Leonardo SpA

MIL:LDO

Earnings Call Analysis

Strong Start Propels Confident Outlook for Leonardo in 2024

Leonardo reported a robust first quarter, showcasing notable growth in revenues by 15%, reaching EUR 3.7 billion. The Group's EBITDA surged 67% to EUR 182 million, driven by strong performance across key segments like Defense Electronics and Cyber. Helicopter and electronics divisions led the way with substantial gains in order intake and profitability. The group's net debt decreased to EUR 2.9 billion, with a significant improvement in free cash flow outflows. Despite challenges in the Aerostructures unit due to Boeing's 787 issues, the company remains confident about achieving its full-year targets for 2024, buoyed by ongoing efficiency measures and strategic actions.

A Strong Start Fueled by Multi-Sector Growth

The company began 2024 with remarkable momentum, achieving a 15% increase in order intake to €5.75 billion, primarily driven by robust commercial performance in Defense Electronics throughout Europe. This growth reflects solid positioning in both domestic and export markets. Additionally, the company's backlog has soared to €43 billion, a record level that underscores the expanding demand across all segments. This strong start translates into a top-line revenue increase of 15%, reaching €3.7 billion, supported by excellent performance in defense electronics, cyber sectors, and helicopters.

Profitability and Debt Reduction Highlight Financial Health

The group's EBITDA saw a significant jump from €109 million in the previous year to €182 million. This improvement leveraged higher volumes and efficiency gains, leading to an increase in the return on sales (ROS) from 3.4% to 5%. This boosted profitability reflects the company's effective cost absorption and operational efficiency. Concurrently, the company managed to reduce its net debt from €3.7 billion to €2.9 billion by March 2024, attributed in part to the sale of a stake in DRS last November. Free operating cash flow also improved to an outflow of €621 million from last year’s negative €702 million, benefiting from better working capital management and optimized milestone payment phases.

Sector-Specific Performance: Helicopters, Electronics, and Aerospace

Helicopters performed well, with order intake up by 8% to over €2 billion, bolstered by notable contracts such as the 20 AW139 units for Saudi Arabian EMS and search and rescue missions. This segment saw its revenues and profitability rise, with EBITDA increasing to €54 million. Defense Electronics stood out, particularly in Europe, with a 38% year-on-year increase in new orders, amounting to €2.2 billion. The segment’s revenues rose by almost 10% to €1.1 billion, and EBITDA grew by 38% to €123 million. The company’s aerospace division also showed improvement, with revenues increasing by 2% to €570 million and EBITDA reaching €55 million, driven by the fighter aircraft and customer support sectors.

Optimism Underpinned by a Clear Strategic Vision

Confident in their trajectory, the company management reaffirmed the full-year guidance for 2024, anticipating sustained commercial momentum, rising backlog, revenue growth, and improving profitability. The strategic focus includes strengthening core businesses while accelerating digitalization and developing new platforms, such as cybersecurity and space, to meet global security challenges. The efficiency and savings plan aims to generate up to €1.8 billion over five years, with the first-year target set at €150 million. Alongside optimizing internal processes, the company is exploring mergers and acquisitions, particularly in sectors like cyber and space.

Challenges and Future Prospects

While the overall outlook remains positive, challenges persist, especially concerning Boeing’s 787 program. The company is awaiting further information to clear any uncertainties. Despite these challenges, the company maintains that they are adequately prepared to navigate the situation and expects to continue its mission of enhancing profitability and operational efficiency. The strategic reorganization and focused investments in high-growth and high-margin segments underpin the company’s optimistic outlook for the remainder of the year and beyond.

Earnings Call Transcript 2024-Q1

[Valeria Ricciotti, executive]

Good evening, everybody, and thank you for joining us for this first quarter 2024 results presentation. I'm Valeria Ricciotti, Head of IR and Credit Grid agencies. Today, our CEO, Roberto Cingolani, 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 the outlook for the full year. And then as usual, we will welcome your questions. And with this, I leave the floor to our CEO, Roberto Cingolani.

[Roberto Cingolani, executive]

Hi, guys. Nice to meet you again, and welcome to our new digital facility production facility. I hope you will like and the presentation will be clear. So today, we are going to tell you what happened in the first quarter. The numbers are very encouraging. We're very happy to show you the numbers today. Let me show you quickly the agenda. I will start with the executing the industrial plan and then the first quarter results and then Alessandra will give you all the numerical details. The start of the year was really strong. Just let me summarize, orders are increased by 14.9%, up to $5.8 billion with a book-to-bill of 1.6 per. The backlog of orders has reached a record level, more than EUR 43 billion and the revenues are up by 15.3%, up to EUR 3.7 billion. The group EBITDA has grown by 67% up to EUR 182 million, and the free operating cash flow at EUR 621 million improved by 11.5%. So what we are pumping up is now much better than the last year. With those numbers, we feel that the start is good. This is 20% of the year. We believe this is quite on track with respect to the guidance for 2024. So far, so good. Let me tell you that we are fully focused on the execution of the industrial plan that you've seen from us a couple of months ago. So strengthening the core business, you remember, making our platforms, aircraft, airplane, electronics, more attractive, more digital. Meanwhile, paid the way to address the global security challenge and building up the future of Leonardo, so the complementary new platforms like cybersecurity space that will contribute together with the traditional core business in creating this multi-domain cross-domain multi operating system for the future defense. The plan is based on a 3-level strategy. I'm sure you remember, we gave you the representative plot by the organic growth, which is based on improving our products, rationalizing the product, rationalizing research, saving plan that was very important, very substantial. And finally, the inorganic growth that will go through emerging acquisition programs. In short, we've been working since the plan was approved, but also in the month before, on the reorganization and the governance improvement, we're still working a lot on organization. Soon, there will be a few other news. Actually, you can see from this slide, we're defining a much more competitive and flexible organization, and we're focusing the research and development, especially quitting a number of off core business activities that were no longer strategic for the company. Concerning accelerating the digitalization. Those are the 2 pillars of the strengthening the core business, considering accelerating the digitalization, we've been developing a strategy to leverage Generative AI and multi-domain capability in our products. This is actually ongoing now. We've introduced a massive business intelligence, even in the administration and a lot of product digitalization that increases efficiency, increases the level of servitization of the products and, of course, improves efficiency in the production chain. We are extensively using artificial intelligence and digital twin across most of the product catalog of the company, and this is actually impacting positively the production. And we're now accelerating the digital continuum initiative with the Army. I think in September, there will be a first demo in which we will coordinate different domains under the same digital umbrella. So this will be a physical real-time demo that we will make. Concerning the saving plan, we are fully in action. I'm sure you remember in the original plan, the new plan, strategic plan, we promised a strong efficiency and saving plan for the future up to EUR 1.8 billion in the 5 years. So the efficiency boost is something that we consider very important for the future of the company. The saving plan is fully in action. We are preparing both the organization to check it continuously. And also the digital instrument to monitor it in a quantitative way of what's happening. And I think we are on track to achieve the full year the year target that we promised at the presentation of the plan. Of course, all those things should create new revenue streams and generate cost efficiency that will be sizable, ratable in the next months. Concerning the second part of the plan, so paving the way to address the future Leonardo and the global challenge of security, here, we're working a lot on strengthening the international alliances. This is something that is running on a daily basis, and I'm sure you remember how many actions were ongoing. And we are accelerating the definition of new scenarios in aerostructures that I will mention in a minute. Concerning paving the way to the future, we have craft the new space division. This is up and running now. We are organizing the top management. We have quite a strong technical plan. We are working on the European defense framework with other institutions and companies at the European level. And finally, we are actively working to give a continuity to the memorandum understanding with Bell for the tiltrotor technology in collaboration with Bell and our Helicopter facility. Now last point I wanted to address as to do with the Boeing problem. Boeing is going through a few problems, as you know. And of course, we are quite tuned to see what could be the impact on production and delivery. We are taking action in the short term to mitigate this. And of course, we are reasoning with some acceleration to the future strategy and to define new scenarios for the Aerostructure division. However, the numbers are, as you've seen, are very good so far. So we believe that the combination of the new initiatives that the plan has proposed the strategic comments proposed are now becoming measurable. Lease must not last, I want to give you a snapshot about sustainability and our road map to decarbonization. Just a few days ago, SBTI has classified Leonardo, Scope 1 and Scope 2 target, to be suitable for the accomplishment of the 1.5-degree global warming threshold. This is very important for us. This is not easy in Aerospace and Defense technology. Our new target, so the one that are proposed by the new strategic plan is to have minus 53% of Scope 1 and Scope 2 carbon dioxide emission compared to 2020. Originally, I think it was minus 50%. And Scope 3 upstream, 58% of suppliers will be committed to emission rules by 2028. So this is a big challenge in our supply chain. Finally, in Scope 3, downstream, minus 52% escort carbon dioxide emission per flight hour will be equivalent, and this will be the target by 2030 compared to 2020. Those are the snapshot. We're happy to see that the plan is now up and running. We're encouraged by the performances. And I would like to give the stage now to Alessandra Genco, that will give you all the details about the financials. Thank you very much for your attention. See you.

[Alessandra Genco, executive]

Thank you, Roberto, and good evening, everybody. It's 1.5 months since we spoke to you in the detailed full plan and full year results presentation. And as you know, although Q1 is important to us as we look to start the year with the right foot, it is normally our smallest contributor to the full year. And it's important to bear this in mind, but it is clear that we have made a very good start to the year. You can see this strong start across all group KPIs, very good commercial momentum with solid double-digit growth in order intake, very good top line growth, delivering of our growing backlog and improving profitability as we anticipated, as we leverage off higher volumes with margins benefiting from higher cost absorption and greater efficiencies, the efficiency plan that Roberto mentioning and improving our cash flows, reducing also net debt. All of these figures compared to the first quarter of '23 have been restated on a pro forma basis to include Telespazio being fully consolidated, so as to make a better comparison year-over-year. Group order intake rose 15% to EUR 5.75 billion with especially strong commercial performance in Defense Electronics in Europe, reflecting also the good position in key domestic markets as well as export markets. This group order intake growth is well balanced with a good spread geographically and across business areas and without any concentration in any single country or any single customer and no jumbo orders. We're seeing growth opportunities across all segments in defense, especially, but also in governmental businesses and good recovery in civil areas like helicopters. Our group backlog has risen to EUR 43 billion as of March and stands at a record level. New orders and our ability to deliver off this backlog drove a top line increase in Q1 of 15%. So a strong quarter in terms of revenues, which rose to EUR 3.7 billion driven by strong performance across all segments, in particular, defense electronics and cyber across all domains, followed by helicopters. Group EBITDA increased to EUR 182 million compared to EUR 109 million the previous year, leveraging higher volumes as well as efficiency gains. And it meant that profitability increased with our ROS, return on sales in Q1 of 5%, up from 3.4% in '23. Our Q1 free operating cash flow outflow was $621 million, a significant improvement on last year. This was driven by higher EBITDA, tighter working capital management and better phasing of milestone payments on programs, so reducing the usual seasonal outflow. As of March, our group net debt was also significantly lower at EUR 2.9 billion versus EUR 3.7 billion in March '23, including effects deriving from the DRS sale, the version that we sold in DRS last November, as you may recall. So overall, we had a strong start to the year, and this is underpinning our confidence in our targets for the full year 2024. All of this translates into the first important steps in delivering our industrial plan. Now let's go deeper into the results and performance at each business. On helicopters, starting with our rotary wind business, we saw continued strong positive commercial momentum. Resulting in order intake, up 8% over EUR 2 billion in the first quarter, including the order for 20 AW139 for EMS and search and rescue in Saudi Arabia and the order for 4 AW189 for the Malaysian Maritime Enforcement Agency for SAR missions. Revenues in helicopters were higher with an increased pace of delivery and with increases in the dual use lines. Profitability also was higher with EBITDA of EUR 54 million due to higher volumes driving higher margins. So good performance from helicopters and continued strong commercial momentum with good demand across business areas. Now moving on to electronics. As you know, electronics produced the standout performance for the quarter. In particular, the European segment was particularly strong, excellent new order intake of EUR 2.2 billion, up 38% year-on-year, showing good growth across all domains. Notable orders included in the naval sector, the order for combat system for the upgrade of the Italian Navy surface patrol ships. And in the land sector, the order for the new generation communication systems for light tactical vehicles for the Italian Army. On top, we saw continued good demand for defense systems with new orders for the naval sector. Revenues were up almost 10% at EUR 1.1 billion, reflecting higher volumes as we delivered of the growing backlog and EBITDA stepped up to EUR 123 million, an increase of 38%, including the good performance of MBDA. So Defense Electronics was a key strong driver with continuing strong performance and momentum. Also, DRS at the other side of the ocean, had a good start to the year, showing good growth and strengthening performance. Growth in orders was 8.8% in Q1 to $850 million, with further orders for the new generation Mounted Family of Computer Systems for the U.S. Army Mission Command and with revenue stepping up to $688 million on the back of growing volumes. EBITA grew from $33 million to $55 million with an increased ROS of 8%. In our Aircraft business, we saw continued strong delivery of profit and high margins. Order intake in the quarter was some EUR 568 million, lower than the last year because of the timing of some export contracts relating to proprietary platforms being expected later in the year. We continue to have a solid contribution from the Fighters business and the cargo aircraft as well. Revenues increased by 2% to EUR 570 million. And profitability continued to be very strong with EBITDA of EUR 55 million and return on sales of 9.6%. The leading contribution to profitability is coming from the fighter business, as you well know. We are also building up attractive customer support activities within aircraft, and we're continuing to work on proprietary programs to deliver continued growth and maintain our strong margins. In Q1, Aerostructures made further progress in line with its recovery plan, showing a gradually improving financial performance in the quarter. Order intake increased, revenues were slightly higher as activity increased across business lines, and the EBITDA loss was reduced from EUR 40 million to EUR 36 million. ATR on its side made further progress and confirmed the recovery trends with 4 deliveries versus 2 in the previous years and the loss in the quarter reducing from EUR 16 million to EUR 7 million. On space, we have been putting in place building blocks for our focused new Space division, as Roberto described to you. And we see our newly created division as a growth area for the future of Leonardo. As you have seen, we are now consolidating Telespazio line by line, in line with our management influence following the recent amendment of the joint venture agreement with Thales. Telespazio performed in line with last year's with revenue growing mainly driven by satellite systems and operations and the Geoinformation business. EBITDA decreased due to the task performance negatively impacting the margins, mainly related to the development cost in the manufacturing segment of the commercial telco business that we have had the chance to discuss with you earlier in the year. EBITA growth is driving stronger bottom line and our stronger EBITDA delivered a EUR 182 million result in Q1, with only a very low level of one-off items. The ordinary net result grew to EUR 93 million versus EUR 40 million in the previous year, as it was partially offset by a higher tax charge. The bottom line net result of EUR 459 million benefited from the capital gain on the consolidation of Telespazio on the back of the fair value valuation. Importantly, we have continued to make progress this year in improving our cash flow generation. You can see a lower level of cash outflows in the first quarter with negative free cash flows of EUR 621 million compared to negative EUR 702 million last year on a pro forma basis. We're pleased with this performance. It reflects the efforts we have been making to manage working capital more tightly. And we have achieved better phasing of milestone payments on our programs. So reducing the seasonality of our cash flows is the final effect that you see in our numbers. This stronger Q1 performance underpins our confidence in our positive trajectory going forward in our full year target. As 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, governmental and also commercial are delivering strongly, and the year has started well, especially in order intake and cash flow. We are pleased to see the good progress in Q1, and we are confirming the full year group guidance that we recently gave you at the time of the recent full year results and industrial plan presentation. As we said previously, it is based on our current assessment of the effects of the geopolitical and macroeconomic environment on supply chain, inflation and the global economy and assuming no major deterioration. You can see it here on the slide, we expect this year continued strong commercial momentum, rising backlog, top line revenue growth, delivering from backlog, improving profitability and strengthening of cash flows, resulting in reducing net debt. So now to conclude, we are pleased with the strong start to the year. Q1 was another quarter of delivery with good performance across all key metrics. We saw further growing commercial success and strong financial performance. While remembering that it's early in the year as its only Q1 and our smaller quarter, we are on track, and we are delivering our plans in line with our full year guidance and all translating into the first important steps in the delivery of our industrial plan. We are confident of our path forward, and we thank you. I'll now hand it over to the Q&A.

[Valeria Ricciotti, executive]

We are now ready to take the questions. Let's start from the conference call.

[Operator]

Our first question comes from the line of George Zhao with Bernstein.

[George Zhao, analyst]

On the 787, Roberto, you said you were taking actions to address the short-term production profile. So what are those actions? Deliver 18 of the [indiscernible] in the quarter, I guess, will your deliveries have to come down as Boeing has now slowed down production rates? And thinking ahead, their previous target of 10 per month has been moved back out to early 2026. So does that affect your expectation of getting to breakeven for aerostructures in 2025?

[Roberto Cingolani, executive]

So as you've seen in the first quarter, Aerostructure was growing well, and we're quite happy to see this. Just in the last couple of weeks, I think, Boeing went through some new problem. I think you saw this from the news. So there is very little information that we can receive from Boeing at the moment. We are constant in contact, but they have changed the top management. We don't have a counterpart to discuss with. We were told that new plan for shipment will be available very likely by the summer or later. So without process information, it's difficult to make a clear analysis. So what we decide to do now is in the very short term, which is the most important thing, how to go with the production. I consider that at the moment, we do have a number of components in stock. And Boeing is not taking them every year at the standard pace at the pace we expected. Lately, I think there were 2, 3 fuselages per shipment. So we are analyzing what to do in the short term. This has to do with the workforce. It has to do with the production pace. And we are working on that now because these are information of the last days. And in the mid- to long term, of course, we are considering in a much more complex facial scenario. Of course, starting from the word scenario, what could be eventually the reconversion or the modification of our business strategy. But of course, we need to talk to Boeing first. We need to have numbers. We need to know how they will develop the future programs to be quantitative, very accurate. And of course, we will inform you almost in real time. Of course, we try to anticipate all the possible change and we'll let you know in real time.

[George Zhao, analyst]

And with regards to the breakeven, I mean, how sensitive is that to time when you get to this 10 per month milestone rate?

[Roberto Cingolani, executive]

Without any number because as I said, we don't have numbers from Boeing. We don't get the precise plan. We assume there could be a shift. I have to say that this has to do only with one plan, the one in growth area that is dedicated to Boeing. The rest of the business is doing very well. So it's hard to make a forecast at the moment. Clearly, the previous agreement until a few weeks ago, it was to go to a shipment 10 shipments per month and then 14 reaching 1406 for changing also the pricing, and it was a pathway. Now we don't know exactly what will happen. I mean, Boeing at the moment is taking just a few units per shipment. So I assume there will be a shift, but we need to have the numbers from Boeing. We are, of course, keeping the contact on a weekly basis. But as you know, there is no -- at the moment, we don't have a counterpart there to have process information. I assume there will be a shift of the breakeven point. But as I said, this has to do only with one plan. So we should see in the integral how this will develop over the next weeks and months.

[Operator]

The next question comes from Virginia Montorsi with Bank of America.

[Virginia Montorsi, analyst]

I had one quickly on cash. If you think about working capital management and the phasing across the year, is there anything specific we should keep in mind if I think about H2 other than what you've just said, is there anything in terms of supply chain that might change the phasing dynamics? Or should we just assume a more balanced Stage 2 versus H1?

[Roberto Cingolani, executive]

I give the word to Alessandra for this. But honestly, I think we're in a smooth way. But Alessandra, please go ahead.

[Alessandra Genco, executive]

It's exactly as Roberto said. We have been working really hard throughout the last 12 months to smoothen out the quarters and avoid to have the last quarter of the year, implying a heavier weight relative to the rest of the other quarters. So what you're seeing now, Virginia in the quarter results at cash flow level as well as revenues and EBITDA is this effect of smoothening out and pacing, starting with an accelerated pace of the year and phasing out the year quarter after quarter. So no special events, neither a supply chain level nor at our level, but just a more solid and balanced pacing of production, engineering activity and delivering of our products to customers.

[Roberto Cingolani, executive]

If I may, Alessandra, I mean after tomorrow will be our first birthday. So it is true that the new industrial plan was presented on March. So yesterday, basically, but we've been working in optimizing the entire structure in terms of efficiency, digitalization, the supply chain and so on and so forth for almost 1 year. And I think our target was to have a smooth evolution of the business. Hopefully, this is the first measurable effect. Of course, we will see at the semester, but we are confident that we did a good job so far.

[Operator]

The next question comes from Ian Douglas-Pennant with UBS.

[Ian Douglas-Pennant, analyst]

I'll start with a follow-up on the 787 and then I'd like to ask about alts. So on the 787, what is your current assumption for guidance for this year? I mean, especially in the light of spirit today, presumably some cut would be -- 2 expectations would be relevant, which may have implications for guidance. So maybe you can comment on what your current assumption is. And then just quickly on the Telespazio capital gain, I assume there's no tax implications from this.

[Roberto Cingolani, executive]

I will answer on the 787. Guys, you can [indiscernible] question about Boeing, but we don't have information from Boeing. Having said this, I will be very transparent as usual. If I keep the worst case at this now that they're taking maybe 2, 3 delivery per shipment, and that is really the worst case because originally, we were planning to reach 10% and then 14 at 30 states. We don't know whether this will be possible. But if I stay with the present rate, which is very low, I think we're going to lose some $50 million in 2 years. Okay, we'll see. But we'll face this. The rest of the Aerostructure business works very well. This is one plant out of 4. And I think we can manage. We will analyze all the contingency in real time. What we are doing this now because this is urgent, of course. But I'm not so worried, to be honest.

[Alessandra Genco, executive]

So Ian, on your question regarding the potential tax implication of the capital gain, you're absolutely right. I confirm there is no tax implication because the capital gain is not relevant for tax purposes because it's only an accounting capital gain

[Operator]

The next question comes from Alessandro Pozzi with Mediobanca.

[Alessandro Pozzi, analyst]

I would like to ask 2 questions. The first one is on the M&A pipeline during the Capital Markets Day, you mentioned that M&A is going to be a key part of your growth strategy. And I was wondering if you can maybe give us an update on what's coming next, we've been hearing about was about the disposal of the electric buses as well. And I was wondering, yes, if you can give us maybe an update on the timing of that? And also if there is a number that we can work with in terms of net proceeds you expect from M&A either as a cash in or cash out for '24. And also my second question is on cost savings. I think part of the plan is to reach EUR 1.8 billion over the 5 years for 2024, as the target was EUR 150 million. And I was wondering how you're working towards that target for this year? And what are the actions that you're taking to achieve the $150 million for 2024.

[Roberto Cingolani, executive]

Thank you very much for the question. I will start with the Mergers acquisition, which is a fundamental part of our inorganic growth. So first of all, I think you remember this because I said it already, let me distinguish between big initiatives that are done, let's say, at the international level or with big partnership by standard acquisitions that are normally in the range of 15% to 20% of the total value of a division, for instance. Now concerning the big actions, we are currently working with very tight agenda with other companies in Europe where technical teams are now defining synergies and market opportunities and, of course, making product analysis for eventual joint venture. In that case, you have to consider in most cases, we are talking about joint venture where there is no cash to be paid. It's just a joint venture means creating new entities. But all our technical teams are at work with our counterparts to see whether this is feasible or not. The names are those that have been circulating over the past few months, we are working. It's very important that technical teams make their analysis in a very accurate way. Because you mentioned [ bus ]. But, of course, this is something we are working on. We are working in these days, very actively. Concerning merger and acquisitions, let's say, the second type, we have finished in a number of due diligences. We made offers also that were not successful because other competitors could make better offers. At the moment, we have a number of due diligences under analysis, especially in cyber, something in space. And those are things that will be finalized, I hope, in a way in another than closing or making the acquisition by the year, of course. And for this, we have our wallet of cash that was realized by selling part of the share of DRS and our capital allocation strategy that will let us go through for the acquisition without making debt. Basically, we have the resources.

[Alessandro Pozzi, analyst]

I believe you have a guidance of EUR 2 billion of net debt by year-end, what assumptions you're making in for M&A?

[Roberto Cingolani, executive]

Yes. This is at the end of the 5 years, so the EUR 2 billion. So yes, at the moment, I think we are EUR 2.8 billion, if I remember correctly, this year, yes. But as I said, these are acquisitions that these are not gigantic acquisitions. So they are perfectly fitting with our free cash flow generation and capital allocation strategy. That is the one we described when we presented the new industrial plan. So not very monster acquisitions. If you can see the 15% to 20% of the revenues of the division, we are talking something in the range of EUR 100 million or so, just to give you the order of magnitude of. Sorry, the second question was with the savings. So every semester, we will report you precisely the numbers. We have now created the digital tool for the real-time analysis. And of course, there is a group of people that is being formed that have been constituted for the controlling. I mean, as we said, this has to go through procurement, logistics, cost of the headquarters, buildings, of course, travel expenditure. There's a number of items that we are controlling and putting under tight control. And of course, Alessandra will be able to give the number at the semester in some detail. But we are on track. I mean, what we promised we should do, the EUR 150 million for the first year.

[Alessandro Pozzi, analyst]

Okay. Just on my previous question. I mean you have a guidance of EUR 2 billion net debt by year-end of '24. And I was wondering what type of assumptions you have made for that number by the end of '24 for M&A?

[Alessandra Genco, executive]

Yes, we have assumed a certain level of activity in the core businesses that Roberto described mainly cyber as well as potentially space as well as strengthening the core activities in the portfolio where we have a market position that is relatively speaking, more advanced than our competitors. So we'll see over the course of the year how these due diligence progress, as Roberto described to you. And in case the number were to be updated reflecting the ins and outs of this pipeline of opportunities will clearly let you know.

[Operator]

The next question comes from David Perry with JPMorgan.

[David Perry, analyst]

I just wanted to come back to the 787 question, but looking at it through a different lens, if possible. I think Alessandra, most of us analysts flew home from the industrial plan, and we added up all of your guidance per division. It came to a much higher number than the overall group guidance that you gave. So it looks like you've sensibly put some buffer in there. If we had a situation where the 787 losses didn't improve, do you still think you will make the overall group guidance from the industrial plan?

[Alessandra Genco, executive]

Absolutely, yes. We do. We do and we are working on that goal very strongly. As Roberto told you, first of all, let me highlight that on B787, we're talking about a short-term issue. The strength of the program is unquestioned. The B787 remains the best-selling long-core platforms globally, and it continues to be awarded significant orders. What we are now facing is a short-term challenge that is going to slow down the pace of increase in production delivery for our customer that we hope it will be sold as soon as possible. On the other hand, we're not waiting for them to solve the issue. We are also taking a number of actions looking at what is the cost base and how we can improve that cost base as well as continuing the negotiation with our customer, noting that, as you may recall, we have already engaged with the customers to receive an upgrade in our pricing, considering the cost level and the inflation factored into our cost base. So using both the cost lever and devising a plan on how to best reallocate the employees that are now focused on one single program throughout the same division aerostructures as well as throughout the group, for filling and filling open positions that we may have throughout the group as well as continuing to engage with Boeing on getting compensation for the additional costs that we are incurring. The model we would like to use is to go for a model that has a pricing, which is a reflection of the production rate that we have on the program so that we can be gaining an offset with respect to the under-absorption of costs, which is entailed when you lower production level.

[Roberto Cingolani, executive]

If I may add something also, standing what Alessandra said, of course, we have to consider also that Boeing has, I think, 600 aircraft to deliver in the 787 family. This is a fact that's signed. And so of course, for us, it's not the reason to stay, to stand and wait for things changing. We will act anyway. But we're also confident that -- and we hope also for Boeing that the problem will be overcome as soon as possible, and those 600 aircraft still remain to be delivered. So even Boeing has a lot of hurry to deliver. And I think we are an active part. I mean we basically will be called to react very quickly when the situation will be unblocked. But once again, this is not a reason to stand and wait. We will do our job anyway. But in the meantime, we know that these things have to restart, and we hope as soon as possible for us and for Boeing obviously.

[Operator]

The next question comes from Martino De Ambroggi with Equita.

[Martino De Ambroggi, analyst]

The first question is on cost savings because you confirm EUR 150 million presented during the business plan for the current year. Could you quantify what was the contribution in Q1? And how should we expect they are split over the year? And when you -- sorry to bother you on the 787 issue, but it's a quite topic. And the EUR 50 million losses in the worst-case scenario you mentioned in 2 years. Is this already including any additional cost-cutting measures or this could be eventually offset with other measures?

[Roberto Cingolani, executive]

Okay. Concerning the saving plan, this was presented on March 20 something. And today, basically, we have finished to set up the digital planning control systems and the team that will control the numbers. So honestly, it will be rather risky to give you exactly the part dealing with the last 2 months, but we do see how things are progressing. At the semester, we will give you all the numbers because at the moment, simply we are not ready to be precise as we like to be. But of course, this is for us a fundamental -- we're on track, yes, but this is a really fundamental way of our industrial plan. So this saving plan will be mandatory for everybody. So we will give you the numbers, but keep us the time until September because we did get started recently. Concerning the 787 --

[Martino De Ambroggi, analyst]

Roberto, sorry to interrupt you if I may. Am I right in assuming that in Q1, savings were basically 0 or very, very low. So the best will come?

[Alessandra Genco, executive]

No, no, absolutely, Martin. No, no. We have faced the saving plan throughout the year because as Roberto recall, there are a number of levers that we're using. It's corporate cost. It's travel expenses. It's real estate expenses, it's energy, it's procurement, both direct and indirect. And all of this is paced throughout the year, and we are delivering exactly on track as we have determined. Honestly, we are more focused on the half year than the quarter because, as you know, the quarter and especially the first quarter, is the smallest contributor for a year. But we have full confidence that we are totally on track because all the levers are in place and are progressing as we have defined with procedures and new processes put in place within the Leonardo organization, supporting the enactment of new behaviors and delivery of those targets.

[Roberto Cingolani, executive]

Yes, the 787 question you were asking. I mean, we just gave an indication, another of magnitude that has been evaluated assuming a rate, which is one of the last weeks basically and taking the minimum conditions to make a calculation. Until we don't have a number from Boeing to be more precise is really very difficult. But the order of magnitude should not be far from what I told you. please consider that we are blind. So we're doing everything based on what we know, but we don't have from the counterpart an information. So we try to see in the worsenario what could be the case. That's all.

[Martino De Ambroggi, analyst]

Very last on full year guidance. The joint venture, the consolidated equity, could you provide the indication of what is included in your full year guidance in terms of EBITDA and in terms of free cash flow for dividends paid by the joint ventures?

[Alessandra Genco, executive]

Yes, Martino. Remember, the drivers of value of the joint venture is the following: MBDA will continue to perform well. It had a really strong 2023, and we expect it to continue in '24 on that track. The business is growing in terms of volumes, in terms of order intake, in terms of volumes, profitability, and it will deliver strong results to its shareholders. [ Thales ] on the other hand, is facing some challenges. We know that in the 1/3 because the problem of the business is 1/3 of the business, which is the commercial satellite for telecom operators. That is the problematic area that we have been working on with Thales shareholder and joint venture partner. As you recall, Thales announced a restructuring plan or a tax level with the absorption of approximately 1,300 people into Thales to lighten up the workforce within [ TAS ] and direct better the effort of the organization and complete the development of these programs that unfortunately are particularly complex from a technological standpoint. Moving on to ATR. ATR has improved its performance. It delivered 4 aircraft versus 2 in the first quarter. So we do see good progress in the operational machine. And we are targeting an increase in delivery throughout the year. In the Aeronautics business, as you know, some supply chain strains still in some components. And the target that the company has clearly mined is to manage those components and master those components and those challenges in order to deliver the targets that was set. On Hensoldt, yes, Hensoldt well Hans is announced its results this year, they're basically flat year-over-year. So the good news is that the business is very well positioned commercially. You have seen a book-to-bill of 2.6x in the first quarter. They will grow throughout the year and increase profitability. So we're confident that also for them throughout the year, we will see a good contribution.

[Operator]

The next question comes from Gabriele Gambarova with Banca Akros.

[Gabriele Gambarova, analyst]

Just a couple. On Helicopters, I was pretty impressed by the very strong start of the year, plus 23% in terms of top line. I was wondering if we can assume, let's say, a double-digit growth for the whole year and if there could be some operational lever effect. And the second one was on [ White and Marina ] sustaining the torpedo subsidiary. I was wondering if there is any update on the disposal process on the talks induces.

[Alessandra Genco, executive]

On helicopters, I confirm, Gabriele, definitely a very good quarter for helicopters. As you well know, the first quarter is the smallest quarter for us. So I would not assume from the first quarter results, a linear progression into the year. Definitely, there is good momentum commercially. The business is growing. We have a very strong commercial -- also support from a cash flow and profitability standpoint from customer support. It's a business that it's now almost 40% of the overall turnover of the division. So all of these are really strong fundamentals that we're confident will drive growth in the business that will be based out throughout the year as per the targets that we have shared with you in the industrial plan in line with those targets.

[Roberto Cingolani, executive]

Concerning the pet business, we are working in these days and these hours other deals. So we are working.

[Valeria Ricciotti, executive]

This was the last question. There are no questions from the web. So thank you, everybody, for having been together with us tonight. And as usual, the IR is always available for follow-ups.