Leonardo Spa · MIL:LDO
Leonardo Spa — Finmeccanica — FY2007 Earnings Presentation
63 slides from Leonardo Spa's earnings presentation, Mar 18, 2008
Slide 1: Finmeccanica Full Year 2007 Results Presentation
Finmeccanica Full Year 2007 Results Presentation Pier Francesco Guarguaglini Chairman and CEO Alessandro Pansa Co-General Manager / CFO London, 18 March 2008
Slide 2: 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 3: Agenda
Agenda Introduction Pier Francesco Guarguaglini Financial & Business Review Alessandro Pansa Business Strategy Pier Francesco Guarguaglini Appendix 3
Slide 4: Introduction
Pier Francesco Guarguaglini Introduction 4
Slide 5: 2007: A Year Of Strong Achievements
2007: A Year Of Strong Achievements Strengthened Global Total Revenues up 8% from €12.5bn in 2006 to €13.4bn in Positioning 2007 (entirely organic) Internationalisation International orders up 17% from €11.3bn in 2006 to €13.3bn in 2007 Competitiveness EBIT margin up from 7.3% in 2006 to 8.1% in 200
Slide 6: Delivering On Strategy
Delivering On Strategy Strengthen Global Positioning Technologies Acquisitions Processes Internationalisation Investments Innovation Markets Integration and Products Synergies Efficiency Competitiveness Profitability Value Creation 6
Slide 7: Strong Track Record Over Last Five Years
Strong Track Record Over Last Five Years Strengthened Global Reinforced ranking amongst top ten A,D&S players Positioning Proven ability to win large competitive export orders Internationalisation Structural partnerships for high potential markets in place Production localisation proceeding well Com
Slide 8: Pursuing Our Goals
Pursuing Our Goals 1 Drive further growth of three Strategic Pillars*, both organically and through acquisitions particularly in UK and US Exploit niche excellences to conclude wider strategic alliances. 2 Leverage on niche capabilities in civil sectors to capture value in growing businesses 3 Estab
Slide 9: Financial & Business Review
Alessandro Pansa Financial & Business Review 9
Slide 10: FY 2007 Financial Highlights
FY 2007 Financial Highlights FY 2007 Results vs. FY 2006 Revenues up 8% to €13.4bn EBIT up 19% to €1,084mn Net profit up 49% to €503mn (excluding extraordinary capital gain in 2007 and capital gain from Ansaldo STS and Avio in 2006) Dividend proposed of €0.41 (+17% vs. 2006) EVA up 18% to €227mn 10
Slide 11: FY 2007 Financial Highlights
FY 2007 Financial Highlights FY 2007 Results vs. FY 2006 Positive FOCF of €375mn generated by strict monitoring of financial requirements of businesses and careful customer and supplier management. FFO up 11% to 1,081mn Net debt to €1,158mn, from €858bn at the end of 2006. Debt to Equity 21% Order i
Slide 12: Reclassification Group EBITA Adjusted 2007
Reclassification Group EBITA Adjusted* 2007 + 58 (248) Euro mn + 125 + 26 Restructuring Costs Launch Aid Amortisation of intangible Capital Gain from assets acquired under 1,084 ENEA business combination 1,045 ROS 8.1% ROS 7.8% *EBITA Adjusted: Operating result before: -any impairment in goodwill; -
Slide 13: FOCF Breakdown In 2007
FOCF Breakdown In 2007 Euro mn (1,024)* + 121 (114) (812) in 2006 + 318 + 85 (241) + 709 Net Financial Charges Net Tax Net Sever./ Others Changes Def.Ben.Plans/ in Stock Grant Working Capital 1,399 1,081 Depreciation, Amortisation, 375 521 Net CAPEX Impairment & R&D Cash Flow From Operating Net Prof
Slide 14: Total R&D Expenditure
Total R&D Expenditure Eur mn 2007 2006 % of % of Value Value Revenues Revenues R&D total expenditure 1,836 13.7% 1,783 14.3% Less Customer Funded (897) (947) Less Government Funded (362) (291) Group Expenditure 577 4.3% 545 4.4% Capitalised (288) (274) R&D Costs Charged to P&L 289 2.2% 271 2.2% Depr
Slide 15: Development Costs Capitalised in Intangible Assets
Development Costs Capitalised in Intangible Assets at FY 2007 Self Funded Self Funded Eur mn Total National Security Other 1 Jan 2007 Opening balance 693 284 977 Investments 140 148 288 Depreciation (58) (65) (123) Write-off and Other Movements (91) (35) (126) Net Investments (9) 48 39 31 Dec. Closi
Slide 16: Business Review & Outlook
N, “7 FINMECCANICA BUSINESS REVIEW & OUTLOOK 16
Slide 17: Foreign Exchange Risk Hedging
Foreign Exchange Risk Hedging Relatively low exposure to ForeX volatility, namely US$ and to a lesser extent GBP (only translation effect) Currently approx. 20% of Finmeccanica Group Revenues denominated in US$ (of which approx. 70% naturally hedged) Centralised ForeX hedging through forwards, swaps
Slide 18: Large Programmes Driving Growth Over Next Five Years
Large Programmes Driving Growth Over Next Five Years EXPECTED OPPORTUNITIES Helicopters Helicopters Presidential helicopter increment worth €2.5bn in 2009 CSAR in USA of ca. US$15bn; decision expected in 2008 AW139 best selling helicopter with > 420 orders expected over 2008-2012 for approx. €3.5bn
Slide 19: Helicopters: Demonstrating Strong Profitable Growth
Helicopters: Demonstrating Strong Profitable Growth FY FY 2007 2007 •• Volumes, Volumes, higher higher civil civil mix, mix, productivity productivity gains gains and and ongoing ongoing UK-Italy UK-Italy integration integration benefits drive higher profitability benefits drive higher profitability
Slide 20: Helicopters: Changes In EBITA Adjusted
Helicopters: Changes In EBITA Adjusted* (2007 vs. 2006) 400 5 13 350 21 11 31 300 250 200 377 150 296 100 50 0 6 ct f its se ct s 7 20 0 effe e ne lea ef fe il H elo 20 0 m i x n b y re m e Civ Civ il a tio enc olu I nt egr on t ing V e c m og ram Pr 20
Slide 21: Defence Electronics: Robust Recovery in Profitability
Defence Electronics: Robust Recovery in Profitability FY 2007 • Strong international order intake for Eurofighter and large integrated systems • Higher profitability driven by business mix improvement and better integration between businesses with good performances in particular by UK avionics, IT &
Slide 22: Defence Electronics: Changes In EBITA Adjusted
Defence Electronics: Changes In EBITA Adjusted (2007 vs. 2006) 450 12 20 400 20 37 350 300 250 427 200 338 150 100 50 0 06 ct se ct ain 07 20 effe elea eff e lg 20 ix r me pit a M cy ca g en V ol u te tin ta co n es e eal mm R r a P rog 22
Slide 23: Aeronautics: Balanced and Profitable Growth
Aeronautics: Balanced and Profitable Growth FY 2007 • ATR and Eurofighter second tranche drive increase in volumes and operating profit • EBITA benefits from €20mn price revision on Eurofighter development activity (positive ATR provision release of €32mn in 2006) (€mn) FY 07 FY 06 %Change Revenues
Slide 24: Aeronautics: Changes In EBITA Adjusted
Aeronautics: Changes In EBITA Adjusted (2007 vs. 2006) 250 40 200 29 20 150 240 209 100 50 0 6 ffec t o n ct 7 200 x e re visi ee ffe 200 Mi e u m e r pr ic Vo l ght rofi Eu 24
Slide 25: Space
Space FY FY 2007 2007 •• Services Services andand Manufacturing Manufacturing both both drive drive volume volume increase increase •• Profitability Profitability improvement improvement duedue to to industrial industrial efficiency efficiency gains gains increased increased saturation saturation of
Slide 26: Defence Systems
Defence Systems FY FY 2007 2007 •• Underwater Underwater profitability profitability recovers recovers due due to to increased increased activity activity for for light light torpedoes torpedoes and and countermeasures countermeasures •• EBITA EBITA benefits benefits from from provision provision re
Slide 27: Civil Engineering: Transport and Energy
Civil Engineering Transport FY FY 2007 2007 Transport •• Good Good performance performance by by Signalling Signalling & & Systems Systems (Ebita (Ebita ++ 17%) 17%) more more than than offset offset by by Rolling Stock losses Rolling Stock losses (€mln) FY 07 FY 06 %Change Revenues 1,356 1,368 (1%)
Slide 28: Transport: Rolling Stock
Transport: Rolling Stock Operating loss (EBIT) of €230mn of which: €105mn of negative trading loss (vs. €77mn in 2006) due to ongoing losses on legacy programmes, restructuring costs (300 layoffs) and lower than expected revenues in particular for service activities €125mn attributable to further pr
Slide 29: Transport: Rolling Stock
Transport: Rolling Stock Industrial recovery plan accelerated in 2007 and now in advanced state of implementation: Reorganisation Plan Completed: Engineering and Production line skills renewed and strengthened together with reduction in administration staff Industrial Plan Revised Crash programme co
Slide 30: Integration Targets Confirmed
Integration Targets Confirmed Helicopters – 2010 €65mn target (of which €52mn achieved by 2007) • Consolidation of lead times project to gain additional productivity and efficiency • Completion of single SAP project will bring enhanced efficiency and effectiveness in operations Avionics – 2010 €60mn
Slide 31: Industrial Cost Cutting Targets Confirmed
Industrial Cost Cutting Targets Confirmed Production cost reduction – Global sourcing on €700mn purchase of materials and components: • Expected 10% savings 36 months after start up with 2010 €60mn target – Further ongoing purchase reduction activities (i.e. on-line auctions) – Reduction in services
Slide 32: STMicroelectronics Stake Further Reduced
STMicroelectronics Stake Further Reduced Extracted majority premium on 26mn shares due to French need to rebalance voting stake Sold 26mn to French shareholders at €10 per share for total proceeds of approx. €260mn, with capital gain of €69mn net of taxes, plus a potential earn out of €4 per share C
Slide 33: Shareholder Remuneration: Share Buy Back Started
Shareholder Remuneration: Share Buy Back Started On 16 January 2008, AGM approved Share Buy Back 11.1mn shares for Management Performance Share Plan 22.9mn shares aimed at increasing ordinary share value Time frame 18 months On 28 February, Board launched Share Buy Back On 29 February 2008, 100,000
Slide 34: Shareholder Remuneration: Constant Dividend Increase
Shareholder Remuneration: Constant Dividend Increase Ordinary Dividend per Share* 20 % CAGR 41** 35 31 26 20 2003 2004 2005 2006 2007 * All data in Euro cents **2007 proposal to be approved at AGM Dividend of €0.41 proposed (+17% compared to previous year) DPS more than doubled from 2003 to 2007 Con
Slide 35: Focus on High-Performance Investments
Focus on High-Performance Investments During 2008-2010 Finmeccanica has investment plans totaling €4.2bn before government grants. Other external funding up approx. 25% vs. the 2005-2007 period Investments are the result of a rigorous investment selection that has cut the “lower 10%” of operating co
Slide 36: Targeting a Higher Return on Capital by 2010
Targeting a Higher Return on Capital by 2010 Finmeccanica’s portfolio is expected to move to a higher risk-return frontier, increasing its return on capital with a limited increase in risk Return 30% 28% 2008 → 2010 : 2010 Efficiency gains in product development 25% across the entire portfolio Tight
Slide 37: Guidance Revised Upwards For 2008 And 2009
Guidance Revised Upwards For 2008 And 2009 On Track To Achieve…. 2008 2009 Revenues € 14.25 – 14.9bn € 15.1 – 15.9bn EBITA € 1,170 – 1,240mn € 1,300 – 1,420mn Cumulative FOCF* 2008-2010 €1.3–1.5bn; 2008 in line with 2007 Dividend policy: increase together with profits Optimal capital structure: Net
Slide 38: Guidance 2010
…Guidance 2010 2007A Stretch 2010 Targets (Euro mn) EBITA EBITA Revenues EBITA Revenues EBITA Margin Margin Strategic Pillars* 9,112 953 10.5% 11,960 1,280 10.7% 1,983 163 8.2% 230 9.8% Space & Defence Systems 2,350 Transport, Energy and 2,750 (71) (2.6%) 3,090 140 4.5% Others TOTAL 13,845 17,400 1,
Slide 39: Guidance Achieved For Fifth Consecutive Year
Guidance Achieved For Fifth Consecutive Year 2003 (Italian GAAP) 2004 (Italian GAAP) 2005 (IAS) Guidance Reported Guidance Reported Guidance Reported Outcome Value of Production YOY 9-10% 11% 7% 9% 20% 25% EBIT 6-6.5% low end 6.4% > € 550mln € 614mln Ca. € 700mln €750 mln Net Debt/Equity <35-40% 8%
Slide 40: Business Strategy
Pier Francesco Guarguaglini Business Strategy 40
Slide 41: Pursuing Our Goals
Pursuing Our Goals 1 Drive further growth of three Strategic Pillars*, both organically and through acquisitions particularly in UK and US Exploit niche excellences to conclude wider strategic alliances. 2 Leverage on niche capabilities in civil sectors to capture value in growing businesses 3 Estab
Slide 42: Long Term Organic Growth Driven By High Quality Order Intake
Long Term Organic Growth Driven By 1 High Quality Order Intake €bn 22.6% 22.6% 21.9% 21.9% 19.5% 20.0% 20.0% 20 19.5% 18 19.8% 19.8% 16 14 16.9% 16.9% 12 10 8 6 4 2 0 2003A 2006A 2007A 2008E 2009E 2010E A,D&S Orders Civil Orders A,D&S Revenues Civil Revenues Avg Gross Margin on Orders “Defensive” Re
Slide 43: Organic Growth Driven By Expanding International Footprint (1/2)
Organic Growth Driven By 1 Expanding International Footprint (1/2) Orders 2007A: €17.9bn 2008E: ca. €17.1bn 2010E: ca. €20bn Avg Gross Margin 19.5% Avg Gross Margin 20% Avg Gross Margin 22.6% 19% 27% 26% 25% 27% 35% 12% 8% 11% 16% 15% 23% 19% 10% 27% 27% Domestic Domestic Markets Markets Italy UK Re
Slide 44: Organic Growth Driven By Expanding International Footprint (2/2)
Organic Growth Driven By 1 Expanding International Footprint (2/2) Revenues 2007A: €13.4bn 2008E: €14.3-14.9bn 2010E: €16-17bn 15% 20% 21% 33% 29% 29% 11% 10% 12% 15% 12% 25% 16% 26% 26% Domestic Domestic Markets Markets Italy UK Rest of Europe North America Rest of World 44
Slide 45: Revenue Growth Targets Well Covered By Growing Backlog
Revenue Growth Targets Well Covered 1 By Growing Backlog Revenues Covered by orders €16-17bn to be acquired… €15.1-15.9bn €14.3-14.9bn … during 2010 ca. 19% ca. 18% ca. 18% … during 2009 ca. 19% … during 2008 ca. 22% ca. 12% Covered by firm orders ca. 82% ca. 60% ca. 50% FORZA NEC 2008E 2009E 2010E
Slide 46: Recent Strategic Acquisition For Defence & Security
Recent Strategic Acquisition For 1 Defence & Security… Two selective “value adding” small - mid size acquisitions finalised over the last few months in the US and UK: US: Reles is a provider of Law Enforcement solutions for Local and Federal authorities with distinctive skills in advanced imaging te
Slide 47: Achieve Leading Positioning In Defence Systems Through Strategic Alliances
Achieve Leading Positioning In Defence 2 Systems Through Strategic Alliances … Italian - French cooperation agreement to create a leading player in Underwater Systems Finmeccanica, DCNS and Thales cooperating for a structural alliance in Underwater Systems aimed at strengthening the European defence
Slide 48: Leverage on Niche Capabilities of Civil Engineering Activities
Leverage on Niche Capabilities of Civil 2 Engineering Activities… Energy Strategies as Original Equipment Manufacturer (OEM) and Original Service Provider (OSP) confirmed by continuously growing business performance (Orders:+72% in 2007, mainly driven by gas turbines) Focus on further strengthening
Slide 49: Establish Local Partnerships In Target Markets
Establish Local Partnerships In Target 3 Markets RUSSIA Structural partnerships for NORTH AMERICA civil markets (ATM, ATR, Strengthen Helicopters, Railways, Postal manufacturing services, Energy) capability and expand CHINA footprint in Defence & Expansion of presence in Security Civil Helicopters,
Slide 50: International Strategy in Attractive Growth Markets
International Strategy in 3 Attractive Growth Markets Long term commercial and industrial commitment Partnerships with domestic industries Local investments aimed at exploiting domestic skills based on contribution of our know how and technologies Some current manufacturing initiatives in USA: AW139
Slide 51: Enabling Technologies For Innovation
4 Enabling Technologies For Innovation Innovation continuing at pace for Platforms and Electronics, complemented by focussed investments enabling Modular, Scalable, Open and Service Oriented Architectures (SOA) for Integrated Systems Th t Sensors ro Man or ug pp h L ag e su ife men tic g is Solution
Slide 52: Finmeccanica Proposing Large Battlespace Systems
Finmeccanica Proposing Large Battlespace 4 Systems Starting From Domestic Markets Operational scenarios are continuously evolving and requiring digitalised and interoperable systems, with high level of deployability, mobility and survivability, securing information dominance and enhanced situation a
Slide 53: Resolve Residual Criticalities
5 Resolve Residual Criticalities First step of restructuring programmes successfully completed for: Space Manufacturing and Services (Telespazio) • €4.5mn benefits achieved in 2007, €8-10mn annual benefits expected once completed Security and Automation (ElsagDatamat): • Elsag & Datamat merger fully
Slide 54: Strengthening Industrial Plan
6 Strengthening Industrial Plan Implementation of additional efficiency measures approved in order to strengthen the Industrial Plan, including contingencies to mitigate external risks beyond our control Companies must reach specific targets for : – Production cost reduction: • Global sourcing on €
Slide 55: Management Remuneration Aligned to Delivery Of Strategy
Management Remuneration Aligned to 7 Delivery Of Strategy Guarantee Guarantee alignment alignment between between Strategy Strategy and and Management Management Commit Commit toto both both Enhance Enhance short short and and long long Enhance Enhance Value Value Creation Creation Management Manage
Slide 56: Worldwide Brand Recognition
Worldwide Brand Recognition Strengthened Strengthen positioning in Confirm leading Defence Electronics Global worldwide positioning Become a leading player Positioning in Helicopters for Defence and Security Grow as global player solutions in Aeronautics Internationalisation Innovation Expand our ro
Slide 57: Conclusion
Conclusion 2007: A year of key achievements 2008 - 2010: Building a stronger future Growing organically and through acquisitions Leveraging high exposure to large defence programmes and international markets Resolving residual criticalities and implementing our new industrial plan On On track track
Slide 58: Appendix
, “7 FINMECCANICA Appendix 58
Slide 59: FY 2007 Results – Profit & Loss
FY 2007 Results – Profit & Loss CONSOLIDATED PROFIT AND LOSS ACCOUNT €mil. FY 2007 FY 2006 Change % Revenues 13,429 12,472 8% Costs for purchases and personnel (12,098) (11.091)** Depreciation and amortisation (478) (458) Writedowns (93) (23) Other net operating revenues (costs) 220 66 Change in inv
Slide 60: Balance Sheet
Balance Sheet BALANCE SHEET €mil. 31 Dec. 2007 31 Dec. 2006 Non-current assets 9,845 9,919 Non-current liabilities (2,562) (3,334) 7,283 6,585 Inventories 3,383 3,095 Contract work in progress 3,227 2,823 Trade receivables 4,319 3,856 Trade payables (4,004) (3,561) Advances from customers (6,477) (5
Slide 61: Cash Flow
Cash Flow CASH FLOW €mil. 2007 2006 Cash and cash equivalents at 1 January 2,003 1,061 Gross cash flow from operating activities 1,711 1,600 Changes in other operating assets and liabilities (630) (629) Funds From Operations (FFO) 1,081 971 Changes in working capital 318 347 Cash flow generated from
Slide 62: Divisions
Divisions 2007 Helicopters Defence Aeronautics Space Defence Energy Transport | Other Activities Total {EUR million) Electronics Systems and Corporate Revenues 2,980 3,826 2,306 B53 1,130 7,049 1,356 346 (416) 13,429 EBITA* 377 427 240 61 125 93 (110) (168) 1,045 EBITA* margin (%) 12.7% 14.296 10.49
Slide 63: IR Contacts
IR Contacts Investor Relations Finmeccanica investor_relations@finmeccanica.com Website: http://www.finmeccanica.com John D. Stewart Raffaella Luglini VP Investor Relations Investor Relations Officer +39 06 32473.290 +39 06 32473.066 john.stewart@finmeccanica.com raffaella.luglini@finmeccanica.com S