Leonardo Spa · MIL:LDO
Leonardo Spa — Investor Day (January 2018)
78 slides from Leonardo Spa's investor day presentation, Jan 30, 2018
Slide 1: Industrial Plan Presentation
Industrial Plan Presentation Vergiate (VA), 30 January 2018
Slide 2: Agenda
Agenda Introduction Raffaella Luglini, EVP External Relations, Communication, Italian Institutional Affairs, Investor Relations and Sustainability Part 1: Context and overview Context and industrial plan overview Alessandro Profumo, CEO Helicopter division insight and action Gian Piero Cutillo
Slide 3: Context and industrial plan overview
Leonardo Industrial Plan Context and industrial plan overview Alessandro Profumo Chief Executive Officer Vergiate (VA), 30 January 2018
Slide 4: A plan to return to sustainable profitable growth
A plan to return to sustainable profitable growth A lot was achieved in Leonardo in recent years The re-set in 2017 was disappointing We are confident about the opportunity for Leonardo We are going to set this business up to win A sustainable financial strategy 4 © Leonardo - Società per
Slide 5: A lot was achieved in Leonardo in recent years
A lot was achieved in Leonardo in recent years Took the right steps in weak markets… STRONG ACTIONS ON COSTS RETURNING TO POSITIVE FOCF (€ mln) FOCF (€ mln) SG&A Net Investments 1,076 750 961 427 Avg. 2014–2016 c.€ 290mln 1 2 FY14 FY16 FY14 FY16 FY14 FY16 RESTORING PROFITABILITY REDUCING NET DEBT EB
Slide 6: The re-set in 2017 was disappointing
The re-set in 2017 was disappointing Created two perspectives for today… Short-term Longer-term Helicopter recovery New industrial plan 2018 outlook Sustainable financial strategy Addressing the short-term to move forward with our long-term discussion 6 © Leonardo - Società per azioni
Slide 7: Temporary issues in the Helicopters division
The re-set in 2017 was disappointing Temporary issues in the Helicopters division EXTERNAL FACTORS INTERNAL FACTORS FINANCIAL IMPACTS Continued market decline Lower military sales Lower profitability on young products Changing market mix in Intermediate Lack of sales discipline on re-confi
Slide 8: Helicopters remains a strong and high quality business
The re-set in 2017 was disappointing Helicopters remains a strong and high quality business Leonardo still taking market share… Fundamentals remain strong Civil market share… Taking market share >30% Quality leadership vs. peers 25% Strong profitability vs. key peer Confidence in a recovery 20
Slide 9: We are entering a new phase: back to growth
Confident about the opportunity for Leonardo We are entering a new phase: back to growth CONFIDENCE IN FUTURE GROWTH Our target markets will grow by 6% High quality products c. 6% c. 80% Highly valued by our customers Leonardo addressable Leonardo revenues in market growth markets with improving tre
Slide 10: We are going to set this business up to win
We are going to set this business up to win 2018 Leonardo 2.0 Enhanced Business Approach Transformation Portfolio Reshaping Value and Creation Strengthening 10 © Leonardo - Società per azioni
Slide 11: We cannot cut our way to sustainable growth
We are going to set this business up to win We cannot cut our way to sustainable growth… New commercial strategy Investing in an extended representative offices network 2018-2022 New CCO organisation Varsavia Oslo Montreal Paris Astana Increased presence in Tel Aviv Baku Algeri Tokyo international m
Slide 12: Strict cost control delivered through clear actions
We are going to set this business up to win Strict cost control delivered through clear actions Initiatives • Strategic Sourcing • Spending continuous improvement • Offload optimization • Should cost on proprietary products • • Engineering excellence Zero defects manufactoring and industry 4.0 c. €2
Slide 13: A new sustainable financial model
A new sustainable financial model Doing the right things for the long-term: Sustainable profitable growth… Return to top-line Strict cost control, Sustainable improvement Focus on cash and a growth reinvested in growth in profitability stronger capital structure C. 70bn C.€200mln C.10% c.50% 2018-20
Slide 14: A plan to return to sustainable profitable growth
A plan to return to sustainable profitable growth We are confident about the opportunity for Leonardo Now it's time We are going to set this business up to win to execute A sustainable financial strategy 14 © Leonardo - Società per azioni
Slide 15: Helicopter division insight and action
Leonardo Industrial Plan Helicopter division insight and action Gian Piero Cutillo MD Helicopters Division Vergiate (VA), 30 January 2018
Slide 16: Key Messages
Key Messages We have a high quality Helicopters business with the right product strategy We are clear why we didn’t perform in 2017 and we have taken action We have a great opportunity in the right areas of an improving market We are executing a plan to deliver a return to sustainable growth 16 © Le
Slide 17: We have a high quality Helicopters business
We have a high quality Helicopters business There is no structural problem High performing products Leadership positions in key segments Civil market share >30% Gained share during market decline Flexible “product family” Leading innovations Well positioned for military and services market trends St
Slide 18: The answers in two very different business/markets
We have a high quality Helicopters business The answers in two very different business/markets CIVIL MILITARY Absolutely correct product strategy Not linear business and highly opportunistic Well impacted by external and internal factors Some opportunities missed in the past Very well positioned in
Slide 19: Strong External Factors in the Civil Market
We are clear why we didn’t perform in 2017… Strong External Factors in the Civil Market SIGNIFICANT MARKET DECLINE $ bn –45% 5.6 Total market declined by 45% between 2013 and 2016 5.2 4.6 We dominate “Intermediate” with mature AW139 4.0 MAIN LEONARDO 3.1 3.2 PRODUCTS “Intermediate” class grew …but s
Slide 20: Illustrating the mix shift in civil 3–10 tonnes range
Illustrating the mix shift in civil 3–10 tonnes range Leonardo 3–10 tonnes classes revenues have grown between 2012 and 2017 – taking share, but mix impacted profitability LIGHT INTERMEDIATE CORE INTERMEDIATE SUPER MEDIUM <3,2t >3,2t and < 5t >7t and <10t TOTAL Split Split AW169 AW139 AW189 AW169, A
Slide 21: Lack of Discipline and Agility in our industrial response
We are clear why we didn’t perform in 2017… Lack of Discipline and Agility in our industrial response Challenging market Compounded by Products & services potential not fully exploited Underperformance in Ineffective in tender processes and major campaigns Missed Some addressable market challe
Slide 22: Financial impacts
We are clear why we didn’t perform in 2017… Financial impacts LEONARDO HELICOPTERS REVENUES € bn LEONARDO HELICOPTERS PROFITABILITY € bn 4.2 Lower 3.6 vs 0.48 2016 0.43 CS&T and High single Others digit Military 11.2% 11.8% OE Civil OE 2012A 2016A 2017 2012A 2016A 2017 Lower revenues due to Lower pr
Slide 23: Action taken to restore core disciplines in our processes
Action taken to restore core disciplines in our processes …and we have taken action GUIDING PRINCIPLES IMMEDIATE ACTIONS TAKEN Discipline in the governance Execution Excellence programme enhanced Agility in the industrial operations, both in internal production shop floors and in supply chain manage
Slide 24: Well positioned in the right areas of Civil
We have a great opportunity in an improving market Well positioned in the right areas of Civil CIVIL HELICOPTERS MARKET FORECAST Market Value $ bn Conservative approach, lower than major external analysts' forecasts 4.3 Light Intermediate (AW169), Intermediate (AW139) and Medium (AW189) are main 3.2
Slide 25: Catching non linear opportunities
We have a great opportunity in an improving market Catching non linear opportunities MILITARY HELICOPTERS MARKET FORECAST Market Value $ bn Military budget constraints & committed programmes tailing off; waiting for new procurement cycle 14.1 Utility/Multi-role helicopters, mainly dual use 13.1 mili
Slide 26: Key pillars for sustainable growth
Executing a plan to deliver a return to sustainable growth Key pillars for sustainable growth BEST IN CLASS OFFER PORTFOLIO TECHNOLOGY IMPROVEMENT & INNOVATION Strengthen our products & services value proposition Sustain rotorcraft technological competitiveness and keep investing in disruptive innov
Slide 27: Focus on Technology & Innovation Leadership
Executing a plan to deliver a return to sustainable growth Focus on Technology & Innovation Leadership Innovative Architectures Platform-focused Technologies Transversal Technologies Noise Reduction and Passenger Comfort Tilt Rotors improvement Payload fraction improvement Green technologies Advance
Slide 28: Focus On Execution Excellence: Improvement Program
Executing a plan to deliver a return to sustainable growth Focus On Execution Excellence: Improvement Program Functions Oriented Transversal Initiatives Initiatives Objectives Agile Manufacturing & Cost improvement on key Product Quality Competitiveness products Design Process Integrated Planning &
Slide 29: Realistic expectations
Executing a plan to deliver a return to sustainable growth Realistic expectations LEONARDO HELICOPTERS REVENUES € bn Back to double digit profitability by 2020 A return to growth supported by an healthier market outlook Capturing growth by improving actions already deployed 2017 2018 2019 2020 LEONA
Slide 30: Key Messages
Key Messages We have a high quality Helicopters business with the right product strategy We are clear why we didn’t perform in 2017 and we have taken action We have a great opportunity in the right areas of an improving market We are executing a plan to deliver a return to sustainable growth 30 © Le
Slide 31: Executing our growth strategy
Leonardo Industrial Plan Executing our growth strategy Alessandro Profumo Chief Executive Officer Vergiate (VA), 30 January 2018
Slide 32: Executing our growth strategy
Executing our growth strategy Improving markets provide a strong backdrop for our future growth More than just helicopters– strong portfolio focused on 3 core business We are setting up this business to win 32 © Leonardo - Società per azioni
Slide 33: Improving markets provide a strong backdrop for our growth plan
Improving markets provide a strong backdrop for our growth plan Strong fundamental growth drivers GLOBAL OUTLOOK LEONARDO TARGET MARKET Uncertainty in Europe (immigration Our reference market is € 113 bn per flows and election in several Nations) year, 19% of total A,D&S reference market New U
Slide 34: Our core categories are all expected to grow
Improving markets provide a strong backdrop for our growth plan Our core categories are all expected to grow TOTAL A&D MARKET- EVOLUTION BY BUSINESS - € bn ≈ 670 4 12 Material recovery in Civil Helicopters ≈ 540 163 3 CAGR % 13 Major key programmes in TOT. MKT 2017-2022 Military Aeronautics (Combat
Slide 35: Focus on Defence Budgets - Worldwide
Improving markets provide a strong backdrop for our growth plan Focus on Defence Budgets - Worldwide WW DEFENCE BUDGET BY DESTINATION (2017 – 2022) - € bn 2017 Global Defence Budget continues the increasing trend started in 2014 ~ 1.500 ~ 1.590 ~ 1.460 Growing procurement and R&D Improved economic c
Slide 36: Our domestic markets remain stable… with some opportunities
Improving markets provide a strong backdrop for our growth plan Our domestic markets remain stable… with some opportunities (€ bn) (€ bn - Exchange rate £/€= 1.22448) (€ bn - Exchange rate $/€= 0.90372) 25 60 750 21 20 21 48 609 609 46 47 581 20 50 600 40 15 450 81% 80% 79% 30 76% 68% 68% 68% 78% 77
Slide 37: Potential opportunities from European spending and NATO 2% GDP target
Improving markets provide a strong backdrop for our growth plan Potential opportunities from European spending and 2% GDP NATO countries target EUROPEAN DEFENCE ACTION PLAN NATO 2%GDP TARGETING - EUROPEAN COUNTRIES The European Council adopted the «implementation plan of the global strategies on mat
Slide 38: Strong portfolio focused on 3 core divisions
More than just a helicopters business …Strong portfolio focused on 3 core divisions Helicopters Defence and Electronics Aeronautics 30% of 2016 Revenue 45% of 2016 Revenue 25% of 2016 Revenue 38 © Leonardo - Società per azioni
Slide 39: European leader in Electronics, Defence and Security Systems
More than just a helicopters business European leader in Electronics, Defence and Security Systems Leader in Military Defence Electronics Radars and sensors On-board avionics Electronic warfare systems ISTAR Avionic – Surveillance C4I Systems / Aero Defence Naval systems Combat systems C
Slide 40: Key programmes and technologies to sustain Aeronautics
More than just a helicopters business Key programmes and technologies to sustain Aeronautics in the long term International Cooperation Programmes Eurofighter Typhoon F-35 Lightning II Able to provide complete solutions in Military Training Syllabus Trainer Aircraft (M-345 HET, M-346) Ground
Slide 41: We are clear on our strengths and weaknesses
Strong portfolio based on 3 core divisions We are clear on our strengths and weaknesses STRENGTHS Business Technologies Strong and innovative product portfolio Mastering of «CORE» technologies Clear market leadership in some business segments Radar systems Electro-optical systems Civil Helicop
Slide 42: Still too diversified product portfolio
Strong portfolio focused on 3 core divisions Still too diversified product portfolio Main Lines of business Civil Helicopters HELICOPTERS Military Helicopters Civil Aircraft* Military Aircraft AERONAUTICS Trainers UAS Aerostructures Avionics System
Slide 43: Portfolio reshaping
We have a well positioned portfolio focused on 3 core business Still too diversified – what are we going to do about it? Portfolio reshaping 1. Allocation of capital • Directed to our core businesses and competencies 2. Partnering with other/larger companies • Broader shoulders to access commercial
Slide 44: We are setting up this business to win
We are setting up this business to win 2018 To step up innovation To improve organization and culture, portfolio processes, for excellences competitiveness and in execution, also leveraging customer intimacy also on stronger identity, people for a successful valorization and quality international fo
Slide 45: Leonardo 2.0 in a Nutshell
We are setting up this business to win Leonardo 2.0 in a Nutshell INSPIRING PRINCIPLES OPERATIONS Gather Leonardo's people under the Materially improve industrial same core values, revolving around performance across the entire value customer satisfaction, technological chain innovation and inte
Slide 46: Research and Development Activities
We are setting up this business to win Research and Development Activities Research and INBOARD ACTIVE REGION Technologies OUTBOARD ACTIVE REGION 5% (“R&T”) New Products 35% Development AW609 ISS Falco 48 76 SP M-346 FT/M-345 DIRCM Hitrole Critical Comms SOC & Cyber Upgrade Existing (Broadband evolu
Slide 47: Enhanced commercial strategy
Leonardo Industrial Plan Enhanced commercial strategy Lorenzo Mariani Chief Commercial Officer Vergiate (VA), 30 January 2018
Slide 48: Key Messages
Key Messages Solid Order Intake Plan Key Strategic Campaigns Leveraging International Presence: Offices & Subsidiaries • Enhanced Customer Support ……back to growth 48 © Leonardo - Società per azioni
Slide 49: A challenging but realistic Order Intake Plan
We are entering a new phase of sustainable growth A challenging but realistic Order Intake Plan 2018-2022 Order CAGR >6%, well balanced on the three Key Business Helicopters Aircrafts Electronics for Defence & Security Three Key Pillars for Growth Internationalization International Offices
Slide 50: Solid Order Intake Plan supported by strategic campaigns
Solid Order Intake Plan supported by strategic caimpaigns 12.5–13.0 11.3–11.7 Electronic, Defence and Security Systems Aeronautic Helicopters 2017E 2018E 2020E 2022E Material recovery in Military Helicopters driven by Key Large Campaigns Aircrafts growth sustained by EFA and Trainers ED&S’ positive
Slide 51: Key Strategic Campaigns
Key Strategic Campaigns Being closer to the customers and its needs > 70 Key Campaigns for over € 20 bn in 2018-2020, excluding US «Big shots» in US, not included in baseline plan: T-100, UH-1N Top priority Countries accounting for over € 1 bn each Algeria Poland Qatar Pakistan Kuwait Ma
Slide 52: Key Strategic Campaigns
Key Strategic Campaigns Strong opportunities to address worldwide customers needs leveraging on the «One Company» – «One Voice» AB 52 © Leonardo - Società per azioni
Slide 53: Leveraging on International presence
Leveraging on International presence Offices & Subsidiaries 25 Offices & Subsidaries at the end of 2017 More than 10 new initiatives in 2018 – 2019 More than 25 new initiatives in the Plan Link with key strategic campaigns: Algeria Poland Bahrain Pakistan Azerbaijan Australia Egypt T
Slide 54: Offices and Subsidiaries
Offices and Subsidiaries Strengthening exisisting International Representative Offices Network Oslo Ankara Moscow Bucharest Budapest Varsavia Astana Montreal Neuss Bruxelles Islamabad Washington Baku Bejing Paris New Dheli Madrid B L PL Tokyo Kansas City Tel Aviv Lisbona Il Cairo Greensboro Algeri J
Slide 55: Enhanced Customer Support
Enhanced Customer Support CUSTOMER SUPPORT & SERVICE 2017 – 2022 CAGR c. 10% Customer Support Target: >25% of Order Intake by end of plan >25% Positive trend in Aircraft, Helicopters and Electronics 4 Main Areas GROUP ORDER INTAKE Regional Hubs for enhanced local capability Dedicated Organizatio
Slide 56: Exploiting further opportunities in Customer Support
Exploiting further opportunities in Customer Support extended offering Mid Life Upgrade (MLU): Already applied to Land and Naval environment Advanced Training Training School: an innovative approach in partnership with Italian Air Force 56 © Leonardo - Società per azioni
Slide 57: Financial Plan
Leonardo Industrial Plan Financial Plan Alessandra Genco Chief Financial Officer Vergiate (VA), 30 January 2018
Slide 58: Key Messages
Key Messages Entering a new phase… Higher market penetration Selected investments for growth Cost control • Profitability improvement • Cash flow generation • Strong capital structure …back to growth 58 © Leonardo - Società per azioni
Slide 59: 2017 was a year of rebasing
2017 was a year of rebasing We had to reset in challenging markets… FY2017E FY2017E FY2016A (as at November (as at March 2017) 2017) New orders € bn 20.0 12.0 – 12.5 c. 12.0 11.3 – 11.7 Assuming finalization of C27J export contracts Revenues € bn 12.0 c. 12.0 11.5 – 12.0 EBITA € mln 1,252 1,250 – 1,
Slide 60: Core strengths of our Group
Core strenghts of our Group HELICOPTERS DEFENCE ELECTRONICS AIRCRAFTS Best in class Solid business built on Key player in leading business long term contracts international programmes Outstanding product Healthy backlog Strong backlog portfolio Leading margins Key export market Attractive product po
Slide 61: Strong Order Intake
Strong Order Intake € bn 12.5–13.0 EXPECTED ORDERS BOOK TO BILL 11.3–11.7 €70 bn c. ≥ 1x 2017 2018E 2022E 2018–2022 CUMULATED 2018–2022 Guidance Guidance Strong pipeline Capturing opportunities in growing export markets Central coordination of commercial campaigns 61 © Leonardo - Società per azioni
Slide 62: Stable and Sustainable Revenue Growth
Stable and Sustainable Revenue Growth € bn 11.5–12.0 11.5–12.0 BACKLOG c. €345bn%-6% 9M2017A 2017 2018E 2022E Guidance Guidance Helicopter recovery supported by an Solid Backlog c.3 years of attractive product portfolio equivalent revenues Aircrafts and Defence Electronics strong Strong order intake
Slide 63: Profitability back to double digit by 2020
Profitability back to double digit by 2020 € mln PROFITABILITY 1,075–1,125 1,050–1,100 10% c. BY 2020 2017 2018E 2022E Guidance Guidance Helicopters recovery Solid continuous contribution from Defence Electronics and Aircrafts Operating leverage driven by higher volumes Relentless cost control throu
Slide 64: Investing in sustainable growth
Investing in sustainable growth MAIN PROGRAMS € mln Avg. Investments 2018–2022 c. € 600–700 mln Integrated Sensor Suite Avg. 2017 2022E Vulcano 76 GLR FY15-16 Guidance Selected and market driven Emphasis on key technologies and investments products for long term sustainability € 150–200 mln higher S
Slide 65: Working Capital under control while supporting growth
Working Capital under control while supporting growth € mln 2017 Guidance 2022E 2018–2020 Eurofighter Operating Working Capital on Revenues, Kuwait production ramp up net of customer advances, almost stable/ slightly reducing thanks to initiatives Customer advances winding Working Capital efforts ai
Slide 66: FOCF remains a priority, but timing will impact 2018
FOCF remains a priority, but timing will impact 2018 and 2019 € mln CASH FLOW CONVERSION RATE* 500–600 Avg. FOCF 2015–2018 c. € 400mln c. 50% c.100 2015–2018 AVERAGE 2017 2018E 2019E 2020E 2021E 2022E Guidance Guidance Short term pressures in 2018 and 2019 Growing FOCF sustained by Eurofighter Kuw
Slide 67: Executing on our Financial Strategy: Reduce Debt
Executing on our Financial Strategy: Reduce Debt Gross Debt Reduction1 € bn TARGET REDUCTION BY 2020 4.6 c. 3.8 25% c. c. 20% 2016 2017 2020 2017 Actions 2018-2020 Plan Only a portion of expiring debt refinanced (1) Bonds and EIB Loan 67 © Leonardo - Società per azioni
Slide 68: Delivering more than promised in 2017
Delivering more than promised in 2017 What we planned in 2017 …… .... what we achieved….. Expiring Debt Reimbursement of bond (2017–2019) + tendered 2039 € 2.3bn € 1.2bn maturing in 2017 and buy and 2040 US Bonds back of US bonds 2019, w/$ 200mln NPV 2039 and 20401 € mln Refinanced €600 mln To be re
Slide 69: And we plan to do more in 2018 – 2020
… And we plan to do more in 2018 – 2020 Reimbursement of New bond issuance bonds maturing in 2018 and 2019 Dollar Bond Euro Bond EIB 739 500 556 € mln 600 324 500 141 219 46 46 46 46 46 2018 2019 2020 2021 2022 2024 2025 … 2039 2040 As of today Before last review Date of review Moody’s Ba1 / Positiv
Slide 70: Executing on our Financial Strategy: Reduce Cost of Funding
Executing on our Financial Strategy: Reduce Cost of Funding Lower Cost of Funding1 5.4 % 4.7 % TARGET REDUCTION BY 2020 ≈ 4.0 % c. 25% 2016 2017 2020 2017 Actions 2018-2020 Plan In 2017 retired bonds with an average coupon of 5.5% (both in euro and in dollar buyback transaction w/$ 200mln NPV) New b
Slide 71: Revolving Credit Facility Renegotiation
Revolving Credit Facility Renegotiation Extending Facility Life Size Fitting business needs Lowering Financial Costs Expiring Date Amount Margin (bps) € 2.2 bn -45% -25% € 2.0 bn RCF 2014 2014 2019 € 1.8 bn 180 Amendment 2015 2015 2020 180 75 RCF to be signed in 2018 2018 2023 RCF 2014 Amendment 201
Slide 72: 2018 Guidance: planting the seeds for growth
2018 Guidance: planting the seeds for growth FY2017E FY2018E New orders € bn 11.3 – 11.7 12.5 – 13.0 Revenues € bn 11.5 –12.0 11.5 – 12.0 EBITA € mln 1,050 – 1,100 1,075 – 1,125 FOCF € mln 500 – 600 c.100 Group Net Debt € bn c. 2.6 c. 2.6 Including the effect of US bond buyback Exchange rate assumpt
Slide 73: Getting back to sustainable profitable growth
Getting back to sustainable profitable growth 2018–2022 cumulated orders c. € 70 bn and book to bill ≥ 1x 2018–2022 Revenue CAGR 5% – 6% Back to double digit in profitability, with RoS at 10% by 2020 • Investments to support Growth both in key products and operating backbone • FOCF as key prio
Slide 74: Concluding remarks
Leonardo Industrial Plan Concluding remarks Alessandro Profumo Chief Executive Officer Vergiate (VA), 30 January 2018
Slide 75: Concluding Remarks
Concluding Remarks A plan to return to sustainable profitable growth We are confident about the opportunity for Leonardo: entering a new phase We are going to set this business up to win • Leonardo 2.0 Now it's time • Enhanced Commercial Approach to execute • Investments for Growth • Cost control Di
Slide 76: Q&A
Q&A THANK YOU FOR YOUR ATTENTION
Slide 77: Safe Harbor Statement
SAFE HARBOR STATEMENT NOTE: Some of the statements included in this document are not historical facts but rather statements of future expectations, also related to future economic and financial performance, to be considered forward-looking statements. These forward-looking statements are based on Co
Slide 78: Contacts
Contacts Raffaella Luglini EVP External Relations, Communication, Italian Institutional Affairs, Investor Relations and Sustainability +39 06 32473.066 raffaella.luglini@leonardocompany.com Valeria Ricciotti Manuel Liotta Equity & Fixed Income Analysts & Investors Group Sustainability & ESG and Rela