Good afternoon. This is the Correvco conference operator. Welcome and thank you for joining the Leonardo First Half twenty twenty one Results Presentation. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions.
At this time, I would like to turn the conference over to Ms. Valeria Ricciotti, Head of Investor Relations and Credit Rating Agencies of Leonardo. Please go ahead, madam.
Good evening, ladies and gentlemen, and welcome to our first half twenty twenty one results conference call. I'm Valera Histori, Head of Investor Relations and Credit Trading Agency. Today, our CEO, Alessandro Profumo and our CFO, Alessandra Tenco, will take you through our progress during the first half of this year, the first half financial results and the outlook for 2021. And we will then welcome your questions. I will now hand you over to our CEO.
Many thanks, Valeria. Good evening, everybody. First of all, I hope that everyone on the call is well. And thank you all for taking the time to join us today on this call. Hopefully, soon we will be able to see you in person again.
There are some important things you can see in our presentation today. First of all, we had a very solid first half back on the growth path and we are on track with defense electronics, helicopters and aircraft all performing strongly. The first half of twenty twenty one the full year, sorry, 2021 guidance is confirmed as well VFXs are on track to deliver track targets. The civil aerospace side remains challenging, although we are seeing some more positive signs. Our strong foundation and core fundamentals give us confidence in the short, medium and long term outlook.
We are also seeing more long term growth opportunities post COVID, leveraging our competencies, advanced technologies and innovation capabilities all across the globe. We are demonstrating our commitment to ESG with a number of successful achievements. So let's look at the first half results. Our commercial activity has continued strongly, actually even higher than pre COVID. We are continuing to achieve strong order intake despite the pandemic with new orders of EUR 6,700,000,000.
We have been delivering well on our strong backlog and we have driven very good top line growth. Our revenues in first half stood at €6,300,000,000 and book to bill above 1. Our operational performance has been further improving. Our main military governmental business remains very strong and robust. While we continue to remain cautious about the timing of recovery of the CV business, also we are beginning to see some positive signs, mainly in narrow boarding and the regional segments.
We have successfully improved cash flow, and we are on track to meet our full year targets. And we are targeting net debt at year end of SEK3.3 billion. All this amounted to a good first half performance in the context of an external environment that is still volatile and affected by the global pandemic. And this performance is due to the quality of our businesses and their core fundamentals and strengths and I have to say to our people as well. Strong confidence in medium long term potentials of our main businesses.
We have been executing well and driving volumes to deliver growth for the medium term in our main businesses and you can see this at business level. First of all, helicopters. Here we delivered well and are on track. Again, commercial activity has been good and remains underpinned by key factors: robust military governmental business attractive customer support and training, a strong backlog more than 80% military and government, the book to bill at 0.1 for the 4th year in a row. Our exposure to military and governmental is providing resiliency, flexibility, solidity and longer term visibility to our results.
And we have been able to catch many good opportunities. We remain cautious on when the civil side will recover, but we are encouraged by a growing number of discussions with customers with good signs in the EMS and the IT market. We feel positive looking forward and certainly our recent performance proves the importance of our strategy like dual use. And we have a clear technology roadmap looking forward to leverage on and build for the future. For example, the AW09 to enlarge our product range and open to market.
Then defense electronics has significantly improved its performance on the European side and in the U. S. We have continued to deposit the trajectory of Leonardo DRS. Electronic Europe had a much stronger first half, very solid in all areas. Defense Electronics has recovered well from last year.
We have been doing the right things to make our electronics activities more robust and predictable. We have demonstrated our ability to deliver as we have built a strategic long term partnership with customers based on trust and close cooperation and understanding customer needs and delivering on them and leading the long term repeatedly. Here, commercial activity has also been very strong, winning good business to add to our backlog despite ongoing travel restrictions. We are well positioned on attractive long term opportunities like EISA, Tempek and Euromaid. And we are seeing attractive long term opportunities across Avionics, land and naval programs.
We are seeing an evolution in the order mix with an increasing number of long term domestic orders based on solid customer relationships. While there are less short term export contracts because COVID is limiting our ability to travel. But overall, we have seen a good step up in both order revenues, EBITDA and profitability. And there are good reasons to be positive looking forward. We can see longevity in our AIFA Typhoon related activities as the aircraft looks set to fly until 2,050 with continued investment ahead of them for new equipment, mainly electronics.
And then we are seeing the developments of the Tempest program and this is giving us the kind of real long term visibility greater than we have ever seen. DRS is also progressing well continuing to deliver on promises. It has a strong backlog around $11,000,000,000 including the unfunded portion. You remember always that we talk of hardbackloggers, soft dayloggers. But the sum of the 2 is around $11,000,000,000 It's well positioned towards key DoD priorities with a visible improvement in EBITDA and profitability driven by program transitioning from development to production.
And you can see all these details in the S-one and its updated update, which we are continuing to make publicly available. Then aircraft is a structurally strong business performing well with a step up this year in its order revenues and profitability. We will continue to benefit from the important AFAC weight contract and also from other AFAC activities into the medium long term. We can also see our longer term future in the fighter market being shaped by Tempest. And the strong success of our trainers is also driving our growth.
We see exciting opportunities developing for our M345 and M346, such as opening a new market for the fighter attack version, a unique platform in the market, And also leveraging a new approach to the training system through the International Flight Training School, selling flight hours. And all underpinned by an important contribution from customer support of around 25%. And we are also very by our position on Air Mail, a key European defense program of the future. All this makes aircraft a growth story for us with an excellent future. While on the civil side, we are proactively addressing the challenges faced by aerostructure.
And we have signed last week the agreement with the unions for the early retirements of up to 500 people as announced in March. This will be NPV positive. As well as the upskilling and reskilling started in 2020 for the redeployment of another Segadir people in another division of the group. In APR, we have delivered 6 aircrafts in the first half and we are on track to meet our full year target of more than doubling last year's EBITDA. We are seeing some signs of market recovery in the narrow body and regional segments of the steel aerospace market.
We expect the ATM to recover earlier than other areas of civil, although not evenly across all geographies. And the cargo market is certainly seeing opportunities with covering leading tailwinds. We will update you in more detail on our progress repositioning the CV business when we present to you the Q3 results. At group level, we are also seeing more attractive opportunities to deliver long term growth post COVID using our existing assets capabilities and technologies, A prime example being the very significant Italian National Recovery Plan, we are very well placed to support as well as the next generation EU. At the same time, we maintain our strong commitment to ESG and can point to a number of success here.
ESG to us is crucial and a key base for our strategy on an industrial plan. This synergy of financial and ESG factors is reflected in our first integrated report, which is comprehensive, measurable and transparent view of the value generated by the conference. And we recently won the CFO award in recognition of Alessandra's work in leading our integrated reporting process, many conflicts, Alessandra. In 2020, we also received key awards. We ranked 1st in the Transparency International Defense Company Index 2020, Avent, we are number 1 worldwide.
We were confirmed industry leader in aerospace and defense of the Dow Jones Sustainability indices. We achieved an A score in CDP for climate change. We have been included in the Gender Equality Index in Group Value. And yesterday, we have been confirmed again at the top in anti corruption with the anti bribery management system certification. It reflects the commitments to integrity, transparency and compliance made over the years and the rules in place to prevent and fight against corruption.
And you see the importance and priority we are placing to ESG also in the new long term incentive plan. Sustainability targets are 10% short term of the short term remuneration. And for the first time, also our long term incentive plan now contains 2 key ESG metrics on which will be evaluated over the next 3 years. This accounts for 20% of the long term remuneration and this is a strong commitment for all of us. So we have a clear alignment of the executive pay with ESG target to ensure sustainability is embedded in culture and behaviors.
The effective management of economic, environmental and social risk and opportunities create long term value and assures reliable and robust returns. I will now hand over to Alessandra, who will go into more detail on our business and financial performance in the
Thanks, Alessandro, and good afternoon, everybody. I want to start with the key topics on our first half results, then cover the performance across the operating businesses and then update you on how we are so far on track for the full year. So starting with our half year results, in summary, you can see we had a solid first half to the year. Commercial activity has continued strongly with orders of EUR 6,700,000,000 up 9.5%. We have delivered well on our strong backlog and driven good top line revenue growth, up 7.9% at CHF 6,300,000,000.
Euros Military governmental remains very robust, while we remain cautious on the timing of the civil side recovery. We are clearly strengthening our performance as we increase volumes and reduce COVID impact while executing on programs. EBITDA in the first half of €400,000,000 translates into a return on sales higher than last year at 6.3%. Despite the cash pressures on the civil side, group free cash flow is negative €1,400,000,000 following our seasonal trend but increased materially on the same period last year. And so far, we are on track to meet our full year targets.
All this amounts to a good first half performance, especially in the context of an external environment that is still challenging and affected by the global pandemic. Now let's look in more details at the key group metrics across the operating businesses. Starting with new order intake, which was 6 €700,000,000 This is a strong performance. We have continued to win important contracts, and it shows the strength and resilience of our military and governmental business with continued affirmation from customers in our important domestic markets as well as on the export side. And again, we saw good performances across the group and especially strong performances in defense Electronics and Aircraft.
Helicopters performed well with important order wins. Order intake was €2,000,000,000 in the first half, lower year on year because of the major U. K. Merlin customer support order we booked in 20 20. Major order of notice were a follow-up order for 36 TH-73A, the AW119 helicopters for the Navy training, other follow-up orders for the Italian Army and an order for the AW139 Helicopters for Saudi Arabia.
In Defense Electronics, overall, we saw order intake of $3,600,000,000 of which EUR 2,400,000,000 in Electronics Europe, showing a significant increase on the previous year. Highlights here were orders to supply equipment for the Italian Navy New South Marines and also continued successes on the IFA Typhoon program, winning orders to supply radar and area protection systems for the German Air Force under the broader Farfia program. On a smaller scale currently, but of a growing importance for the future, we secured the next tranche of PEMPE's funding. We also won orders in the civil in the Tyler segment for the Italian Carabinieri and the MOD. In the U.
S, DRX order intake was €1,200,000,000 continuing to benefit well from its position in key markets and its alignment with DoD priorities. In Aeronautics, order intake was €1,300,000,000 The aircraft division performed very well and again accounted for about 65% of this total, winning export orders for the M346 trainer aircraft. On the other hand, aerostructure orders sales fell to 133,000,000 reflecting much lower demand from its main customers Boeing, Airbus and ATI. So overall, we can be very pleased with the level of commercial activities around the order intake. We have succeeded in keeping our book to bill above 1.
Moving on to revenues. Revenues were $6,300,000,000 for the first half, a good top line performance driven by our strong backlog and solid order intake. Best evidence of the quality of the businesses and the growth path is confirmed. And we saw top line growth spread across all our divisions except Aerostructures. Helicopters achieved €1,900,000,000 of revenues, a double digit increase, up 11.6%, as we ramped up volumes on military and governmental programs such as the NH90 for Qatar and the CH 73A for the U.
S. Navy as well as higher revenues on the AW189, 149 and 169 lines. Defense Electronics as a whole also achieved double digit growth in revenues, up 9.3% to 3,200,000,000 dollars with the European side showing strong growth of 15.5 percent, while DRS in the U. S. Continued its positive growth trajectory.
In constant currency, also up approximately 10%. Aircraft increased first half revenues by 15% to EUR 1,200,000,000 dollars with the growth driven by the trainers M346. So overall, a solid and resilient revenue performance across the group and a key reliable driver of our medium term revenue growth. We can rely on a strong backlog to deliver this long term growth. And the backlog was €36,000,000,000 large in size, including key large orders.
The backlog covers almost 3 years of equivalent production, and it is well balanced, as you have seen, across our core businesses, our core geographies and between military teams and customer support. We have also improved our operational performance in the first half, with group EPK increasing 37% to €400,000,000 return on sale rising to 6.3% as we increased volumes and delivered our programs, and we saw further recovery in our operating efficiency as we continue to reduce the impact of COVID. We have delivered a stronger industrial performance across all our main businesses up from 2020 and despite the ongoing drag of the Civil and Restructures business where losses increased as expected in the first half. Looking at the individual businesses. Helicopters EBITA increased its first half results to EUR 148,000,000 mainly due to better industrial efficiency compared to 2020 and resulting in raws slightly, slightly lower at 7.8% because of the mix of activities.
Defense Electronic EBITA was the standout performer in the first half, increasing total EBITA to 297,000,000 euros The European side doubled performance to €201,000,000 increasing growth from 5.6% to 9.6%, again, on the back of increased volumes and improved program performance across businesses as well as actions to reduce the impact of COVID and increase efficiency. Meanwhile, in the U. S, we saw DRF continue on a very positive trajectory, increasing EBITDA in constant currency to $116,000,000 up 66% with RAS rising from 5.7% to 8.7%. This includes clear signs and evidence of the margin expansion as programs transition from development to production phases. In aircraft, first half EBITA increased to $150,000,000 another strong performance with strong growing volumes and improved efficiency.
RAS translated into 12.2%. As we expected, losses in our Civil Air Structure business increased in the first half to EUR 82,000,000 dollars and volumes fell across its production sites. ATI itself actually reduced its negative contribution from €34,000,000 to €21,000,000 on the back of successful actions on cost, a better contribution from customer support and even a slightly higher level of deliveries. 6 aircraft were delivered in the first half of twenty twenty one versus one single delivery last year. Lastly, space contribution turned around and improved to positive CHF 23,000,000 dollars as we saw higher production volumes and better profitability in the Manufacturing segment and one off income at tax levels.
Now moving to the below the line items, you can see that first half EBIT rose by approximately 50% to EUR347,000,000, reflecting the improvement in EBITDA. The nonrecurring costs in the first half amounted to €35,000,000 compared to €45,000,000 last year, with restructuring costs still not including expected costs associated with the Aerostructure pension pre retirement pension plans. CPA was €11,000,000 Our net results reflected EBITA performance, financial expenses of €88,000,000 and lower impact from FX hedging activities. Meanwhile, our free operating cash flow was negative, almost €1,400,000,000 dollars compared to negative €1,900,000,000 at the same time last year. We are pleased with that improvement.
And although our cash flow is heavily weighted to the latter part of the year, it all means we are on track at this stage to meet our full year guidance. We also confirm our strong liquidity position at €4,200,000,000 as well as good financial flexibility in these exceptional times to cope with possible swings in financial needs. Now let me give you an update on how we see the outlook in the full year. You have seen that we have delivered a solid first half, and we are on track with our expectations. Our main businesses are delivering, and the year has started well on all metrics.
We are confirming our full year guidance, assuming progressive improvement in the global health situation throughout the year with consequent normalization of operating and marketing market conditions. You can see it here on the slide, continuing good commercial momentum and new order intake. Group top line growing as we leverage off a solid backlog group EBITA improving and remaining robust despite receiving softness and continuing COVID effects and group's free operating cash flow of circa €100,000,000 with resilience on the defense side offset by the expected increased pressure on aerostructures and more normal levels of net investments. And let me remind you that we expect to absorb cash in the Q3 as per the usual seasonal pattern. Looking at our businesses across the group.
In Helicopters, on track in the first half delivered a good performance. We are encouraged by continued strong commercial activity, which remains underpinned by robust military, governmental and customer support. We're cautious about the speed of recovery in the civil side, but we're starting to have some more engaged discussions with customers, mainly on EMS and VIP. We feel positive about being on track for the full year, and this confirms strength of the business. Defense Electronics.
On the European side, we saw a very strong first half and feel on track for the full year expectations. We are also seeing the benefits of a more robust and predictable business and at the same time winning good new orders and growing both our top line profitability and cash generation. In the U. S, DLS has also had a solid first half and remains on track with its positive trajectory. It has solid prospects driven by its positioning towards key DoD priorities and programs under development moving into production phase, so delivering the expected margin expansion.
And in aircraft, we also saw a solid first half and we are on track. Volumes have been increasing, margins remain strong, and we continue to build on our backlog with a strong fiber market and export opportunities for our proprietary platforms. Aerostructure has the most exposure to civil markets. As we expected, this year in 2021, we are seeing the impact of significantly reduced demand from customers, Boeing, Airbus and ATR, because of falling air traffic demand. And we're still expecting a cash absorption of €350,000,000 to €400,000,000 in 20 21, more towards the lower end of the range of €350,000,000 Then our ATR joint venture continues to face challenges, but we are seeing some more positive signs in the regional market.
ATR is on track to more than double its delivery this year versus 2020. Finally, space is on track for the year. So to sum up, you have seen in our first half results that we are on track and delivering in an external context that remains volatile and uncertain. While remembering that our business is weighted more to the second half. But the key points here are we are back on the growth path with continued strong commercial activity building our order backlog with a book to bill above 1.
The backlog driving higher volumes and top line growth across sectors. Profitability benefiting from increasing volumes and solid industrial performance and cash flow on track supported by detailed action plan delivering the first effect already in the half year. And with that, we are ready to take your questions. Thank you.
This is the Corusco conference operator. We will now begin the question and
answer
The first question is from Alessandro Pozzi of Mediobanca. Please go ahead.
Hi, good evening all. My first question is on free cash flow. I'm just looking at the company compiled consensus and the 2024, I think, is around €700,000,000 free cash flow. And in order to get to your guidance of neutral net debt by the end of the plan, I think we should assume a free cash flow above the €1,000,000,000 mark from 2025. It's quite far in the future.
But I think it will be very useful to know how much of that is structural, how much of that is just a working capital reversal. We know there is a bigger Kuwait program helping, but we also know that the Kuwait has a payment that spreads throughout the plan. So I think any indication on how that free cash flow is supported and whether there is a bigger structural element, I think it will be helpful. And also given that you're probably going have so much cash, what is the appetite for more acquisitions going forward? How much of that free cash flow generation will be for disposal?
That's the first question.
Okay, Alexander. So the buildup of that cash flow over time is mainly the result of 2 drivers. The first one is the strong continued delivery on the military government shutdown backlog that we have and the continued commercial success that in this business segment as a group is achieving as we are showing also in this first half result. And this is resulting in a higher top line with higher visibility and deriving cash flows with associated tight working capital management and all the actions we have taken to maximize cash ins and timely cash ins of activity and milestones. The other driver is the decreasing absorption from the Civil Aeronautics business with a recovery in production volumes as we are starting to see in some segments of the market.
And we are confident that towards the end of the plan, in the second half of the plan, there will be more production associated with all the programs in which we are engaged.
Yes. On acquisition, we don't have any specific appetite. The appetite we have is to be investment grade. The day we see we'll be investment grade, we will do any action which is necessary in order to keep this investment grade position.
Okay. Thank you. I also have another question on DRS. We've seen a nice recovery in margins. Should we assume those margins to be stable at that level 9% rose?
And also, do you think that allows maybe DRS to be better valued? And do you expect do you think market conditions are now improved compared to when you try to IPO the business early in the year?
First of all, you remember that when we decided to postpone the IPO was really a specific market condition. What is good and you stressed that is the fact that there has been a significant improvement in terms of margin. In reality, TRS is delivering what the promise during the roadshow. The problem was that at that time, there was a significant discount by the market on the results we were promising. I think that today we have shown in the Q1 and the Q2 that there are structural elements for which the ARS is improving the profitability.
Mainly the fact that we are and this is a really strategic choice, We are reducing the acquisition, in any case, growing them more than the market of new programs. And we have a higher number of programs, so the weighted average is changing that is moving from development to production. You know better than me that in U. S. There is a significant difference in terms of marginality for development program and production programs.
Today, we are still above the market rate in terms of balance between development and production, but we are lower than the peak we had 2 years ago, if I remember correctly. So the improving profitability of ERS is implied in this structural element of ERS.
Okay. Would it be fair to assume that maybe the IPO is something to happen before year end?
If you have a case that I can see the market in the second half of the year, we will pay a little bit this crystal ball so that we know if the market will be not so much. We are very cautious on cost. But clearly, it is impossible to say how the market will be, if the market will be positive. As we always said, we have postponed the IPO not withdrawn.
All right. Thank you very much.
The next question is from Andrew Humphrey of Morgan Stanley. Please go ahead.
Hi, and thanks for taking my question. I've got a couple if I may. You mentioned in your prepared comments the agreement that you've signed for early retirement of 500 people and indicated that would be NPV positive. Would it be correct in assuming the implication there is that there is an upfront cash cost to that? And could you highlight in a bit more detail whether that is included in your cash absorption assumptions for this year or the timing and extent of any cash outflow associated with that?
And the second question that I have is since you last reported, obviously, we've had some further kind of shifting to the right on the 787 Boeing even producing below the 5 a month they'd outlined previously. Does that have an incremental on Aerostructures and your expectations on recovery? And I guess kind of how close are you to the kind of end state on restructuring of that business?
First of all, many thanks for the question. It's because the first one, early retirement, is a nice source. So we have an upfront cost. The cash flow will be positive year after year because when we have we charge all the cost when we signed the contract, we have the outflow of cash when the people is in reality retiring or getting out from the company. So and year after year, the savings we have of the people retired is higher than the cash flow outflow is higher than the payment that we have to provide to the one that are going away in the year.
So we have a charge this year is a one off charge that would be an extraordinary cost. And we will have the outflow during the time in the next 3 years or even more, sorry. So it's a long period of time. So it's positive both in terms of cash year after year and then in terms of NPV. On the 787, we don't have a major impact.
As you know, we are below 5 even today in terms of rate. But Varegosophe with the supervising division will provide more details.
Up to now, really, you have seen that Boeing announced a temporarily lower than 5 per month and that will gradually return to current level announced. So really, we do not have a foreseen impact in the numbers that we had in our plan for the year. And as Alessandro said before, we mainly remain at an average value of 5 per month without a real impact as soon as we will grow up during next year.
And could I kind of jump in with a kind of final one
The implication, as I see it, if I
The implication as I see it, if I take the midpoint of the full year guidance is that second half revenue will be up about 2% on a reported basis year on year at the midpoint. That's clearly a kind of deceleration from where we've been in the first half despite what one assumes to be easier comps in some of the businesses sequentially. Can you confirm that and say are you being a little bit cautious on maintaining rather than raising that guidance?
Since I started to manage the company, we have been always cautious. So we have always paid detailed promises. Okay. Much appreciated.
The next question is from Martino De Ambroggi of Equita. Please go ahead.
Thank you. Good evening, everybody. One question is on the guidance, but if it's possible to have a view on Helicopters and Aircraft ex aerostructure for the full year in terms of operating performance standalone for helicopters and aircraft? The second is a general question on the Italian National Recovery and Resilience Plan. I don't know if it's possible, maybe it's too early to quantify what could be a potential order intake for you.
And if not, at least to have an idea what is the overall amount of the business you may bid for?
Okay, Martina. I'll take the first part of your question on Helicopters. What we're seeing in Helicopters is on the military and governmental business, which accounts for really 85% to 90% of the total of the backlog, a strong delivery profile across all programs, very important programs that we have in the backlog. So we do see continued support coming from that side of the business. Coupled with a very resilient customer support that accounts for more than 1 third of the total turnover of helicopters.
And where we do continue to see a level of flight hours a very significant applied fleet for the family and for the entire AW platforms very, very sustained. So those are the dynamics. As we said on the civil side, we see more engaged conversation on the VIP and on the medical EMS segments. The others on oil and gas and utility remain subdued and we are a bit more cautious. But again, we have a lot to deliver on the military and defense backlog.
On aircraft, well, the aircraft, let's remember that it's very strongly anchored on international programs, Eurofighter and JSF, where we continue to see solid order intake. On JSF, we're maintaining strong production rates and assembling aircraft for the Italian customer for other customers. And on the wings production, the rate is maintained, sustained and we do see also additional opportunities, business opportunities potentially coming through. On the aircraft, the Eurofighter, where you've heard about, Quadriga in Germany, the 38 aircrafts and there are a number of other export campaigns that the consortium is working on. Combined with that, what we have registered in the first half of the year is traction on the trainer business where the M-three forty six in particular has been confirmed as the leading platform for the training of pilots that we'll be fighting on the 5th generation filers, relying on 5th generation filers.
And that remains a key franchise business for us well recognized. I will leave the floor now to Berenio to talk about the next generation EU program.
Thank you, Alessandra. If I may, on Helicopters, double digit EBITA margin is a reasonable target for current year? And for the aircraft, is it possible an extra performance because of the deliveries of the Eurofighter program or more or less similar to last year?
Martino, it's important always to remember that you're always seeing the EBITDA margin, but we are entering an incredibly large program where there is a huge pass through in EBITDA. You have to remember that because the €3,700,000,000 order from Qatar on which we start to have significant milestones. We have a work share which is slightly above 40%. So the remaining priciness and then 60% were at any day which is fairly different. But we like a lot this 50%, shall we say, 50 something percent because we have a margin without committed capital.
So, I think that we have a little bit to get out from this topic over return on sales unless you incentivize the company not to grow.
Clear.
So as you know, I prefer to talk of return on invested capital. I know that we are providing the number at the group level, not the division level. We have internally all the numbers at divisional level. But this is shall we say that it's not feasible today to communicate to the market. But again, what we are seeing is significant growth everywhere in terms of return on invested capital.
And we like a lot to be the time on large programs. Unless we will be always a secondary player. I hope that has been very clear.
Yes, very clear. Thank you, Alejandro.
Okay. Thanks. Okay. On the second question, really, the next generation you provide a big set of opportunities, mainly positioned in the medium term strategy. They play right to our core strength and capabilities, as we said some months ago.
We are leveraging on asset technology, which we have inside our core businesses. And also, we shall keep our strong advantage from internal lapse that Leonardo and the Leonardo choice to work on disruptive technologies such as the cloud, the APC, the artificial intelligence. So really, we cannot quantify now which could be the impact And but we have a very large size of project with a significant number of projects already in place in order to be immediately ready. No formal tenders have been issued yet. So we cannot quantify and we do not have a real number.
But we can cover all the cluster that we anticipated some months ago. So I don't want to be boring, but global monitoring for the environment, for critical infrastructure, digital public administration, logistics, space economy. And the more we work on our internal capability, the more we found significant project that we can apply and that we will apply as soon as the tender will be issued.
Okay. It's a rather difficult matter.
More than difficult. It's difficult today to quantify. There are many areas on which people get involved. Today, there is not yet any tender already issued. So we have to wait in order to see.
We know that we have many different projects that we have presented related to the recovery plan.
Thank
you. That are mainly on the civil side, just to be clear.
The next question is from Chris Hallum of Goldman Sachs. Please go ahead.
Yes, good evening everybody. Just one question on cash flow seasonality. So cash has obviously outperformed expectations, but remains very seasonal. And I'm sure you've seen that several of your European peers seem to have been able to break that normal seasonal pattern and are now pointing towards a more balanced first half, second half splits for free cash flow. So I just wonder what you think has enabled them to do as compared to the dynamics that you're seeing and the customer discussions which you're having and whether in the coming years of the plan we might to see lower seasonality first half, second half on the cash flow side?
I think that should be important to ask to all these players what is the contribution of the domestic customer. Because we have the feeling that there is the government of the country where their base is anticipating some order in a significant way. But again, clearly for us at least it's a priority to talk with all our customers. As you know, on the domestic business, we don't have upfront payment. So we have the payments only when we have the advancement of the milestones.
So for us is slightly different. And what we are seeing is that on the international customers, the number of anticipated payments is lower. So since we are consuming the old anticipation which are significant, for instance, Kuwait anticipation has been significant. You remember the volatility we had year after year on the advance payment of Kuwait when we started to consume this advance payment. So we do expect a more stable trend for 2 reasons.
1, we have in our pipeline any other 2 more orders. Secondly, also the large orders, for instance, that order has not been significant in that order down payment. So it's which is better when you start this good, when you deliver because you have the cash flow more in line with the week. So it's relatively positive. You can be sure that we have an incredible focus on moving from order to cash in.
Again, the front line that usually is better the electronic business than the transport business. We have 2 parts of the business which is relatively large. We are also working a lot with all our customers in order to analyze the procedures and to see if we can have a more stable cash flow stream during the life of the order. Unfortunately, what I discovered is not only the Italian governmental business or the health business, which is focused on the year end, because many countries the last months of the fiscal year not enough the countries are likely to be enough the fiscal year end in December, but there is a rush for contracts and payments. That's helpful.
Thank you.
The next question is from Nick Cunningham of Agency Partners. Please go ahead.
Yes. Thank you very much and good evening. I wanted to ask 2 things, both about aeronautics. First of all, on aerostructures, it's obviously very good to hear that you're beginning to deal with the capacity issues. But I wanted to look at the sites issues as well, particularly Gratalia, because it's obviously such a single specialized very large site.
And I imagine that 5, 7, 8, 7 a month is probably using maybe a single shift on one of the lines. And so is there a way of dealing with that? Are there other things that can go into Britannia, given how specialized it is, that enables you to use that overhead more efficiently as well as just dealing with the headcount issues? And then the second question was about military aircraft. And again, very good to hear that M346 and now M345 are beginning to sell.
I'm wondering, can you give us some kind of rough indication as to what proportion of revenues were accounted for by trainers? And also what the visibility is? Because I know in the past, they tended to sell in small packets, if you like, and so you get some activity and then it stops and then you get some more activity. So I'm wondering how much visibility there is for a sort of steady base load of trainer activity going forward? Thank you.
So I will start to answer to for the Aerostructure business and I leave the floor to Valerio. You are right, we have 2 sites which are mainly focused on a single program. 1 is Glutile and the other one is Povelliano. 2 different stories. On the ATR, as we said, we are confident, very confident that there will be a good recovery now in 2020 2021.
We do expect to clearly to be better than the previous year at the ATR level, at GA level for in terms of production for us, we are utilizing also some we had in the past that we are managing properly the HR cost. Then we will see in the next years a recovery. Clearly depends also on as you remember that when Alessandro was talking spend some words on the fighter model is something that today's where as I said expected and Maybe that this will improve furthermore because it's an aircraft which is very useful for shall we say the electronic sales business of Amazon, Google or whatever it is. Then the other factory which up to a certain extent is more complex is Grotalia because it's focused on the 787. In Promigiano, we have also some other capabilities.
So there is other businesses that can be done in Pobigliano. In Grotangie, as we said, we are working in order to look for new activities, some new working package from existing customer and some working package from completely different sector for instance the yacht sector. The big question mark is what we left to the 787 talking with the airline companies, everyone is saying that it's still the best aircraft in the segment because in terms of operational cost is the lowest one. So I'm sure that the program will be successful. So, it's a matter of time.
As you know, we from the fuselage, dollars 1400,000,000 we will have a different price, which has been already negotiated. So I'm very confident that the price is what will be the rate in the next 2 years. But I'm very confident of the fact that this aircraft will
No. I think that mainly you said everything about the 2 sides. Really, Pompiano, as you said, there is something that we can manage in a simpler way, being ATR 50% under our technical also responsibility. So we are pointing of new version, the freighter. We are developing the shorter cost and landing.
And we are also evaluating which could be in the future additional market in order to use in order to be expanded and have opportunities for ATR. Comigliano has also some engineering capabilities and a sort of autonomy. At the same time, Grotaje is through what has been said, but you shall also remember that if we come back 24 months ago, we were at 14 ships per month. So we were at the maximum rate. And we are trying to define how to diversify production, obviously, with a short term impact because in other case, we shall invest and there is not a short term solution.
We shall also consider that really we our idea is that the rate of the 787 will grow and probably could also grow better than expected as we have now in our plan, really, considering the product and the market.
Okay. Nick, going to your question around the military aircraft and visibility. So on the military aircraft, the trainer, as we're saying, this year has had already the first half and is expected for the rest of the year to have a solid and strong order intake that will guarantee a stable level of production for the year to come. I'm speaking namely about the M3 46. That's clearly a production level that will be related to machines as well as to customer support.
We also have to remember that we are coupling the traditional sale of aircraft with a new business line, which is the International Flight Training School, where we're actually selling flight hours. And we are in the ramp up phase, but we're seeing we're signing up customers, we're signing up various air forces in Europe and beyond Europe. And this is good news. It's clearly going to fuel another avenue for stable growth for the platforms as well as our ability always increasing ability to provide value adding services to our customers, which are very much sought after.
Thank you. And thank you for the very thorough answer on Gratalia. Just on the M-three forty six, so it sounds like you've taken a lot of orders, but production hasn't really ramped up yet. Asking the question then in a different way, what proportion of revenues do you see it going to for military aircraft in, let's say, a couple of years from now?
Well, starting from the 2020 level, we do see an increase in the next couple of years, which could be in the double digit range. Now we also have to remember that the market, the trainer market globally compared to the fighter market proportionally is a niche market. So we can't expect the trainer market within the aircraft division to represent a major portion of the total number. It's a healthy portion that again, coupled with customer support that standardizes production rates in large pieces.
Absolutely. It's nice if you own a big piece of that niche.
I missed your question again, Nick.
I said it's nice if you own a big piece of the niche. It's so niche market is good if you have a large percentage of it.
Yes. I mean, we do feel that in the M346, honestly on the platform is recognized as the leading platform. We have sold the M346 in Singapore, in Israel, clearly to the Italian customer. We have been selling it to many other international customers globally, some of which we have mentioned, some other As well as Fighter Attack Mobile. As well as the Fighter Attack.
We are expanding the suite of products with the Fighter Attack and Fighter Training versions of the platform. And we see that there is really an expanded business opportunity to pursue and we have started to capture the first elements and the first fruits of this market.
We are aware that we will have an critical competitor by the trainer in U. S. When they will be. As you know, we have lost the tender for a price issue. Just to be clear that the price has been won, we would have in our opinion, there should be a loss close to €2,000,000,000 which is very relevant.
And I'm sure you won't be happy with this loss, this other account we made. As we know as well there is already a 1 year delay and we see if that won't be longer. So in any case, our trainer today is the trainer of the market.
We have also, as Alessandra said, we are selling the aircraft. Really, we are selling flight tower. But at the same time, we have the opportunity to enlarge the market throughout the IFTS because IFTS, which is developed with Italian Force, can permit several countries to train on our platform and to understand which is the real advantage of the existing trainer and fighter attack because it's a family, the 346. And so really, at the moment, we are we have the best platform in the market with the best training system.
Yes. Valera is pointing a key point. We are not only selling a platform, we are selling a training system. So with the simulators and with all the end that can allow to reduce dramatically the cost for the training, which is very, very important in terms of cost for the force that want to train. A pilot for a 4th, 5th and 6th generation aircraft.
Thank you very much.
Good.
Okay. We'll take 2 questions from the web, final ones. The first one from Celine Fornaro at UBS. She said pre operating cash flow was meaningfully better than expected. Could you please explain the main drivers behind this and how we should think for the second half as your guidance remains unchanged?
Also, what level of factoring shall we assume for 2021? And was it a tailwind in first half? Would you think it would be appropriate to reconsider a dividend payment?
Okay. Answering Celine's question, well, we did have a strong first half of the year cash flow generation. We need we reduced the cash flow absorption by €500,000,000 year over year. This is a result of all the actions we have put in place already last year and that we have confirmed for this year prioritizing cash ins on any other element. There is a base of focus across the entire group at program level from delivery of platforms to customer support, delivery of services on cash in.
So we have programs from orders to cash to expedite cash ins, also leveraging strong relationships with customers and incentivizing the sales force on cash ins and not only on sales. So that is what we are seeing. Now for the full year, we are on track to deliver the target that we have with the $100,000,000 of cash flow generation. There are, as you can appreciate, significant cash ins that we have to bring home on a number of contracts. As usual, we are heavily weighted to the Q4 in cash generation.
So we'll continue to maintain a strong focus on cashing ins and we are on track to deliver the target. On dividends, I think we are it's a bit early to discuss the dividend policy. We clearly want to prioritize the net debt level and the investment grade position, as Alessandro was saying,
above any
other Dividends are part of the picture, and we'll have Dividends are part of the picture and we'll have, I think, a better understanding and we'll be better positioned to make a call once we have the new plan in place.
And the final question, could you please help us understand if we should expect any impact from the Boeing 787 issues? Or are they already within the guidance? It's from Ben Hill and Bank of America.
No. The effects of these recent announcements are, as Valerio explained before, are basically factored into our production rates. So there are no fundamental changes or impacts on the guidance.
Okay. As there are no further questions, we just want to thank you for being with us today. And the IR team is always available for follow-up.
Thanks. And for the one of you are in U. S, good