Leonardo Spa · MIL:LDO
Leonardo Spa — J.P. Morgan Italian Conference 2018
63 slides from Leonardo Spa's conference presentation, Sep 28, 2018
Slide 1: Leonardo Presentation
J.P.Morgan Italian Conference 2018 Leonardo Presentation Milan, 28 September 2018
Slide 2: Group Overview and Industrial Plan Achievements
Group Overview and Industrial Plan Achievements 1H2018 Results and Outlook Sector Results Appendix
Slide 3: Global player in High Tech Aerospace, Defence and Security business
Global player in High Tech Aerospace, Defence and Security business Land & Naval Security & Airborne & Defence Helicopters Aircraft Aerostructures Defence Information Leonardo DRS Space Systems Systems Electronics Systems Revenues 2017 Revenues 2017 Revenues 2017 € 3.3 bn € 3.1 bn € 5.5 bn JOINT VEN
Slide 4: Key messages
Key messages We are a global player in High Tech Aerospace & Defence business Significant industrial presence worldwide Key dual-use technologies 4 domestic markets 3 core business We intend to execute an Industrial Plan to go back to long-term sustainable growth Attractive market improvem
Slide 5: Outstanding achievement signed in March and booked in August
Outstanding achievement signed in March and booked in August > € 3 bn helicopters deal for Qatar 28 NH90 (16 TTH for land operations and 12 NFH for naval missions) and a comprehensive support, maintenance training services package and associated infrastructure Leonardo will act as prime contractor D
Slide 6: Back to sustainable profitable growth
Back to sustainable profitable growth New 5 years Industrial Plan launched Confident about the opportunity for Leonardo Well positioned for positive market outlook Leveraging «One Company» model Achieving steady top line and profitability growth We are going to set this business up to win Sust
Slide 7: Clear priorities set
Clear priorities set Doing the right things for the long-term Return to top-line Strict cost control, Sustainable improvement Focus on cash and a growth reinvested in growth in profitability stronger capital structure ca. €70bn ca.€200mln ca.10% ca.50% 2018-2022 Annualised savings ROS by 2020 Avg. 2
Slide 8: Steps forward in the execution of the Industrial Plan
Steps forward in the execution of the Industrial Plan Doing the right things for the long-term 2018 Sharper commercial focus (Leonardo international and Customer, Support & Training) Leonardo 2.0 Enhanced Business Approach Solid backlog Transformation Portfolio Reshaping Value and Creation Strengthe
Slide 9: Sharper commercial focus
Sharper commercial focus To be closer to customer needs More export Product Focus on key strategic campaigns LEADERSHIP to win with our Customer Support, Service & Training customers 9 © Leonardo - Società per azioni
Slide 10: Strong backlog supporting revenue growth
Strong backlog supporting revenue growth ORDER BACKLOG as at 30 June 2018 = ca. € 33 bn HELICOPTERS ELECTRONICS, DEFENCE AERONAUTICS AND SECURITY SYSTEMS ORDER BACKLOG € 9.3 bn ORDER BACKLOG € 11.8 bn ORDER BACKLOG € 12.2 bn 28% of total 35% of total 37% of total TOP LINE GROWTH DRIVEN BY Current Ba
Slide 11: Progress on Helicopters
Progress on Helicopters JULY 2018 DELIVERIES OVERTAKING JULY 2017 n°of delivered units Positive market feedback 149 On track to improve profitability 99 85 93 81 77 FY2018 expected deliveries materially higher than FY2017 29 12 End of End of 1Q17A 1Q18A 1H17A 1H18A 9M17A FY17A July17 July18 11 © Leo
Slide 12: DRS top-line growth outpacing strong US market
DRS top-line growth outpacing strong US market 2Q 1H 2017 % 2017 % FY2017 2018 2018 Restated Change Restated Change Restated $ mln Orders 826 529 56.1% 1,250 930 34.4% 2,016 Revenues 504 401 25.7% 959 796 20.5% 1,947 EBITA 25 26 -3.8% 46 51 -9.8% 146 RoS 5.0% 6.5% -1.5 p.p. 4.8% 6.4% -1.6 p.p. 7.5%
Slide 13: Delivering results on cost control initiatives
Delivering results on cost control initiatives 40% of annualised savings identified delivered in the 1H (ca. € 80 mln) Potential upside driven by further actions being implemented € mln Key Initiatives: ~ 200 200 Efficiency increase in Manufacturing and Engineering 100 Off-load optimisation Pr
Slide 14: Strict cost control to support future growth: recent achievements
Strict cost control to support future growth: recent achievements Early retirement plan signed with Italian Unions Up to 1,100 employees and Supporting competence mix change 65 managers involved to meet evolving requirements of the Ca. € 170 mln one-off market provision taken in 1H 2018 Positi
Slide 15: Prime contractor business supporting long term visibility and growth
Prime contractor business supporting long term visibility and growth Lower margin pass-through but without capital invested Large prime contractor business wins supporting long term visibility and better positioning in reference markets Higher margin activities under our responsibility Lower mar
Slide 16: Group Overview and Industrial Plan Achievements
Group Overview and Industrial Plan Achievements 1H2018 Results and Outlook Sector Results Appendix 16 © Leonardo - Società per azioni
Slide 17: 1H 2018 Highlights
1H 2018 Highlights Solid 1H 2018 performance driven by Helicopters & DRS top line growth Orders at € 4.6 bn Revenues at € 5.6 bn EBITA at € 470 mln, RoS at 8.4% FOCF at € (809) mln Net Debt at € 3.5 bn FY 2018 Orders and FOCF Guidance revised upwards IFRS15 impact affecting quarterly resul
Slide 18: Order intake
Order intake Good performance mainly driven by Helicopters & DRS ORDER BACKLOG NEW ORDERS +16.4% -0.2% -36.6% € mln As at 30 June 2018 -6.1% ca. € 33 bn YoY 5,061 1,129 209 ca. 4,755 ca. € 150 mln of negative forex 37% 4,604 35% 2,355 -9.0% 28% YoY 1,329 Helicopters Aeronautics Electronics, Defence
Slide 19: Revenues
Revenues Positive momentum in Helicopters & DRS +4.3% +1.9% -1.4% € mln +4.1% YoY 1,426 188 5,496 ca. 5,720 ca. € 130 mln of negative forex 2,521 5,589 +1.7% YoY 1,830 1H 2017* Helicopters Electronics, Aeronautics Eliminations & 1H 2018 Defence and Other Security Systems *1H 2017 IFRS15 restated 19
Slide 20: EBITA and Profitability
EBITA and Profitability Steady recovery in Helicopters -18.2% -0.5% -3.9% € mln 505 -5.0% 123 YoY (RoS 9.2%) 21 34 (RoS 8.6%) ca. 480 ca. € 10 mln of negative forex 207 470 (RoS 8.2%) (RoS 8.4%) -6.9% YoY 153 (RoS 8.4%) 1H 2017* Helicopters Electronics, Aeronautics Space Corporate & 1H 2018 Defence
Slide 21: Net Result affected by €170mln one-off early retirement costs
Net Result affected by € 170mln one-off early retirement costs To improve competence mix 1H2017* 1H2018 -6.9% -43.3% € mln € mln ONE-OFF 505 32 50 470 182 +11% 423 155 YoY 170 Excluding ONE-OFF 48 55 236 213 240 118 -50.2% 16 YoY 106 EBITA Restructuring PPA EBIT Net financial Income Net EBITA Restru
Slide 22: Working Capital under control while supporting FOCF
Working Capital under control while supporting FOCF Actions to improve Working Capital Performance identified, launched and monitored through KPIs First half progress in line with expectations, delivering ~50% of 2018 targets FY targets confirmed Program Management FY TARGET / % ACHIEVED TO DATE & P
Slide 23: 2018 Guidance revised upwards for Orders and FOCF
2018 Guidance revised upwards for Orders and FOCF FY2017A FY2018E FY2018E Restated at January ‘18 at July ‘18 New orders € bn 11.6 12.5 – 13.0 14.0 – 14.5 Revenues € bn 11.7 11.5 – 12.0 11.5 – 12.0 EBITA € bn 1.08 1.075 – 1.125 1.075 – 1.125 FOCF € mln 537 ca.100 300 – 350 Group Net Debt € bn 2.6 ca
Slide 24: Sector Results
SECTOR RESULTS THANK YOU FOR YOUR ATTENTION
Slide 25: Helicopters
Helicopters Well positioned to capture growth opportunities DELIVERIES BY 2Q 1H PROGRAMME 2017 % 2017 % FY2017 2018 2018 Restated Change Restated Change Restated € mln 1H2017 = 81 new units Orders 718 683 5.1% 1,329 1,142 16.4% 3,153 7 33 15 Revenues 1,080 1,167 -7.5% 1,830 1,754 4.3% 3,438 21 2 1 A
Slide 26: Electronics, Defence & Security Systems
Electronics, Defence & Security Systems Remains strong 2Q 1H 2018 OUTLOOK 2017 % 2017 % FY2017 2018 2018 € mln Restated Change Restated Change Restated Revenues and Orders 1,390 1,321 5.2% 2,355 2,360 -0.2% 6,146 profitability almost flat Revenues 1,372 1,318 4.1% 2,521 2,474 1.9% 5,550 YoY EBITA 13
Slide 27: Aeronautics
Aeronautics Aircrafts positive outlook offsetting lower ATR and Aerostructures 2Q 1H 2017 % 2017 % FY2017 2018 2018 Restated Change Restated Change Restated € mln Orders 406 543 -25.2% 1,129 1,780 -36.6% 2,615 Revenues 787 788 -0.1% 1,426 1,444 -1.2% 3,093 EBITA 76 82 -7.3% 123 128 -3.9% 311 RoS 9.7
Slide 28: Space
Space Stable outlook 2Q 1H 2017 % 2017 2017 % 2017 FY2017 2018 2018 Restated Change Reported Restated Change Reported Restated € mln EBITA 14 16 -12.5% 19 21 28 -25.0% 27 72 2018 OUTLOOK Revenues and profitability expected almost in line with 2017 28 © Leonardo - Società per azioni
Slide 29: Appendix
APPENDIX THANK YOU FOR YOUR ATTENTION
Slide 30: 1H 2018 Results
1H 2018 Results Group Performance 2Q 1H 2017 2017 FY2017 2018 % Change 2018 % Change Restated Restated Restated € mln New Orders 2,440 2,414 1.1% 4,604 5,061 -9.0% 11,595 Backlog 32,611 33,918 -3.9% 33,507 Revenues 3,138 3,135 0.1% 5,589 5,496 1.7% 11,734 EBITA 317 350 -9.4% 470 505 -6.9% 1,077 RoS
Slide 31: No material impact from IFRS15
No material impact from IFRS15 Leonardo applies retrospectively IFRS15 in 2018 FY2017 and 2017 quarters fully restated in accordance with IFRS15 when presenting the 2018 corresponding quarterly accounts Not material preliminary impacts on FY2017 KPI’s (higher revenues by ca. 2% and higher EBITA by c
Slide 32: Solid Financial Position as end of June 2018
Solid Financial Position as end of June 2018 € mln Dollar Bond Sterling Bond Euro Bond EIB DEBT MATURITY Average life: ≈ 5 years REVOLVING RCF renegotiated lowering margin (from 100 bps to 75 bps) and CREDIT FACILITY Lower margin amount (from € 2.0 bn to € 1.8 bn). The facility will expire in 2023 L
Slide 33: Availability of adequate committed liquidity lines as end of June 2018
Availability of adequate committed liquidity lines as end of June 2018 In order to cope with possible swings in € mln Undrawn at 30 June 2018 As of 30 June 2018 financing needs, Leonardo can leverage: 30 June cash balance of € 976 mln Credit lines worth € 2.5 bn (confirmed and unconfirmed) Rev
Slide 34: Development costs capitalised as intangible assets
Development costs capitalised as intangible assets at 31 December 2017 Self Funded Self Funded Total € mln National Security Other 01 January 2017 Opening Balance 1,472 490 1,962 Gross R&D capitalised 195 43 238 Depreciation and write offs -44 -68 -112 Disposals 0 0 0 Other Changes 9 -9 0 Net R&D ca
Slide 35: Confident about the opportunity for Leonardo
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 ca. 6% ca. 80% Highly valued by our customers Leonardo addressable Leonardo revenues in market growth markets with improving t
Slide 36: We are going to set this business up to win
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 37: How to achieve double digit profitability by 2020
How to achieve double digit profitability by 2020 Electronics, Defence Helicopters Aeronautics & Security Systems Increasing volumes Increasing volumes Increasing volumes Maturity of AW169 and AW189 Strong backlog Strong Aircraft performance Specific issues addressed DRS momentum N
Slide 38: Deeper dive on FOCF
Deeper dive on FOCF Short-term pressures; longer term improvement Avg. FOCF p.y. 2015 – 2018 KEY DRIVERS €400 mln 2018E – 2019E 2020E – 2022E € 400 mln EFA Kuwait working capital build up Higher order intake 2015 – 2018 Avg. Cash Flow Higher investments Higher volumes Conversion Rate* ca. 50
Slide 39: Improving markets provide a strong backdrop for our growth plan
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 40: 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 41: 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 42: 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 43: Strong portfolio focused on 3 core divisions
Strong portfolio focused on 3 core divisions Electronics, Defence Helicopters Aeronautics & Security Systems 28% of 2017 Revenue 47% of 2017 Revenue 25% of 2017 Revenue Best in class Solid business built on Key player in leading business long term contracts international programmes Outstanding produ
Slide 44: World class Helicopter business
World class Helicopter business Leadership position in key segments Well positioned for military opportunities Right product strategy Focus on customer support and Training A family of Helicopters (AW139, AW169, programmes and AW189) with the same design philosophy and safety standards Leading inn
Slide 45: We are clear why we didn't perform in 2017…
We are clear why we didn’t perform in 2017… Financial impacts LEONARDO HELICOPTERS REVENUES € bn LEONARDO HELICOPTERS PROFITABILITY € bn 4.2 3.6 0.48 3.3 0.43 CS&T and Others 0.26 Military 11.2% 11.8% OE Civil OE 2012A 2016A 2017 2012A 2016A 2017 Lower revenues due to Lower profitability due to De
Slide 46: 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 47: 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 48: We have a great opportunity in an improving market
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 49: We have a great opportunity in an improving market
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 50: Executing a plan to deliver a return to sustainable growth
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 51: Return to double digit profitability 2020
Return to double digit profitability 2020 Helicopter recovery BUILDING BLOCKS OF THE RECOVERY Double Digit Profitability World class business Right products 8% Right market positions Improving margin Swift and effective action FY2017 Product mix Resolution of Maturity of Leverage on FY2020 specific
Slide 52: Helicopters
Helicopters 2016 REVENUES BY CUSTOMER/SEGMENT 2017 REVENUES BY CUSTOMER/SEGMENT Military / Governmental OE Military / Governmental OE Commercial CS&T / Other Commercial CS&T / Other BACKLOG BY PROGRAMME DELIVERIES BY PROGRAMME 26% 7% FY2016 = 174 new units FY2017 = 149 new units 13% 6% 5 3 2 13 2 1
Slide 53: European leader in Electronics, Defence and Security Systems
European leader in Electronics, Defence and Security Systems Radars and sensors C4I Systems / Aero Defence Naval systems On-board avionics Combat systems Combat management Systems Electronic warfare systems Cyber Security ISTAR Avionic – Surveillance Exposure to the Biggest Defence Market (US)
Slide 54: Key programmes and technologies to sustain Aeronautics in the long term
Key programmes and technologies to sustain Aeronautics in the long term International Cooperation Programmes UAVs Evolution (UCAV) Eurofighter Typhoon Tactical Transport Aircraft & Special Mission F-35 Lightning II C27-J Able to provide complete solutions in Military Cutting Edge Technologies
Slide 55: Broad range of Space application
Broad range of Space application Galileo satellite navigation system Presence on the entire space value chain Space Services COSMO-SkyMed, one of the most innovative Space Manufacturing programmes in the field of Earth Observation for Launchers and space propellers military and civil applicati
Slide 56: Customer Support & Training focusing on customer needs
Customer Support & Training focusing on customer needs FULL - SERVICE PROVIDER New approach to customer support, mainly on training services, based on proprietary products GLOBAL PARTNER New worldwide excellence standards for the customers and implementation of an integrated Global Network, supp
Slide 57: Balanced Remuneration Policy
Balanced Remuneration Policy Aligned with shareholders interests Clear link between pay and degree of CEO REMUNERATION achievement of targets Aligning the remuneration package with international market best practices Reducing risk-oriented behaviour Attracting / retaining resources regarded by the C
Slide 58: CEO performance: Management by Objectives
CEO performance: Management by Objectives MBO remuneration is paid in cash on a yearly basis TARGETS GROUP EBITA GROUP FOCF SUSTAINABILITY INDUSTRIAL PLAN OBJECTIVES 30% of REM 30% of REM 10% of REM - ON/OFF 30% of REM Linked to the 3 specific KPIs inclusion of 1. 2018 business performance of Leonar
Slide 59: Remuneration scheme: Methodology
Remuneration scheme: Methodology CLAW-BACK CLAUSE Provided for all the variable incentives assigned starting from 2014 Leonardo is entitled to request repayment of the variable remuneration paid in the event of incorrect or misstated data SEVERANCE If CEO appointment is: • revoked • terminated
Slide 60: Long Term Incentive Plan (LTIP)
Long Term Incentive Plan (LTIP) BENEFICIARIES LOCK UP Chief Executive Officer 1 year Executive directors, employees and/or associates with a decisive impact on the VESTING PERIOD achievement of business results (210 3 year people) FREQUENCY PAYOUT 3 year cycles assigned yearly on a Share
Slide 61: LTIP Performance conditions
LTIP Performance conditions TSR Relative RETURN ON SALES OF THE GROUP 50% 25% Award max 100% of bonus Return on Sales measured as average of the ≥ TSR of final values of each year during the vesting company at the period of the Plan Top 4 position 25% TOTAL 50% BONUS 25% Award target NET FINANCIAL P
Slide 62: 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 63: Contacts
Contacts Raffaella Luglini Chief Stakeholder Officer raffaella.luglini@leonardocompany.com Valeria Ricciotti Manuel Liotta Head of Investor Relations & Credit Rating Agencies Head of Sustainability +39 06 32473.697 +39 06 32473.666 valeria.ricciotti@leonardocompany.com manuel.liotta@leonardocompany.