 billion, up 2.6% year-over-year on a perimeter adjusted basis.

Group adjusted EBITA at EUR 119 million, with a solid performance from key business divisions, up 4.4% and excluding the expected lower contribution in the quarter from our strategic joint ventures, which were down EUR 21 million year-over-year. Free operating cash flow improved by almost EUR 400 million to negative EUR 688 million, in line with planned at this stage of the year versus negative EUR 1.1 billion last year. Our net debt is decreasing year-over-year, confirming our laser focus on deleveraging. We also confirm our strong liquidity position and our recent full year guidance.

Let's now look at key group metrics for Q1. Starting with new order intake. We saw a particularly strong quarter with orders at EUR 4.9 billion, up 29.3%, adjusting '22 to exclude contribution of GES. Helicopters delivered an excellent performance, more than doubled new order intake year-on-year to EUR 1.9 billion, with an acceleration in the first quarter due to phasing effect, including orders for 18 AW169 for the Austrian Ministry of Defense, 13 MH-139 for the U.S. Air Force and a number of orders on the civil side, mainly related to the AW139. This provides further evidence of the civil side steadily recovers. Helicopters is clearly benefiting from its leading market positions in both defense, governmental as well as civil. And we also saw some orders being accelerated by customers in oil and gas.

Defense Electronics again achieved good order intake with just over EUR 1.6 billion in Q1, up almost 10% from last year, growing in all business areas both in domestic markets, including orders for the Italian Army and on the export side, including for the supply of defense systems for the Philippine Navy plus logistical support. And we saw more orders in the cyber division. Leonardo DRS also achieved good order intake almost EUR 700 million, up 5% (sic) [ 8.9% ], in line with expectations and won additional orders for the U.S. Navy new generation Columbia submarine program for the supply of electric propulsion components. It also booked orders for the supply of infrared countermeasures for the U.S. military.

Aircraft order intake was solid at EUR 731 million, slightly below last year with Q1 '23 orders for the logistics components of Eurofighter as well as orders under the JSF program. Aerostructures showed some improvement with new orders of EUR 126 million. So overall, a very strong quarter in new order intake with a book-to-bill of 1.6x and increasing our order backlog to now just over EUR 39 billion.

Next, revenues. We have continued our strong program delivery, leading to Q1 revenues of EUR 3 billion, up 2.6% on a perimeter adjusted basis. Helicopter Q1 revenues were EUR 880 million, slightly below last year, reflecting the phasing effect and lower contribution from NH90 Qatar. Defense Electronics revenues rose 9.5% to over EUR 1 billion, continued to delivering on its backlog. Leonardo DRS revenues were slightly lower at EUR 530 million or [ $569 million ] up year-over-year, excluding GES contribution and also reflecting the strong performance in Q1 last year due to a nonrecurring step-up in the Colombia-class program. Aircraft had a solid revenue performance, slightly lower at EUR 559 million, delivering on the Eurofighter Kuwait program and other programs, while Aerostructures increased its revenues from EUR 121 million to EUR 151 million as volumes increased.

Turning to EBITA and profitability. We delivered in Q1 group EBITA of EUR 105 million or EUR 190 million adjusted, excluding for the contribution of strategic joint ventures and Hensoldt, up 4.4% versus last year and noting that Q1 is normally the smallest contributor to the full year profit. We saw solid performances from our main businesses with further gradual recovery in Aerostructures and a soft start to the year from our strategic joint ventures and Hensoldt as expected. Helicopters improved EBITA in the first quarter to EUR 38 million, up 5.6% and Defense Electronics EBITA was EUR 88 million (sic) [ EUR 89 million ], with a solid performance and strong profitability, lower contribution from MBDA due to the very strong comparator last year. MBDA's underlying trends, however, remains very positive, and we remain very confident for the full year. Leonardo DRS reported EBITA lower at EUR 31 million, slow start as expected due to business mix. The first quarter '22 benefited from a nonrecurring step up in profitability on the Colombia-class program. Going forward, we expect growth to accelerate throughout the year.

Aircraft reported EBITA of EUR 54 million, up 3.8% on last year and confirming the robust profitability in its defense business. Aerostructures showed gradual improvement and reduced its loss in the quarter to EUR 40 million compared to EUR 46 million last year and in line with the recovery plan. ATR contribution in Q1 was lower, down from negative EUR 10 million last year to negative EUR 16 million.

The company faced some certain challenges related to supply chain and skill shortages, which are common with other companies in the sector. That said, we feel encouraged by ATR's recent new order intake, it's growing backlog and its improving market outlook, confirming their expectation of higher deliveries by year-end versus '22. The contribution from Space was also slightly lower at EUR 1 million, down from EUR 6 million, while the Satellite Services segment continued to perform well.

In the Manufacturing segment, on the other hand, we had some R&D extra costs impacting EBITA, and we're working with our core shareholder in past with a view to improve its performance in the future. As we have already discussed, EBITA reflects the perimeter effect and the lower contribution in the quarter from our joint ventures as we had expected. In particular, we are seeing a soft start to the year in Hensoldt, MBDA, ATR and Space manufacturing as we have already discussed. Overall, the negative contribution accounts for EUR 32 million, of which EUR 11 million is due to perimeter effect and EUR 21 million due to joint ventures.

Now moving on to the below the line items. You can see EBIT of EUR 93 million, reflecting the EBITA and the effect of PPA amortization linked to the acquisition of RADA, a net result of EUR 90 million, also reflecting the performance of equity accounted holdings in line with expectations.

It's worth noting that including the perimeter adjustments and excluding the performance of joint ventures, accounted for an EBITA, net income was almost in line with last year, EUR 54 million versus EUR 56 million. We have also made a good start to the year in cash flow terms and again improved our free operating cash flow. In Q1, the usual seasonal outflow was lower at EUR 688 million, corresponding to an improvement of almost EUR 400 million over the previous year, on track and in line with our plan. This is in part due to continued strengthening of our cash flow with improved working capital and operating performance, much reduced factoring and a lower level of seasonality. And it's also in part due to concentration in the quarter of cash-ins on milestones. To be clear, these are receipts related to the delivery of existing programs and are not advance payments or new order intake.

This improved cash flow performance makes us comfortable confirming our full year target of increasing free operating cash flow to circa EUR 600 million. And we are strongly committed to continuing our deleveraging process with net debt down EUR 1.1 billion versus Q1 '22. And we're very pleased to announce that today, as Alessandro mentioned before, Moody's upgraded Leonardo to investment grade with stable outlook.

The upgrade reflects the strong execution through the pandemic, the solid growth prospects for the defense business in the current macro environment, and the track record of deleveraging we have performed with a commitment to further progress in this direction, maintaining a stable shareholder remuneration and strong growth prospects.

Now moving to guidance. 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 in defense and governmental are delivering strongly, and the year has started well, especially in orders and cash-in. We are pleased to see the good progress in Q1, and we're confirming the full year Group guidance that we recently gave you at the time of our March full year results.

As we previously said, it is based on our current assessment of the effects of the geopolitical and macroeconomic environment and supply chain, inflation and the global economy and assuming no major deterioration. You can see here on the slide, we expect this year continuing good commercial momentum and strong new order intake, top line growing as we leverage off a solid and growing backlog, EBITA improving leveraging on higher volumes and driven by efficiencies to balance cost pressures plus the recovery of our joint ventures. And growing cash was driven by the defense and governmental business, more than offsetting the cash absorption in Aerostructures, which is itself gradually improving. As we said in March at the full year presentation, we are laser focused on deleveraging. We expect year-end debt to decrease to approximately EUR 2.6 billion, thanks to cash flow generation while continuing to maintain a constant shareholder return.

So to conclude, we are pleased with the start of the year while remembering that it's early in the year and it's only Q1 and our smallest quarter. We are on track, and we are delivering our plans in line with our full year guidance. Q1 was another quarter of delivery with sound performance across all key metrics, a quarter where we saw further growing commercial success and stronger financial performance, and we're confident of our path forward.

Thank you all, and I will now hand over to the Q&A.

[Operator]

This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from Alessandro Pozzi from Mediobanca.

[Alessandro Pozzi, analyst]

First of all, I would like to say the goodbye message has been received and I wish you Alessandro all the best for the next endeavor. We have a couple of questions on Hensoldt and I was wondering of course, they haven't really reported Q1 yet, but I was wondering if you can give us maybe a bit more color on the weakness that we've seen in Q1 and what we should expect for the rest of the year?

And also perhaps it's been, I think, a year since you completed the acquisition of the stake. And I was wondering if you can maybe give us an update on how Leonardo benefitted from this stake other than, of course, for the share price.

The second question is on working capital, which usually seasonally, you have a large build in Q1. And I think this year was much smaller than what we've seen a year ago. And compared to a year ago, can you point to the working capital -- to the main moving parts of the working capital where you've seen the largest progress.

[Alessandra Genco, executive]

Sure, Alessandro. I will start with the second question. So working capital, as you have correctly pointed out, the absorption of Q1 '23 was smaller than ordinarily. And this is the result of the continued progress that we are making in working capital management and cash flow generation started 2 years ago with -- as you can appreciate, quarter-over-quarter progress throughout '21, '22 and continuing into Q1 of '23. Q1 of '23 also had a concentration of cash-ins on milestones on existing contracts that were finalized in the quarter that were reflected in the free operating cash flow.

With respect to Hensoldt performance. So Q1 performance in Hensoldt is fundamentally stable. What you see reflected in the figures and the adjustment is the fact that last year, in Q1, we did not include Hensoldt Q1 performance because of a misalignment in financial calendar between the company and Leonardo. And that's why you see that we are basically taking it off when we make a like-for-like comparison. I will now leave the floor to Alessandro with respect to Hensoldt part 2.

[Alessandro Profumo, executive]

Yes. Hensoldt, as we said also during the year-end presentation, we have presented to the [ bond ], operation plan on which we continue to deliver as expected. So we are quite satisfied with that the relations with the company and mainly with the German government are very positive. So -- and as you were saying, Alessandro, also not considering the share price, which in any case is significantly above the purchasing price. I remember you that we paid EUR 23 when the stock was EUR 16, today the stock is close to EUR 33.5. So it's a completely different situation. But irrespective of that we are even more sure than when we bought the stake that strategically has been the right move.

[Alessandro Pozzi, analyst]

And just a follow-up on the working capital. What was the factoring during Q1, please?

[Alessandra Genco, executive]

No factoring basically.

[Operator]

The next question is from Victor Allard from Goldman Sachs.

[Victor Allard, analyst]

The first one is sort of a follow-up on the previous one on the free cash flow. So you already gave some color. I was just wondering in terms of inventory build, how should we think about the coming quarters or is that too simplistic to think that it's been also like a tailwind for you in Q1?

And then the second question is in defense margins. So if you help us -- you could help us understand margins in DES. It seems that year-over-year you have had like a tougher comp. Last year, you mentioned mix and fixed costs, but I was wondering if inflation was a headwind in the quarter or anything that we might miss.

And the last question, if I may, it's fully more at a high level in terms of how you -- what do you make of the recent comments in terms of some of your European peers, which said that we need to see more consolidated defense industry in Europe? And I guess as a [ sideway ] to this is if you could share your views in terms of portfolio. And if there is any update on that one in particular thinking about defense.

[Alessandra Genco, executive]

Okay, Victor. So free operating cash flow performance and trends. So free operating cash flow, as mentioned before, is significantly better in Q1 '23 versus last year as a result of all the actions that the group has undertaken and that continues to deploy positive effects. And you see this performance confirmed quarter after quarter. So what we are experiencing in Q1 is a progress of the steps undertaken in the past few quarters with a concentration of cash-ins with milestones -- contractual milestones achieved in Q1 '23, with associated cash-ins from customers, which are also a driver of this performance, not on new orders, so we were not talking about customer advances, but progress payments on existing contracts.

Over the course of the year, we continue to see good trends in terms of improvement of year-over-year cash absorption. On margins, I want to make sure that I heard your question correct. You are asking about defense electronics margins or in general, all the division margins. Could you repeat that question for us, please?

[Victor Allard, analyst]

Yes, probably thinking more about Europe, DES.

[Alessandra Genco, executive]

More defense electronics Europe. That's what you said?

[Victor Allard, analyst]

Yes. So for context, I was trying to understand if the lower margins that we're seeing in European DES was mainly a result of having a tougher comp last year with positive mix and fixed costs. Or is there like anything else that we should think about as we think about the coming quarters? And in particular, I was thinking if inflation was a headwind in the quarter when you sort of closed the quarter?

[Alessandra Genco, executive]

Okay. Thank you, Victor, for highlighting the question. No, actually, the performance number that you see in Defense Electronics, Europe is reflecting also the effect of MBDA and Hensoldt. And that is basically the driver of the delta because in reality, the Defense Electronics division in Europe for Leonardo has a profitability which is increasing year-over-year, and it's increasing both in terms of absolute values and percentages. Therefore, the trend is impacted by the joint ventures. I think yes, there is a page in -- Page 8 of the presentation that speaks to the fact that Defense Electronics, Europe is up year-over-year.

[Victor Allard, analyst]

Okay. And possibly like one last question, if you have any thoughts to share on a more higher level...

[Alessandro Profumo, executive]

Consolidation. I've been always very transparent on [ guide ] that and in the sense that in my opinion, during the time, some further consolidation is needed mainly because of the fact that all the countries are increasing the defense expenditure, but the quality of this expenditure are not improving. In the sense that we continue to have duplication of nonrecurring costs for a -- platform and systems that are differentiated in Europe.

What is the issue is that in my opinion before having an industrial consolidation, we must an improvement in terms of coordination of the requirements within the defense because if we have a common program and then 1 country, you have a certain requirement and another country, they have different requirements, we have a consolidation, but you don't have any improvement in the way you spend your money. And we have some very clear example with that. So -- and on that we've been always very transparent with the political world saying it means that the politicians will price on the defense system in order to have a better coordination of the requirements. I think that [indiscernible] will be a first important example in this direction.

Then the consolidation can happen at the program level or company level, in my opinion, doesn't make any sense to put together companies if they are in different domains but the eventual consolidation has to happen in business lines. I think that MBDA is a very good example, it's an example of consolidation in the missile domain. And after some years, we have a development, which is a very well organized at country level in the sense that there are not any more duplication within the different countries. So making a long story short, I don't think that something happens soon.

[Operator]

The next question is from Virginia Montorsi from Bank of America.

[Virginia Montorsi, analyst]

First of all, I just wanted to thank Alessandro and wish you good luck for whatever is going to come next. And in terms of my questions, I just had 2 quick ones. First one would be on Hensoldt. There's been an article on Reuters quoting the CEO of Hensoldt saying that they might be interested in acquiring part of your defense electronics business. So just wondering if you can share any comment on that?

And then second question would be on DRS margins. I think you've been quite clear on what's happened in Q1, just -- could you give us any color on how to think about margin progression for the DRS for the next quarters up to full year?

[Alessandro Profumo, executive]

Many thanks, Virginia. And so the -- I think that the declaration of Thomas was an unfortunate misunderstanding in the sense that I'm sure that he was not thinking to an eventual acquisition of our Defense Electronics. We always said that during the time, I think that, that would be a combination of our Defense Electronics with Hensoldt. But is conceptually different from an acquisition. I hope that I've answered in a very clear way.

[Virginia Montorsi, analyst]

Yes. This is very clear. And maybe just on the DRS question on margins.

[Alessandra Genco, executive]

Sure, Virginia. Yes. So DRS margin progression. We do see a progress consistent with the usual yearly trends. What you see in the first quarter is an unfavorable comparison because last year, Q1 '22 booked a revision of margins on an important program and a one-off increase in EBITA, which over the course of the year will clearly smoothen out. Therefore, what we do see is a progress in increase of profitability that will lead to a margin at year-end higher than the full year '22 margins.

[Alessandro Profumo, executive]

Virginia, it's important to say that -- when we are talking of DRS, this program, which is a very important program on which the first, I don't know how to call, delivery was a sort of experimental. In the second one, there has been a repricing for the first one as well because usually, when you have this -- such kind of program, very relevant. You have a price adjustment system in U.S. where with the second installment -- the second delivery, they repay all the extra cost for the first -- partially, extra cost for the first one. While very important because so -- because we have been successful.

And secondly, because this is a program in the Ohio replacement program, which we spoke in the past, we cannot provide details because it's a classified program. But we said of this program. There will be a sort of continuity because there are many submarines, such a class. And this technology we think it could be applied as well on surface ships. So in reality, we become an increasingly relevant profit-making program for DRS. It's very, very difficult for the DoD to switch to another supplier because the risk implied in the program were relevant for us and today are behind our shoulder because we have been successful, for any other vessels that should try to enter in the program, there will be all the risk.

[Operator]

The next question is from Monica Bosio from Intesa Sanpaolo.

[Monica Bosio, analyst]

Can you hear me?

[Alessandro Profumo, executive]

Yes, quite well.

[Monica Bosio, analyst]

Yes and let me join to the other participants in thanking Alessandro and wishing him the best for the future. Now coming to the question, I was wondering if you can elaborate a bit on the free cash flow absorption of the Aerostructure business in the first quarter of the year. By year-end, I'm modeling an absorption in the range of EUR 250 million. I was wondering if you can just give me some flavor on this. And if maybe there's room to do a little bit better. I know that the achievement of the breakeven is back-end loaded but there is an increase in production rates from the clients, Boeing.

[Alessandro Profumo, executive]

Sorry, before leaving the floor to Alessandra, I do understand that you have a second question. We always said that we have a guidance of EUR 600 million in terms of the operating cashflow for the year, including Aerostructure. We have not provided the number for Aerostructure per se. And as we always said, we will become positive with the fuselage 1407. So this is what we said that we can say on Aerostructure. So we cannot say anything more.

[Monica Bosio, analyst]

Yes, I fully understand that you don't give guidance on the full year for the Aerostructure. But in 2022, the free cash flow absorption was close to EUR 300 million, if I remember well, this year should be a little bit lower. I was wondering if you can give us some flavor on the fourth quarter of the year, if it is significant -- if not...

[Alessandro Profumo, executive]

We always said slightly better because as you can imagine, we have an improvement because we have a higher production rate. So we have a slightly better contribution. But the real change will be with the fuselage of 1407. Again, the EUR 600 million are including everything. And as we have said in the first quarter presentation, we are seeing a signal of improvement, which are very evident from the revenues you are seeing. So we cannot say anything more because -- we've been always -- but I think that in terms of the operating cash flow, again, we have been better than the previous year, better as well on the numbers at the beginning of year for the first quarter. We have seen the reduction in terms of debt year-on-year, it's almost EUR 1.1 billion, which is not bad. We have been just upgraded by Moody's. So I think that our credibility is relatively relevant.

[Monica Bosio, analyst]

Okay. Got it. And a very final question is on the order intake. So the fourth quarter was 10% above our -- my estimates and 15% above the market expectations in terms of order intake. Now the guidance has been confirmed. Is there room to have a better view going forward because it seems to me that the commercial performance is really, really strong, especially for helicopters.

[Alessandro Profumo, executive]

Today, what we said that we confirm the guidance. It's too early to say if what we will do better of the guidance eventually. We have to remember, last year, we made EUR 17.3 billion of orders with a big order of EUR 1.4 billion. So we want to compare like-for-like is EUR 15.9 billion vis-a-vis EUR 17 billion of guidance because there are no jumbo orders. Clearly, we started quite well. And so we have a positive feeling, but we cannot say anything more. It's too early to say if this is an anticipation of other orders. So in this -- again, we have a very positive feeling. The commercial structure is working very well. But to say today, we change the guidance, it's too early.

[Operator]

The next question is from Martino De Ambroggi from Equita.

[Martino De Ambroggi, analyst]

Sorry to bother you on the net working capital, just to try to figure out if it's temporary or how much is structural and so on. Could you quantify the amount of milestone that you got in Q1. And if I understand correctly, 0 down payment from a new order intake. And still working capital, what is the assumption embedded in your full year guidance for net working capital?

[Alessandra Genco, executive]

So Martino, what I said is that the underlying trends in working capital reflected in Q1 '23 are the same as those that we have experienced throughout '22 and throughout '21. So this gradual progress in working capital reduction and better working capital management. What I did say is that the cash-ins -- the largest portion of the cash-ins are associated with milestone payments, which are progress payments on existing contracts. There may be some down payments, which are the usual down payments that we had throughout the year in every single quarter of the year. So nothing extraordinary. But I meant to be very clear is that there's nothing extraordinary in this cash performance associated with advances on new orders. But there are natural flow of cash-ins deriving from progress of activities on existing contracts that were invoiced to customers and paid by customers.

[Martino De Ambroggi, analyst]

Okay. And the net working capital embedded in full year guidance?

[Alessandra Genco, executive]

We are not inclined to provide guidance on working capital, but we can reassure you that the EUR 600 million of free operating cash flow guidance is confirmed.

[Martino De Ambroggi, analyst]

Okay. And the second question is on the order intake because you specified twice during the presentation that the order intake doesn't include any jumbo order. Based on your feeling, when do you expect the NATO countries' military spending will become more visible or will materialize in jumbo contracts? Is it a '24 event or maybe later?

[Alessandra Genco, executive]

We definitely do see some orders related to NATO throughout the planned time. We do not forecast any specific quarter in '23. Having said that, for example, MBDA booked a EUR 2 billion-plus order for short air defense or short range air defense in Poland a few days back. So clearly, this is very specific. What we can say is that in our guidance for the EUR 17 billion of order intake, we have not included any jumbo orders associated with large opportunities deriving from the NATO countries.

[Martino De Ambroggi, analyst]

Okay. And if I may, a last question on the joint venture's contribution. I don't know if you are willing to share piece by piece, but overall, in your EBITA guidance, the ATR, MBDA, Hensoldt and DRS contribution that you have in your guidance. Could you quantify, if not one by one, at least globally?

[Alessandra Genco, executive]

Okay. What we can say to help you, Martino, is that DRS, as you have heard also from Bill Lynn and his team is guiding towards an increase in EBITA year-over-year, '23 over '22. And from the joint venture, we will see a progress year-over-year, which is anchored depending on which division -- which joint venture we're talking about on the solid fundamentals of defense business, as we have just commented on MBDA. On ATR, recovery of the commercial market and from a strong backlog. And on that, we are working very closely with our joint venture partner, Thales -- the company Thales in important development programs, which require a lot of focus.

[Martino De Ambroggi, analyst]

Okay. ATR will be positive this year?

[Alessandra Genco, executive]

As we suggested, we will not be providing guidance on the individual sectors...

[Alessandro Profumo, executive]

In any case, it will be positive.

[Martino De Ambroggi, analyst]

Okay. Okay. So all the best Alessandro.

[Alessandro Profumo, executive]

Main thanks all of you because all of you are making me the best wishes to be honest, being from the south of Italy in making -- feeling the love, nothing good, I should say, in the sense that -- I mean, in very good health and I'm very positive. So I'm sure that I will be still around in the future. Maybe we're not working with you, but working. [ Might ] have a different perspective in saying that we have to spend time on traveling. But so I'm very positive. But many thanks to all of you.

[Operator]

The next question is from Gabriele Gambarova from Banca Akros.

[Gabriele Gambarova, analyst]

Just one about Defense Electronics. And I'm sorry if it was addressed before. But what are your -- let's say, what is your understanding of the industry in Europe because we saw some interesting statements from the CEO of Hensoldt, for instance, and even you in London back in March were pretty vocative about this. So any thoughts on this ongoing process, would be...

[Alessandro Profumo, executive]

I think that we have been always very clear. There is an ongoing process, which is the cooperation agreement and the way we work together, creating value for both of us. I would say, in a very positive way. So mainly working with customer -- Hensoldt with our customer, adding value one to the other in the way we cover -- recovery. As you know, Hensoldt is mainly a producer of sensors. And so it's not strong in the system integration. We are quite strong in system integration. So -- and thanks to that, again, for instance, providing new services to the German Navy or the German land forces.

And in that, we always said that we have a strategic perspective with Hensoldt. Clearly, this has to be realized in accordance with the German government and our governments as well. Leonardo will remain the consolidator of the business in the case, there would be a second step. So we will see when and -- when mainly because they are is, for us, [ revenue ] can be realized. And today, we are not in the condition of talking about that because, as I said, that is not only in our hands.

In any case, we are very positive before -- so clearly, the Defense Electronics is a key business for the platform. So there is a lot of value for Leonardo in having the platforms and the Defense Electronics because, for instance, the avionics of our new helicopters are completely built internally, which is incredible value added. And since all of us, we are talking of [indiscernible] system, in Leonardo, we are capable to add the platform and to create the [indiscernible] system, which is not the case for many other competitors because all they have the platform or they have Defense Electronics not necessarily they have both. So we think that as Leonardo, we have specific strengths. And we are sure that this will be at the base of the future value development of Leonardo.

[Gabriele Gambarova, analyst]

Okay. That's very clear. And if I may, just a last question on the AW249, the new attack helicopter for the Italian Army. There is I think a second and maybe a third prototype. I was wondering if you are considering factoring in any kind of contract on this platform for 2023?

[Alessandro Profumo, executive]

We have development contracts because in [ building order to ] [indiscernible] the helicopter we receive money from the defense system. Now I think that the major contracts were in 2022 more than this year because now we have 2 prototypes, and we are pretty close to the third one. So they are flying, is a fantastic helicopter. I've seen that many times, flying is impressive what it's capable to do. And so now we have to speed up the certification process. We are working and in with our defense system.

Sorry, I interrupt you. When before I was saying of the avionics, for instance, the 249 is completely developed internally in terms of avionics which is really an incredible value add.

[Operator]

[Operator Instructions]

[Valeria Ricciotti, executive]

I don't think there are further questions. So thank you again...

[Alessandro Profumo, executive]

So many thanks to all of you since you have, more or less all of you, you made me the best wishes. Before I was joking really and always very positive, so I'm sure that Leonardo will continue to grow and to perform well. At a personal level, I like really to thank all of you, has been a fantastic journey. And I think that Leonardo is one of the jewels of the Italian industrial base, and I'm grateful to the government for what they allowed me to do in these 6 years, and I'm grateful to all of you that follow the company in a very positive way.

So again, thanks also to the analysts because we are a complex company with many divisions, with many variables. So I know that for all of you is not easy to create a model on Leonardo. I hope that in the 6 years, we built as a company on the personal level, reliability on what we have done and what the company will continue to do. So thanks a lot.

[Operator]

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