Investing.com -- On April 29, 2025, S&P Global Ratings upgraded the long- and short-term issuer credit and issue ratings of Leonardo SpA, an aerospace and defense company, to ’BBB/A-2’ from ’BBB-/A-3’. The upgrade was due to Leonardo’s solid operating performance and improving credit metrics, supported by a strong order intake in its defense segment. The company’s EBITDA margins are predicted to increase to over 11% by 2025.
The rating agency also noted that Leonardo’s funds from operations (FFO) to debt ratio is expected to stay above 60% in 2025 and 2026, mirroring the ratio in 2024 (63.1%). The company’s free operating cash flow (FOCF) is forecast to be above €600 million annually.
Leonardo’s management is committed to maintaining a balanced financial sheet and an investment-grade rating. The stable outlook reflects the expectation that the group will maintain its FFO to debt ratio above 60% over 2025-2026.
In 2024, Leonardo reported revenues of €17.8 billion, with a record order backlog of €44.2 billion, representing about 2.5 years of revenue. This marked an 8% increase compared to 2023. S&P forecasts revenue growth of about 4%-5% per year in 2025 and 2026.
The company’s capital expenditure is expected to increase in 2025 due to the expansion of its production capacity and the development of its space segment. S&P predicts Leonardo will generate more than €600 million of FOCF in 2025 and 2026.
S&P expects Leonardo’s gross debt to gradually reduce due to higher cash flow generation, strengthening its credit metrics. The ratings agency forecasts FFO to debt to be about 66% in 2025 and 71% in 2026, comfortably above the 60% trigger. Leverage is expected to trend toward 1.2x in 2025 and 1.1x in 2026 from about 1.3x in 2024.
Leonardo is currently transitioning and focusing on bridging the gap from defense to global security through continuous innovation. It is strengthening its core business while paving the way to broader security challenges. It is also exploring inorganic growth, new technologies, and emerging markets through the creation of global alliances.
Leonardo generates about 26% of group revenue from the U.S. and has set up a region-for-region production and supplier network with no significant exports from Europe to the U.S. S&P Global Ratings notes that there is a high degree of unpredictability around U.S. policy implementation and possible responses, specifically with regard to tariffs.
S&P could lower the rating in the next 12-24 months if FFO to debt declined below 60% for an extended period, and if shareholder returns resulted in a weak discretionary cash flow. This could occur if Leonardo implemented a more aggressive financial policy by significantly increasing dividends or share repurchases, or by pursuing large mergers and acquisitions.
A further upgrade is considered unlikely in the next 12-24 months. Ratings upside would depend on robust positive adjusted FOCF alongside Leonardo’s business improving, leading to gradual EBITDA margins improvement; adjusted FFO to debt sustainably and comfortably above 60%, and adjusted debt-to-EBITDA remaining below 1.5x.
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