What is Growth Strategy and Future Prospects of Leonardo Company?

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What is Leonardo's Growth Strategy?

Leonardo S.p.a., a leader in aerospace, defense, and security, is focusing on digitalization and cybersecurity for future expansion. Originally established in 1948 to aid Italy's post-war industrial recovery, the company has evolved significantly.

With a history rooted in key Italian industries, Leonardo has become a global defense contractor, ranking 12th by 2020 revenue. The Italian government retains a substantial ownership stake of 30.2%.

Leonardo is a key participant in major international projects, supplying advanced technology for security and infrastructure. Its strategic direction for 2025-2029 emphasizes growth through innovation and financial planning, including advancements in areas like the Leonardo BCG Matrix.

Leonardo's growth strategy for the 2025-2029 period is multifaceted, focusing on enhancing its core operations, expanding into new territories, and leveraging strategic alliances and acquisitions. The company aims to solidify its position as a global leader in Defence Electronics through product optimization and international cooperation.

Defence Electronics Division Growth

The company anticipates a 3% increase in orders, 8% in revenues, and 13% in EBITA for its Electronics division during the plan period. This growth is driven by a focus on international collaborations and product rationalization.

Helicopters Division Ambitions

Leonardo is targeting global leadership in the civil helicopter market and a key role in the military sector. This involves accelerating order conversion and advancing product development, particularly in tilt-rotor technology.

Cybersecurity Market Expansion

The company is actively pursuing mergers and acquisitions in the cybersecurity sector, evaluating approximately a dozen companies. Potential deals are expected by the end of 2024, with no single acquisition anticipated to exceed 15% of the division's turnover.

Strategic Partnerships and Ventures

Leonardo established a joint venture with Rheinmetall for military combat vehicles in Europe and partnered with Turkey's Baykar Technologies to integrate drone platforms with its sensors and avionics. These moves aim to enhance competitiveness in growing markets, such as the unmanned systems sector projected to grow at 8% annually through 2030.

Geographical expansion and diversification are key components of Leonardo's business development strategy. The acquisition of a 24.55% stake in Finland's SSH Communications Security in July 2025 underscores a commitment to 'zero trust' leadership in Europe, particularly in quantum-safe encryption. Furthermore, the establishment of a dedicated Space Division signals a strategic consolidation of space-related activities and an evolution of its Space Alliance to focus on high-value segments, reflecting the Mission, Vision & Core Values of Leonardo and its forward-looking approach to innovation and market positioning.

Key Expansion Initiatives

Leonardo's expansion initiatives are designed to bolster its market presence and technological capabilities across various sectors.

• Strengthening core business in Defence Electronics with projected EBITA growth of 13%.
• Expanding global reach in the Helicopters division, focusing on civil leadership and military roles.
• Aggressively pursuing M&A in cybersecurity, with potential deals by the end of 2024.
• Investing in advanced technologies like quantum-safe encryption through strategic stakes.
• Forming joint ventures and partnerships to enhance offerings in military vehicles and unmanned systems.
• Consolidating and evolving space-related activities into a dedicated division.

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The company is focusing on innovation and technology as key drivers for its future growth. This strategy involves significant investments in digitalization, artificial intelligence, and sustainable solutions to enhance its product and service offerings across various sectors.

R&D Investment

The company allocated €2.5 billion to research and development activities in 2024. This substantial investment underscores its commitment to technological advancement and innovation.

Digitalization Push

A central pillar of its strategy is the 'massive digitalization' of its products and services. This aims to create a unified, cross-divisional environment powered by digitalization and AI.

Multidomain Interoperability

The company is actively developing technologies that enable multidomain interoperability. This is facilitated by a digital continuum, enhancing the integration of diverse systems.

Genoa Hub and Supercomputing

The Genoa Hub for Industrial Digitalisation, established in December 2021, is crucial for its digital transformation. Its supercomputer, davinci-1, is set to triple in power to over 20 Petaflops by the end of 2025.

Leonardo Hypercomputing Continuum (LHyC)

Through its LHyC business line, the company plans to offer HPC infrastructure rental, on-premise solutions, and advanced algorithm development. It targets cumulative revenues of €230 million between 2025 and 2029.

Space Cloud Initiative

The company is exploring a 'Space Cloud' concept. This involves a network of supercomputers and AI on secure satellites to deliver high-performance computing directly in space.

Sustainability Integration

Sustainability is deeply integrated into the company's 2025-2029 Sustainability Plan, aligning with its Industrial Plan. This plan focuses on high-impact projects across the value chain.

• An estimated capex and opex of approximately €280 million is dedicated to sustainability initiatives over the plan horizon.
• Over 50% of this budget is earmarked for developing sustainable products and solutions.
• The company aims to reduce market-based Scope 1 and 2 emissions by 50% by 2030, adhering to Science-Based Targets initiative guidelines.
• A 'Technological Plus Challenge' was launched in 2025 to find innovative solutions for power conversion efficiency in aerospace, reflecting its commitment to sustainable technology.
• The company's Target Market of Leonardo benefits from these advancements in sustainable technology.

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Leonardo's financial trajectory is marked by robust growth and enhanced profitability, as detailed in its updated Industrial Plan for 2025-2029. The company's strategic planning is focused on sustained business development across its key sectors.

2024 Financial Highlights

In fiscal year 2024, Leonardo reported significant achievements including new orders totaling €20.9 billion. Revenues saw an 11.1% increase, reaching €17.8 billion, with EBITA growing by 12.9% to €1.525 billion.

Order Backlog and Cash Flow

The company's order backlog surpassed €44 billion in 2024, providing approximately 2.5 years of production coverage. Free Operating Cash Flow (FOCF) demonstrated strong performance, reaching €826 million, a 26.7% increase from the previous year.

Debt Reduction and Future Projections

Group Net Debt saw a notable decrease of 22.7% by the end of 2024, settling at €1.795 billion. This reduction was supported by improved cash generation and strategic adjustments to its acquisition plans.

2025 Outlook and Long-Term Goals

For 2025, Leonardo anticipates new orders of around €21 billion and revenues of approximately €18.6 billion, with EBITA projected at €1.66 billion. The company aims for double-digit profitability by 2026 and a doubling of FOCF by 2028.

The Leonardo company growth strategy is ambitious, with the 2024-2028 plan forecasting cumulative orders of €105 billion and total revenues of €95 billion. The updated 2025-2029 Industrial Plan further elevates these expectations, projecting cumulative orders of €118 billion and cumulative revenues of €106 billion. This reflects a compound annual growth rate (CAGR) of 13.1% for EBITA and 15.2% for FOCF between 2023 and 2029, underscoring a strong Leonardo company future prospects. The proposed dividend for 2025 is €0.52 per share, a substantial increase from €0.28 in 2024, showcasing a disciplined capital allocation strategy. Furthermore, the company is targeting €1.8 billion in gross savings over the plan horizon through initiatives like digitalization and efficiency improvements, with €191 million already realized in 2024. This focus on operational efficiency and innovation is central to Leonardo's Revenue Streams & Business Model of Leonardo and its overall business development.

Revenue Growth

Revenues are projected to reach approximately €18.6 billion in 2025, building on the €17.8 billion reported in 2024.

Profitability Targets

The company aims for double-digit profitability by 2026, supported by strong EBITA growth.

Cash Flow Generation

FOCF is expected to reach around €870 million in 2025 and double to €1.35 billion by the end of the 2024-2028 plan.

Debt Management

Group Net Debt is projected to decrease to approximately €1.6 billion in 2025, reflecting improved financial health.

Shareholder Returns

A proposed dividend of €0.52 per share for 2025 indicates a commitment to rewarding shareholders.

Cost Optimization

The company is targeting €1.8 billion in gross savings, with €191 million already achieved in 2024 through efficiency initiatives.

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The company faces several strategic and operational risks that could impact its growth ambitions in the aerospace, defense, and security sectors. Geopolitical tensions, technological disruption, and supply chain vulnerabilities are key concerns that require careful management.

Geopolitical Instability

Global instability, driven by conflicts, can affect eligible markets and supply chains. Increased defense spending by nations, while a demand driver, also presents financial coverage challenges due to high public debts.

Technological Disruption

The rapid pace of innovation necessitates continuous skill alignment and significant R&D investments. Emerging AI technologies introduce ethical risks, particularly concerning automated decision-making in systems.

Supply Chain Vulnerabilities

Despite signs of improvement in 2024, supply chain issues remain a potential obstacle to sustained growth. These vulnerabilities can impact production timelines and cost management.

Market Protectionism

Emerging protectionist trends in global markets create uncertainties for multinational operations. This can affect market access and the execution of global business development strategies.

Operational Challenges

Specific business segments, like Aerostructures, faced challenges, posting a €151 million loss in 2024. The company is actively seeking solutions, including potential co-investors for these areas.

Strategic Alliances

While crucial for market presence, strategic alliances and joint ventures introduce management risks. Potential divergences between partners on operational and strategic objectives can arise.

Management addresses these multifaceted risks through an integrated strategic planning process, leveraging in-depth market knowledge and scenario analysis. The company's diversification across segments like helicopters, electronics, aircraft, cyber and security, and space serves as a key mitigation strategy against market-specific downturns. Leonardo also employs robust risk management frameworks, including a model for responsible business conduct aimed at preventing corruption, evidenced by achieving the highest ranking in Transparency International's Defence Companies Index on Anti-Corruption and Corporate Transparency. This proactive approach is vital for navigating the complexities of the global defense and aerospace landscape and supports the Leonardo company growth strategy.

Risk Mitigation through Diversification

The company's broad portfolio across helicopters, electronics, aircraft, and cyber and security segments helps buffer against sector-specific downturns, contributing to stable Leonardo business development.

Commitment to Ethical Conduct

Achieving top rankings in anti-corruption indices demonstrates a strong commitment to responsible business practices, crucial for maintaining trust and long-term Leonardo company future prospects.

Addressing Segment-Specific Losses

The company is actively seeking solutions, including potential co-investors, for segments like Aerostructures, which incurred a €151 million loss in 2024, indicating a focus on financial performance improvement.

Navigating Partnership Dynamics

Managing strategic alliances and joint ventures is critical to avoid operational divergences and ensure alignment with overall Leonardo strategic planning, impacting its global market presence strategy.

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