The Board of Directors of Leonardo, meeting today under the chairmanship of Gianni De Gennaro, has unanimously examined and approved the results of the first quarter 2020.
Alessandro Profumo, CEO of Leonardo, commented: “The results for the first quarter of 2020 were in line with expectations until the impact of COVID-19. We immediately reacted to the pandemic with the primary objective of ensuring the full protection of the health and safety of our people, preserving the continuity of business and production. We have slowed but never stopped our activities as a strategic business for our customers in key countries. We are supporting the institutions with our products and technologies, using helicopters in EMS configuration for the transport of patients, the C27J for the transport of medical material and we are providing secure communications. Our satellite services are ensuring connectivity and cyber security is supporting remote work and preventing cyber attacks. We are not yet able to quantify the impact of COVID-19 in 2020, but we firmly believe in our solid fundamentals and remain fully focused on the execution of the Business Plan aimed at creating value for all our stakeholders ".
The results of the first quarter of 2020, after a solid start of the year on a commercial and industrial level, were affected, starting from the month of March, by the first effects of COVID-19 which conditioned the Group's performance. In particular, the following were registered:
- slowdowns in production activities as a result of the actions put in place, in line with government guidelines (review of industrial processes and work organization to ensure social separation, sanitization of environments), to protect workers' health with consequent reduction production hours developed in March and lower efficiency;
- lower progress on the programs following the aforementioned slowdowns, restrictions on the movement of resources and the inability to access customer sites, as well as the initial lower efficiency induced by the reconfiguration of part of the activities in smart working mode;
- postponement of deliveries due to the impossibility for customers to carry out the testing and acceptance phases of the machines, with particular reference to ATR aircraft and civil helicopters;
- during the quarter, the first signs of a drop in demand in the civil market were recorded, induced by the severe slowdown in the transport sector worldwide, which is impacting aircraft manufacturers and consequently will affect the production volumes of aerostructures as well as the forecast sales of helicopters civilian and ATR aircraft;
- negligible effects on the supply chain at the date, which however remains an element of extreme attention
The Group reacted promptly to the new scenario by implementing a series of measures aimed primarily at guaranteeing the full protection of the health and safety of workers, while preserving the continuity of its production, relating to business sectors considered strategic in the main countries. in which the Group operates. In this context, monitoring and action plans have been developed to assess the impacts of COVID-19 on the various areas of activity and limit its effects. From an operational point of view, the initiatives include interventions aimed at recovering adequate productivity levels through the progressive increase of the presence in the sites in conditions of safety, the greater efficiency of remote working with further investments in digital means and infrastructures, the revision of calendars working to support, in agreement with the trade unions, in the second half of the year the recovery of the accrued delays. In parallel, the Group is carrying out a profound revision of its cost base and level of investments, reducing or delaying all initiatives and expenses not strictly necessary or strategic, in order to mitigate the effects of COVID-19 on the results of the year. At the same time, the credit lines were increased to ensure adequate financial liquidity for the Group.
It should be noted that the first quarter recorded excellent commercial performance, not yet affected by the COVID-19 crisis, confirming the good positioning of the Group's products and solutions in the reference markets.
The main changes that characterized the Group's performance compared to the previous year are shown below.
Orders: equal to 3.421 million euros, compared to the first three months of 2019 (2.518 million euros), an increase of 35,9%, mainly due to Helicopters and, to a lesser extent, to the Air Force
Order backlog: equal to 37.000 million euro, it ensures coverage in terms of equivalent production of approximately 2,5 years
Revenues: equal to 2.591 million euros, compared to the first three months of 2019, a slight decrease (€ 134 million, equal to 4,9%) mainly attributable to the slowdowns recorded in Helicopters and in particular to the lower deliveries attributable to the aforementioned COVID-19 effect
EBITA: equal to 41 million euros (ROS of 1,6%), compared to the first quarter of 2019, a decrease of € mil. 122 due to the aforementioned effects related to COVID-19
EBIT: equal to 30 million euro, compared to the first three months of 2019 (€ 156 million), a reduction of € 126 million (-80,8%) mainly due to the decrease in EBITA, in addition to a slight increase in restructuring costs
Ordinary Net Result: equal to the Net Result, negative for 59 million euros, is affected not only by the worsening of EBITA, but also by the greater impact of financial charges
Free Operating Cash Flow (FOCF): negative for 1.595 million euros, (negative for 1.114 million euros in the comparative period). This trend, while confirming the usual infra-annual profile characterized by significant cash absorption in the first part of the year, was affected in part by certain criticalities that occurred in the last month of the quarter due to the effect of COVID-19
Group net debt: € 4.396 million, an increase compared to December 31, 2019 (€ 2.847 million), mainly due to the negative performance of the FOCF
Effects of COVID-19 on Leonardo's business
As already highlighted in the 2019 Annual Financial Report, the COVID-19 emergency is having effects on the regular and ordinary performance of the Group's business activities, in a global context of serious economic recession and high uncertainty. This requires us to suspend the forecasts for the year 2020 formulated in March in the hypothesis of the absence of COVID-19.
Moreover, Italy was the first western country to be affected by the pandemic and therefore the Group from the first quarter was more affected than others by the consequences of the measures issued by the authorities to contain the risk and protect workers' health.
The measures adopted to contain the spread of the virus and the effects of the health emergency affect the Group's production activities, the progress of programs, the supply chain and the possibility for customers to withdraw products and systems. Added to this are the effects that the crisis will have on demand in the markets in which the Group operates, and in particular in that of the civil aeronautics.
The Group reacted promptly to the new scenario by implementing a series of measures aimed primarily at guaranteeing the full protection of the health and safety of workers, while preserving the continuity of its production, relating to business sectors considered strategic in the main countries. in which the Group operates. These initiatives concern interventions aimed at (i) progressively recovering adequate productivity levels, (ii) limiting, through a thorough review of its cost base and level of investments, the economic and financial effects of COVID-19 and (iii) ensuring adequate financial liquidity to the Group.
The uncertainty about the severity and duration of the pandemic and the measures to contain the contagion as well as the impacts on the productive, economic and social fabric of the numerous countries in a state of partial or total "lockdown" in which the Group operates does not permit the current state a quantification of the effects on the Group's performance in 2020.
The Company, as soon as the emergency developments allow a quantification of the possible impact with the related recovery actions, will promptly notify the market.
The Board of Directors, considering the company's order backlog and the commercial trend recorded in the first quarter, believes that what is happening does not change the Group's medium / long-term prospects.