Leonardo Spa · MIL:LDO
Leonardo Spa — Finmeccanica — FY2004 Earnings Presentation
48 slides from Leonardo Spa's earnings presentation, Apr 11, 2005
Slide 1: 2004 Results Presentation
2004 Results Presentation London/Milan/New York - 4/5/11 April 2005 Pier Francesco Guarguaglini Chairman and CEO Alessandro Pansa Co-General Manager
Slide 2: Agenda
Agenda ¾ 2004 Highlights and 2005 outlook (Slides 4-6) ¾ 2004 Financial Highlights & 2005-06 business outlook (Slides 8 -19) ¾ Earnings guidance (Slide 20) ¾ IFRS (Slide 21) ¾ Looking forward (Outlook and strategy) (Slides 23 - 48) 2
Slide 3: 2004 Financial Highlights & 2005-06 business outlook
Pier Francesco Guarguaglini 2004 Financial Highlights & 2005-06 business outlook 3
Slide 4: 2004: A year of significant progress
2004: A year of significant progress ¾ Highlights: – 2004 profitability ahead of expectations and well above 2003 levels – *2004 Pro Forma A&D revenues already close to Eur 10.0bn target (two years ahead of expectations) – Strong organic growth in revenues and EBITA – Positive cash flow – Strong bal
Slide 5: 2005 will be a major turning point…
2005 will be a major turning point… ¾ Recent developments very positive for Finmeccanica ¾ Phase I of our repositioning/re-focussing of Finmeccanica now completed ¾ 100% ownership of AgustaWestland considerably improves cash flow ¾ BAE Systems agreements increase our UK ‘footprint’ and cash flow ¾ A
Slide 6: We are now beginning phase II of our strategic plan
We are now beginning phase II of our strategic plan ¾ Fewer JVs and more outright ownership means more control over our destiny ¾ US ‘Marine One’ win very positive for AgustaWestland (US PRV opportunities) ¾ Moving closer towards finally exiting non core activities ¾ Well placed to undertake further
Slide 7: 2004 Financial Highlights
Alessandro Pansa Slides 8-21 2004 Financial Highlights 7
Slide 8: Financial Highlights 2004
Financial Highlights 2004 (Eur mln) 2004 2003 %chg 04/03 Revenues 9,387 8,646 +8.6 EBITA 614 549 +12 Operating margin (%) 6.5% 6.3% Pre tax result 722 411 +76 Tax (174) (211) -17.5 Net income 526 189 n.s. EPS fully diluted (Eur cents) 6.05 2.22 n.s Dividend per share (Eur cents) 1.3 1.0 +30 Orders 1
Slide 9: Continuing to deliver on our financial commitments
Continuing to deliver on our financial commitments Guidance 2004 Result Outcome Revenue growth +7% +8.6% 9 EBITA >Eur 550m Eur 614 m 9 Net Debt/Equity < 35-40% 10% 9 Operating Cash Flow > 0 Eur 364 m 9 Eur 1,494 m proceeds Monetise STM stake raised from sale of 96 9 m shares. Dividend policy: increa
Slide 10: Building a stronger future on the back of a profitable 2004
Building a stronger future on the back of a profitable 2004 ¾ Growth strategy in 2004 continued accompanied by: - improving margins and return on capital; - increased cash flow; - extremely low gearing; - negative working capital. ¾ Earnings quality driven by higher industrial operating profit (+12%
Slide 11: 2005-2006 Business Outlook
2005-2006 Business Outlook 11
Slide 12: Aeronautics: current growth driven by military
Aeronautics: current growth driven by military - Eurofighter, C27J, AMX upgrades and Aermacchi drive growth in 04. - Military and ATR drive further revenue expansion in 05 and 06. - Eurofighter Tr 2 orders, expected to total > Eur 3bn by 07, secure production runs until 2012. - Significant export op
Slide 13: Helicopters: growth drivers positive
Helicopters: growth drivers positive – Profitability sustained in 04 by growing customer support. – UK MoD just confirmed AW to be preferred ‘prime contractor’. – UK to spend £3 bn on helicopters in next 10 years of which about £1 bn on Future Lynx. – US Presidential selection opens up many potentia
Slide 14: Space: 2004 a year of recovery
Space: 2004 a year of recovery - Recovery in profitability in 2004 driven by restructuring. - Large CosmoSkymed order now fully booked (Eur 800m). - Space ‘nadir’ took place in 2002/03. - National security and defence programmes growing. - EU and ESA identify strategic role for Space. - Priorities a
Slide 15: Defence electronics: exciting growth prospects
Defence electronics: exciting growth prospects - Military comms and AMS drive strong growth in 2004. - Future growth driven by ATM, Avionics, TETRA and naval command & control (FREMM). - UK ‘Avionics’ brings additional Eur 1 bn in revenues and Eurofighter Tr 2 orders worth Eur – 2.5bn. (Euro mln) 20
Slide 16: Defence Systems: profitability improves in 2004
Defence Systems: profitability improves in 2004 - Profitability of Missiles and Armaments improves in 2004. - MBDA benefits from ongoing rationalisation. - Future missile programmes under pressure in European budgets. - US missile companies benefit from weaker dollar in export markets. (Euro mln) 20
Slide 17: Non-core: European rail investment set to increase
Non-core: European rail investment set to increase IT Transportation Energy (Euro mln) 2004 %chg (Euro mln) 2004 %chg (Euro mln) 2004 %chg Revenues 391 ( 2%) Revenues 1,375 4% Revenues 729 (8.4%) Ebita 14 (42%) Ebita 70 6% Ebita 31 35% Orders 382 - Orders 1,645 (4%) Orders 937 39% Backlog 243 (1%) B
Slide 18: Management objectives (1)
Management objectives (1) Increased industrial efficiency higher operating margins thanks also to ¾ Good quality order acquisition: about 70% of A&D order intake in 2005 expected to come from helicopter and defence electronic sectors ¾ New life cycle and risk management programmes being implemented
Slide 19: Management objectives (2)
Management objectives (2) Maintain working capital under control improve capital returns ¾ Management to be rewarded for achieving specific targets on net inventories and trade receivables. IRR on new investments WACC (7.6%) + min hurdle 3% ¾ Exploit integration benefits of acquired assets. Retain s
Slide 20: Guidance incorporating IFRS impact
Guidance incorporating IFRS impact 2005 2006 Revenue / annual change >20% >10% EBITA ~Eur 700m* ~Eur 800m Cumulative Free Operating Cash Flow of > Eur 600 mln in next 3 years (2005-07). Dividend policy: increase together with profits. Optimal capital structure: Net debt/Equity < 35-40%. Net bank deb
Slide 21: IFRS impact
IFRS impact ¾ Guidance for 2005 and 2006 has been given including the estimated impact of IFRS on our accounts going forward. ¾ Finmeccanica will publish its first IFRS accounts for first half 2005. ¾ Prior to this we will provide further information on the impact we expect IFRS to have on our accou
Slide 22: Looking forward (Outlook and strategy)
Pier Francesco Guarguaglini Looking forward (Outlook and strategy) 22
Slide 23: Finmeccanica: Our Future
Finmeccanica: Our Future ¾ We are now a key player in aerospace/defence/security – Our earnings outlook for 2005/6 is good. – 2005 group pro forma revenues are estimated at €12.2bn (~ €10bn from A&D). – We are building a strong position in the fast growing security market. – And explains why we rece
Slide 24: What was Finmeccanica in 1997?
What was Finmeccanica in 1997? A watershed in our history A loss making ‘State’ holding company - Nearly bankrupt (Debt was 6x Equity) - A very small European aerospace/defence player - Net loss of > Eur 1 bn and negative Ebit - Aerospace/defence only 43% of total revenues - 83% controlled by the It
Slide 25: What did we do?
What did we do? ¾ We recapitalised, disposed of non-core assets and merged with MEI (total proceeds of Eur 2.8 bn) in 1998-99. ¾ We have turned large losses into decent profits. ¾ Successfully privatised in 2000 increasing our float from 17% to 66% ¾ More than doubled our Aerospace & Defence revenue
Slide 26: Finmeccanica today
Finmeccanica today ¾ Strengthened our Balance Sheet: Debt/Equity ratio below 10% ¾ Improving profitability: 2004 EBITA of €600m+and increased dividend (+30%) ¾ Europe’s third largest aerospace/defence company ¾ 2005 proforma Aerospace & Defence revenues accounting for >80% of total group revenues of
Slide 27: Focussed growth in areas of excellence
Focussed growth in areas of excellence Investments concentrated in specific sectors where we have leadership as well as ownership of products, technology and services thereby ¾ increasing our pricing power ¾ enhancing our strategic credibility ¾ improving the credibility of our other A&D businesses
Slide 28: Our strategic aims
Our strategic aims Our core strategy comprises of: ¾ Fully integrating companies acquired during ‘Phase I’ of our development plan ¾ Since 2002 we have moved up four places in the global rankings to 11th place ¾ Improving profitability as well. Phase I is being completed 28
Slide 29: Phase II is starting and we already possess…
Phase II is starting and we already possess… ¾ Building on our established areas of strength (Phase II) – Helicopters – Defence Electronics – Aeronautics – Space Services – Leveraging our proven and wide ranging industry leading technologies ¾ Consolidate existing positions as a value added ‘System
Slide 30: ‘Excellent technological know how’
‘Excellent technological know how’ ¾ No other helicopter manufacturer has our ‘Systems Integration’ skills ¾ Only AgustaWestland builds its transmission system in house ¾ Our domestic Eurofighter ‘avionics’ are leading edge ¾ Highly advanced in radar, infrared and laser optics ¾ Sophisticated sensor
Slide 31: Technical and operational synergies
Technical and operational synergies Platform-based assets, consolidated Enabling assets for platforms and areas of activity Integrated Solutions Platforms Electronics • Helicopters • Mission Systems • Aircraft • Sensors • Satellites • Comms • Land Vehicles building • Command & Control & • Warship Sy
Slide 32: Current involvement in important international programmes
Current involvement in important international programmes ¾ Our important aerospace and defence programmes – Eurofighter (20% of programme airframe and circa 60% of all avionics) – EH101 exports (Denmark/Portugal/Japan) – C27J (Italy/Greece) – CosmoSkyMed (Italy/France) by value – Horizon Destroyer
Slide 33: Recently acquired access to foreign defence budgets
Recently acquired access to foreign defence budgets ¾ The US defence ‘procurement’ budget in 2005 will be €69.0bn (US$90.0bn) – (€60bn in direct procurement and estimated €9bn in proposed supplementary spending) ¾ The UK defence ‘procurement’ budget in 2005 will be €17.0bn (US$22.0bn) – (€8.5bn in d
Slide 34: Strong Finances
Strong Finances ¾ Substantial shareholders’ equity ¾ Very little net debt ¾ Consistently low Debt/Equity ratio since ‘privatisation’ ¾ Investment grade rating from all three main agencies All of which allow us… 34
Slide 35: To grow more profitably
To grow more profitably ¾ Continued organic growth in Aerospace and Defence ¾ Increased programme visibility in 2005/6 – Eurofighter T1 production build up and T2 contract agreed – C27J deliveries to Italy and Greece, opportunities in Canada, US, Bulgaria and Portugal. – Strong ramp up of Cosmoskyme
Slide 36: The company has and will continue to change for the better
The company has and will continue to change for the better ¾ Significant recent developments – Purchase of GKN stake in AgustaWestland – Sale of a majority of our co-controlling stake in STM – Creation of ‘UK Avionics’ following agreement with BAE Systems – Space agreements with Alcatel – US ‘Marine
Slide 37: AgustaWestland: Success breeds success
AgustaWestland: Success breeds success ¾ The company continues to build on: – Extensive and successful ‘full service’ product range incorporating ‘industry leading’ technology – US ‘Marine One’ win opens up unparalleled export opportunities – UK MoD selection relaunches Lynx prospects also overseas
Slide 38: US101 ‘Marine One’ focus: Won on merit
US101 ‘Marine One’ focus: Won on merit Initial contract for 8 aircraft worth US$ 1.8 bn ¾ 15 additional helicopters worth US$2.5bn – US101 offers best ‘value for money’ – Already in production – Proven military service record in Italy and the UK – Success in other markets (Japan-Tokyo police with po
Slide 39: Other opportunities in North America
Other opportunities in North America Numerous: ¾ Already longstanding relationships with Bell, Boeing and Lockheed Martin ¾ Provide openings for: – Partner: Lockheed Martin – US101 – Partner: L3 Communications - C27J (US DoD requirement for up to 200 military transporters) – Partner: Bell – AB139 an
Slide 40: BAE ‘Avionics’ agreement: Why?
BAE ‘Avionics’ agreement: Why? ¾ It moves us up to sixth in the World in defence electronics – And provides critical access to key US programmes such as the JSF ¾ We become number two in Europe and number one in the UK ¾ Circa 60% of the total Eurofighter programme avionics ¾ With potentially €3.0bn
Slide 41: It gives us autonomy and full managerial control
It gives us autonomy and full managerial control over: ≥ 75% 100% 100% Military Military & & Secure Secure Avionics Avionics JV JV New New AMS AMS (Italy) (Italy) Communications Communications • Avionic systems and equipment • Land radar and command & control • Land & naval communication systems and
Slide 42: Increased participation in Eurofighter programme
Increased participation in Eurofighter programme ¾ Airframe activity remains at 20% but avionics rises from 20% to circa 60% ¾ Additional Tranche 2 orders worth ~ Eur 2.5 bn Development Sviluppo of subsequent successivi “upgrade” Sole interface Interfaccia unicawith UK/Italian verso MoD UK/Ita % par
Slide 43: Alcatel ‘Space’ agreements: Sensible industrial consolidation
Alcatel ‘Space’ agreements: Sensible industrial consolidation ¾ It allows us to focus on services (Telespazio) ¾ Alcatel will be the ‘lead’ in terms of manufacturing ¾ But Alenia Spazio will retain certain manufacturing interests – Radar/Infrastructure and Transport/Navigation ¾ Creating the largest
Slide 44: We now rank third in the global ‘Space’ industry
We now rank third in the global ‘Space’ industry Lockheed Martin 3.462 133 3,594 Boeing 2.843 133 2,976 JVs FNM-ALCSP 1.590 347 1,937 Northrop Grumman ST 1.635 Astrium 1.260 75 1,335 SES Global 1.240 2003 Revenues Alcatel Space 1.090 43 1,133 Intelsat 830 Finmeccanica 500 304 804 Honeywell 790 Eutel
Slide 45: Elsag: Now a core business in Security
Elsag: Now a core business in Security ¾ Core business now expanded to Aerospace, Defence & Security ¾ IT - Elsag has now been been repositioned under ‘Defence Electronics’ to – Strengthen C4ISR capabilities in-house – Meet military requirements for increasingly sophisticated software applications –
Slide 46: All this while nurturing our Defence System businesses
All this while nurturing our Defence System businesses ¾Missiles: currently building Meteor air-to-air missile for Eurofighter. Growth prospects best for air defence systems with system integration capabilities crucial success factor. ¾Underwater systems: highly profitable. World leader in light con
Slide 47: Summary and conclusion
Summary and conclusion ¾ Now much closer to realising our Aerospace & Defence aims ¾ ‘Phase I’ is completed ¾ Our strategy and long term goals are very clear ¾ 2005/6 will be good years for profitability (We have strong earnings visibility) ¾ We have the financial strength to invest in other A&D ass
Slide 48: And we have now “de-coupled” from STMicro
And we have now “de-coupled” from STMicro Correlation R squared Finmeccanica-STMicro fallen from 0.86 in 2002 to 0.13 in last three months of 2005. FINMECCANICA’S VALORE VALORE DI BORSAMarket DI BORSA DI capitalisation (€bn) DI FINMECCANICA FINMECCANICA (€mld) (€mld) 16 12.7 STM stock Valore market