Leonardo Spa · MIL:LDO
Leonardo Spa — UBS European Conference 2018
62 slides from Leonardo Spa's conference presentation, Nov 14, 2018
Slide 1: UBS European Conference 2018 Leonardo Presentation
UBS European Conference 2018 Leonardo Presentation London, 14 November 2018 Investor Relations & Credit Rating Agencies
Slide 2: Agenda
Group Overview and Industrial Plan Achievements 9M2018 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 achievements in military and civil helicopters
Outstanding achievements in military and civil helicopters Continued commercial momentum >€ 3 bn NH90 Qatar contract booked in August (Q3) 28 NH90 (16 for land operations and 12 for naval missions), Customer Support & Training and Infrastructure Leonardo prime contractor Deliveries from 2022 to 2025
Slide 6: 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.
Slide 7: Steps forward in the execution of the Industrial Plan
Steps forward in the execution of the Industrial Plan 2018 Good 3Q/9M 2018 performance Leonardo 2.0 Enhanced Business FY2018 guidance confirmed Approach Transformation Core divisions in line with our expectations Portfolio Reshaping Value and Creation Strengthening Lower contribution from JVs Ex
Slide 8: Strong backlog supporting revenue growth
Strong backlog supporting revenue growth ORDER BACKLOG as at 30 September 2018 = ca. € 35 bn HELICOPTERS ELECTRONICS, DEFENCE AERONAUTICS AND SECURITY SYSTEMS ORDER BACKLOG € 11.8 bn ORDER BACKLOG € 11.5 bn ORDER BACKLOG € 12.0 bn 33% of total 33% of total 34% of total Current Backlog covering almos
Slide 9: Helicopters momentum confirmed
Helicopters momentum confirmed Well positioned for long term growth of the business CIVIL MARKET SHARE Medium/ Heavy >10t and <16t 100% - RANKING Increasing order intake supported by Super Medium >7t and <10t 1st AW FAMILY military export campaigns Intermediate >5t and < 7t 1st Light Intermediate >3
Slide 10: Leonardo DRS strong progress supported by US market
Leonardo DRS strong progress supported by US market 9M 2018 KEY DATA 1,950 $ mln 1,541 1,541 1,318 90 102 6.8% 6.6% 9M17A* 9M18A 9M17A* 9M18A 9M17A* 9M18A NEW ORDERS REVENUES EBITA (RoS) *9M 2017 IFRS15 restated Excluding TX costs US Defence spending supporting long term Revenue growth reflects abil
Slide 11: Delivering results on cost control initiatives
Delivering results on cost control initiatives Over 60% of annualised savings identified delivered in the 9M Potential upside from further actions, mainly cost savings in staff functions Addressed areas: € mln Efficiency increase in Manufacturing and ~ 200 Engineering 200 Off-load optimisation
Slide 12: Doing the right things for the long term
Doing the right things for the long term Sustainability as a base of the Industrial Plan Membership of the United Nations Global Compact For the 9th year in a row in the Dow Jones Sustainability Indices The 1st company among the top 10 global players in the AD&S to obtain certification (Anti Bribery
Slide 13: Agenda
Group Overview and Industrial Plan Achievements 9M2018 Results and Outlook Sector Results Appendix 13 © Leonardo - Società per azioni
Slide 14: 3Q/9M 2018 Highlights
3Q/9M 2018 Highlights Good 9M 2018 performance Orders at € 9.4 bn, up 20% in constant currency, driven by NH90 Qatar Revenues at € 8.2 bn, up 4% in constant currency EBITA at € 632 mln, RoS at 7.7% Net Result at € 263 mln FOCF at € (800) mln, including NH90 Qatar downpayment Net Debt at
Slide 15: Order intake
Order intake Strong performance, up 20%, mainly driven by NH90 Qatar NH90 Qatar contract Qatar Navy contract EFA Customer Support booked in 3Q18 booked in 3Q17 booked in 3Q17 € mln +174% -18.8% -27.7% +20% YoY 1,420 284 ca. 9,535 ca. € 145 mln of 3,569 negative forex 7,945 +18.2% 9,390 YoY 4,685 9M
Slide 16: Revenues
Revenues Growth and positive momentum in Helicopters & DRS Deliveries up to 113 new units Lower revenues in compared to 99 of 9M17 Aerostructures and C27-J +10.1% +4.8% -6.9% +4% € mln YoY 2,025 296 8,048 ca. 8,370 ca. € 130 mln of negative forex +2.4% 3,855 8,240 YoY 2,656 9M 2017* Helicopters Elec
Slide 17: EBITA and Profitability
EBITA and Profitability Solid performance across all businesses; lower contribution from ATR Tough comparator due to Lower contribution 2Q17 performance from ATR -6.1% +2.1% -14.4% € mln 694 -8% 167 YoY 31 71 (RoS 8.6%) (RoS 8.2%) ca. 642 ca. € 10 mln of negative forex 288 -8.9% (RoS 7.5%) 632 YoY (
Slide 18: Net Result impacted by early retirement agreement
Net Result impacted by early retirement agreement 9M2017* 9M2018 -8.9% -33.8% -0.8% 694 60 72 632 17 562 237 73 542 170 177 € mln € mln 60 372 265 263 31 99 EBITA Restruct. PPA EBIT Net fin. Income Net EBITA Restruct. PPA Underlying ART. 4 EBIT Net fin. Income Release of Net costs expenses taxes cos
Slide 19: 2018 Guidance confirmed
2018 Guidance confirmed 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. 2.6 ca. 2.4 2018 exchang
Slide 20: Sector Results
SECTOR RESULTS THANK YOU FOR YOUR ATTENTION
Slide 21: Helicopters
Helicopters Well positioned to capture growth opportunities DELIVERIES BY PROGRAMME 9M2017 = 99 new units AW189 /149 10 AW139 /W3 19 36 AW109 / AW119 / SW4 / AW009 AW169 27 1123 NH90 AW FAMILY CH47 AW159 / AW101 Lynx 9M2018 = 113 new units AW139/W3 AW189 /149 2018 OUTLOOK 18 11 Healthier market outl
Slide 22: Electronics, Defence & Security Systems
Electronics, Defence & Security Systems Remains strong 2018 OUTLOOK Revenues and profitability almost flat YoY Upward trends in some business areas Efficiency Of which DRS: improvement Higher contribution from development programmes DRS benefitting from positive market trend Avg. exchange rate
Slide 23: Aeronautics
Aeronautics Aircrafts positive outlook offsetting lower ATR and Aerostructures 2018 OUTLOOK Revenues expected almost flat YoY Aircraft benefitting from EFA Kuwait Aerostructures volumes expected to decline Profitability in line with 2017 Efficiency improvement ATR contribution lower than Off
Slide 24: Space
Space Stable outlook 2018 OUTLOOK Revenues expected almost in line with 2017 Profitability slightly lower compared to 2017 24 © Leonardo - Società per azioni
Slide 25: Appendix
APPENDIX THANK YOU FOR YOUR ATTENTION
Slide 26: 3Q/9M 2018 Results
3Q/9M 2018 Results Group Performance Free Operating Cash-Flow (FOCF): this is the sum of the cash flows generated by (used in) operating activities (which includes interests and income taxes paid) and the cash flows generated by (used in) ordinary investment activity (property, plant and equipment a
Slide 27: 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 Not material impacts on FY2017 KPI’s (higher revenues by ca. 2% and higher EBITA by ca. 1%) Cumulative catch-up adjustment to be recognised in equity; ca.
Slide 28: Solid Financial Position as end of September 2018
Solid Financial Position as end of September 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 2
Slide 29: Availability of adequate committed liquidity lines
Availability of adequate committed liquidity lines as end of September 2018 In order to cope with possible swings in € mln Undrawn at 30 September 2018 As of 30 September 2018 financing needs, Leonardo can leverage: 30 September cash balance of € 1.0 bn Credit lines worth € 2.5 bn (confirmed and
Slide 30: 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 31: 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 32: 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 33: 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 34: 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 35: 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 36: 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 37: Improving markets: worldwide defence budgets
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 38: 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 39: 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 40: 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 41: 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 42: 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 43: 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 44: 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 45: Well positioned in the right areas of civil
Well positioned in the right areas of civil CIVIL MARKET FORECAST CONFIRMED Market Value $ bn • Civil market forecast: CAGR ~5% - • Sustained growth rate expected for Light Intermediate (AW169), Intermediate (AW139) and Super Medium (AW189) • Light classes to grow at a lower pace • Medium/ Heavy seg
Slide 46: Military is an attractive market based on opportunities
Military is an attractive market based on opportunities Key business with great opportunities for Leonardo Helicopters LAST FIVE YEARS MAIN LEONARDO MILITARY CUSTOMERS… …EXPANDING TO POTENTIAL NEW GEOGRAPHIES UH-1N Qatar • Opportunity driven market • Focused sales effort on key campaigns • Key prior
Slide 47: Dual-Use/Utility platforms for military operations
“Dual-Use/Utility” platforms for military operations Commercial-based economics, completions optimised for military missions Affordable Capability • Battlefield and naval • High versatility & performance • Dedicated battlefield • Excellent platform for Light helicopter • High useful load and high
Slide 48: Leading edge specialized platforms
Leading edge specialized platforms SPECIALIZED "BATTLEFIELD/COMBAT” PLATFORMS SPECIALISED “NAVAL” PLATFORMS T129 • Leonardo / TAI joint venture • 6-tonne class optimized for naval operations • 5-tonne class with excellent hot & high capability • Advanced mission systems • Advanced sensors and weapon
Slide 49: Return to long term sustainable growth
Return to long term sustainable growth ORDER INTAKE DELIVERIES [€B] Deliveries at July Year to Date: 2018 = 93 vs 2017 = Much higher than 2017 85 (+10%) Best year ever for 2018 End of Year Helicopters Division, expected materially also thanks to NH90 ,5 Qatar contract ,5 higher than 2017 D
Slide 50: 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 51: 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 52: 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 53: Key programmes and technologies to sustain Aeronautics
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 54: 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 55: 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 56: 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 57: 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 58: 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 59: 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 60: 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 61: 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 62: 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.