Leonardo Spa · MIL:LDO
Leonardo Spa — Finmeccanica — FY2006 Earnings Presentation
48 slides from Leonardo Spa's earnings presentation, Mar 28, 2007
Slide 1: Finmeccanica Full Year 2006 Results Presentation
Finmeccanica Full Year 2006 Results Presentation P. F. Guarguaglini Chairman and CEO A. Pansa Co-General Manager Milan, 28 March 2007
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
Slide 3: Contents
Contents Introduction Financial & Business Review Business Strategy Appendix 3
Slide 4: Introduction
», “7 FINMECCANICA Introduction
Slide 5: Finmeccanica's strategic objectives
Finmeccanica’s strategic objectives Growth and Focus on A,D&S Strengthen & Consolidate Global Positioning Innovation Value Creation 5
Slide 6: Not separate and independent objectives…
Not separate and independent objectives… Growth & Focus on A,D&S ¾ Key Markets ¾ Key products ¾ Key Technologies Effectiveness ¾ Selected acquisitions Strengthen & Innovation Consolidate Investment to compete Global Positioning ¾ Integrate assets and extract synergies ¾ Improve processes Efficiency
Slide 7: 2006: delivering on our commitments (1/2)
2006: delivering on our commitments (1/2) • Total Revenues up from €10.9bn in 2005 to €12.5bn Growth in 2006 (+14% YoY, 8% like for like) Focus on • A,D&S Revenues from ca.€9bn in 2005 to €10bn in 2006 A,D&S • A,D&S Ebit represents more than 90% of total Group Ebit Strengthen & • International order
Slide 8: 2006: delivering on our commitments (2/2)
2006: delivering on our commitments (2/2) • R&D investment up from €1.7bn in 2005 to €1.8bn in Innovation 2006 (14% of Revenues) • Capex and R&D investments up from €940mln (pro forma) in 2005 to €1,192mln in 2006 • Ebit from €735mln in 2005 to €878mln in 2006 (+19%) Value Creation 9 of which A,D&S
Slide 9: Financial & Business Review
Financial & Business Review 9
Slide 10: FY 2006 Financial Highlights
FY 2006 Financial Highlights 2006 Results vs 2005 • Revenues up 14% to Eur 12.472 bn (+8% organic) • Ebit up 19% to Eur 878 mln (+17% organic) • Net profit up to Eur 1,020 mln, from Eur 396 mln in 2005, including capital gains from Ansaldo STS and Avio operations, respectively Eur 405 mln and Eur 29
Slide 11: FY 2006 Main Financial Results
FY 2006 Main Financial Results (Eur mln) FY 06 FY 05 % change 12,472 14% Revenues 10,952 878 19% EBIT 735 7% n.s. EBIT Margin 6.7% 1,020 396 n.s. Net income 506 501 1% FOCF 15,383 2% New orders 15,725 Working Capital (424) 17 n.s. Net financial debt 858 1,100 (22%) Debt/Equity 16% 24 % n.s. ROI 17.7
Slide 12: High cash generation from extraordinary operations in 2006
High cash generation from extraordinary operations in 2006 • Ansaldo STS: floated 60% on Italian Stock Exchange (including the exercise of greenshoe option) between March and April, generating Eur 458 mln of cash, of which Eur 80 mln paid out in June as extraordinary dividend to Finmeccanica shareho
Slide 13: New Directive on R&D state incentives
New Directive on R&D state incentives • The Italian government passed a new directive on 26 March 2006 whereby state incentives for projects aiming to “enhance the state’s technological endowment for national security purposes” will be reimbursed by the payment of royalties every time products incor
Slide 14: Helicopters: streamlined industrial base and state-of-art product range
Helicopters: streamlined industrial base and state-of-art product range.. FY 2006 •• Revenues Revenues increase increase due due toto contribution contribution of of US US president president programme, programme, AW139 AW139 ramp ramp up and product support in up and product support in UK. UK. •• E
Slide 15: Defence Electronics: key security programmes now starting
Defence Electronics: key security programmes now starting FY 2006 •• Revenue Revenue increase increase due due to to acquisition acquisition of of UK UK Avionics Avionics and and Datamat Datamat inin Defence Defence ITIT business. business. •• Improvement Improvement in in profitability profitabilit
Slide 16: Aeronautics: strong growth prospects with increasing exposure to USA
Aeronautics: strong growth prospects with increasing exposure to USA FY 2006 •• ATR ATR drives drives revenue revenue growth growth and and margin margin improvement. improvement. •• Further Further 100 100 B787 B787 orders orders booked booked in in Q4. Q4. Orders Orders for for 300 300 shipsets sh
Slide 17: Space: strong performance and improving outlook for Services
Space: strong performance and improving outlook for Services FY 2006 •• Margins Margins improve improve due due toto efficiency efficiency gains, gains, lower lower restructuring restructuring costs costs and and R&D R&D synergy savings. synergy savings. •• Revenue Revenue growth growth due due toto
Slide 18: Defence Systems: export markets improving
Defence Systems: export markets improving FY 2006 •• Good Good performance performance in in Missiles Missiles due due toto the the newly newly acquired acquired German German company company and and offset by lower profitablity and volumes in Underwater. offset by lower profitablity and volumes in
Slide 19: Civil Activities: Transport
Civil Activities Transport: to benefit from expansion into new markets Transport FY FY 2006 2006 •• Strong Strong revenue revenue and and Ebit Ebit growth growth by by Signalling Signalling && Systems Systems offset offset by by operating operating loss loss in in (€mln) FY 06 Y05 %change Vehicles.
Slide 20: Optimisation of risk-return frontier for new investment projects
Optimisation of risk-return frontier for new investment projects • Investment opportunities are now evaluated not only on the basis of minimum threshold for return on investment but also considering the maximum level of tolerable risk • Each project competes within an internal capital market place f
Slide 21: …accompanied by rigorous investment policy
…accompanied by rigorous investment policy • IRR on new investments = Group WACC* (8.9%) + min hurdle • “WACC RISK ADJUSTED” by business and for the Group: to factor in volatility of cash flows expected from different businesses; applied also to each major programme and portfolio investment • EVA >
Slide 22: 2006-2009 Operating Cash-flow utilisation
2006-2009 Operating Cash-flow utilisation* • Significant increase in investment peaking in 07- 08 Acquisitions 120 Commercial & Marketing Total Cash 85 ..for investing 2,080 12,130 11,720 R&D 6,910 Eur 16,100 mln ..for Debt reduction 410 Capex 2,610 Sum of interest, tax, pension & severance payments
Slide 23: Roadmap for achieving improved performance
Roadmap for achieving improved performance Complete review of industrial processes and launch detailed efficiency programmes for procurement, production & logistics Complete integration plans Further reductions in G&A, IT, commercial costs etc Increase Reduce profitability industrial and Simplify Gr
Slide 24: Integration targets and cost reduction targets
Integration targets … Integration targets • AgustaWestland: target of Eur 50 mln of additional EBIT by 2006 fully achieved and further benefits expected in next 2-3 years • Selex S&AS: target of Eur 50 mln of additional EBIT annually by 2009 • Elsag: target of more than Eur 20 mln of additional EBIT
Slide 25: Delivering on our financial commitments
Delivering on our financial commitments 2003 (ITALIAN GAAP) 2004 (ITALIAN GAAP) Guidance Reported Guidance Reported Outcome Value of Production YoY 9-10% 11% 7% 9% 99 EBIT 6-6.5% low end 6.4% €>550mln €614 mln 99 Net Debt/Equity <35-40% 8% <35-40% 10% 99 Operating Cash Flow €> 0 €496 mln €> 0 €364 m
Slide 26: New Guidance for 2007 and 2008
New Guidance for 2007 and 2008 2007 2008 Revenues €13.1-13.7bn €14-14.7bn (not Value of Production) EBIT €950-1,000mln €1,050-1,170mln • Confirming average Free Operating Cash Flow per Year (2006-08) of ca. €300 mln • Dividend policy: increase together with profits • Optimal capital structure: Net d
Slide 27: Business Strategy
», “7 FINMECCANICA Business Strategy 27
Slide 28: Finmeccanica's strategic objectives
Finmeccanica’s strategic objectives Growth and Focus on A,D&S Strengthen & Consolidate Global Positioning Innovation Value Creation 28
Slide 29: Robust Organic Growth
rroow wtthh Robust Organic Growth G G 20 21.0% 21.0% 20.3% 20.3% Eur Bn 18 19.3% 19.3% 19.8% 19.8% 19.9% 19.9% 16 14 16.8% 16.8% 12 16.9% 16.9% 10 8 6 4 2 - 2003A 2004A 2005A 2006A 2007E 2008E 2009E A,D&S Orders A,D&S Revenues Avg Gross Margin on Orders Civil Orders Civil Revenues Revenue growth acc
Slide 30: Leadership achieved in some businesses
r oow wtthh Leadership achieved in some businesses G G r World Market (€ bn) Finmeccanica Market Share Defence Electronics 56.4 6.9% Missiles 14.3 22.4% Armoured Systems 10.6 2.8% Civil Aerostructures (outsourcing) 3.3 12.0% Air Force 25.0 4.8% Civil Helicopters 2.2 18.0% Military Helicopters 8.8 30
Slide 31: Our internationalisation strategy…
thheenn&& ngg t SSttrreen iddaattee Our internationalisation strategy… o on n ssoolli nniinngg CC iti tioo b aal l PPoossi GGlloob ¾ Consolidation of Domestic Markets (more than 40% of 2009 orders to come from Italy & UK). ¾ USA: pursuing multiple strategic approaches according to different opportun
Slide 32: …driven by international commercial success of our key products
g th theenn&& …driven by international commercial ng SSttrreen liddaattee sooli success of our key products CCoonns siittiioonniinngg o bbaallPPoos GGllo 9 9 AW139 AW139 (180 (180 helicopters helicopters expected expected over over 2007-09) 2007-09) 9 9 Tetra Tetra (Terrestrial (Terrestrial Trunked
Slide 33: … to improve competitiveness…
ioon n … … … to improve competitiveness… v a a tt i IInnnnoov 9 R&D Investment New Technologies/New Products (i.e. Single barrel composites for B787, BA609 Tiltrotor, ) 9 Capex Investment New Processes/ New Infrastructures (i.e. new Italian site in Grottaglie for B787) … and increase profitability a
Slide 34: Distinctive core competencies: composite technologies and relative applications
Distinctive core competencies: composite vvaattiioonn technologies and relative applications IInnnnoo A350 B787 (51%) Super-Jet 100 Fuselage “one piece Future Narrow Bodies barrel fuselage” New composite-metal hybrid Eurofighter (40%) Co-cured horizontal solutions Eurofighter Prototype (15%) stabili
Slide 35: Investing with high expected returns in three connected areas
Investing with high expected returns vvaattiioonn IInnnnoo in three connected areas 9 New technologies carbon fiber 9 New processes one piece barrel 9 New products Sections 44 and 46 of B787 35
Slide 36: Delivery of first B787 sections to Boeing at Grottaglie
Delivery of first 2 B787 sections (44 - 46) to Boeing vvaattiioonn at Italian Grottaglie site (22 March 2007) IInnnnoo 36
Slide 37: Investing in people
vvaattiioonn Investing in people IInnnnoo 9 HR Investment More Advanced Core Competencies 9 29 students selected among international talented graduates (17 from foreign countries) 9 Permanent communities aimed at developing competitive advantage Finmeccanica Innovation Award from knowledge and techn
Slide 38: Core competencies to perform
a ttio ionn C Crree a Core competencies to perform u ee VVaallu Capability to: 9 manage large contracts through appropriate operating levers, to keep delivery timing, costs and quality under control and reduce risks 9 continuously reduce product costs r oow wtthh 9 offer integrated solutions leverag
Slide 39: Extracting value from civil activities
a ttio ionn C Crree a Extracting value from civil activities u ee VVaallu VEHICLES VEHICLES 9 Critical situation slowly improving due to restructuring plan (Ansaldo (Ansaldo Breda) Breda) started in 2005 9 Moving along 3 strategic lines: S/T crash programme, M/T process programme, transformation of
Slide 40: Our roadmap for the near future
Our roadmap for the near future 9 Continue growing organically, both in Revenues and Profitability 9 Pursue external growth through the acquisition of selected core assets 9 Further enhance value extraction from civil activities, with particular reference to Energy 40
Slide 41: Strategic objectives
Growth and Focus on A,D&S Strengthen & Consolidate Global Positioning Innovation Value Creation 41
Slide 42: Appendix
a) “7 FINMECCANICA Appendix 42
Slide 43: New Directive on State Incentives for Research & Development
New Directive on State Incentives for Research & Development ¾ The Italian Government, through Directive N 28 of the Interministerial Committee for Economic Planning, on 22 March 2006 (Gazzetta Ufficiale n.146 of 26 June 2006) ruled that projects “aiming to enhance the technological endowment necess
Slide 44: FY 2006 Results – Profit & Loss
FY 2006 Results – Profit & Loss €mil. FY 2006 FY 2005 Change % Revenues 12,472 10,952 14% Change in work in progress, semi-finished goods and finished products (24) 517 Cost of goods, services and labour (11,121) (10,330) Depreciation and amortization (482) (347) Provisions for risks and charges (23
Slide 45: Balance Sheet
Balance Sheet €mil. 31/12/2006 31/12/2005 Non-current assets 9,897 7,671 Non-current liabilities (3,275) (2,018) 6,622 5,653 Inventories 3,095 5,511 Construction contracts 2,823 2,538 Receivables 3,856 3,600 Trade payables (3,561) (3,431) Customer advances (5,529) (4,389) Provisions for risks and ch
Slide 46: Cash Flow Analysis
Cash Flow Analysis €mil. 2006 2005 CASH AND EQUIVALENTS AT 1 JANUARY 2005 1,061 2,055 CASH FLOW FROM OPERATING ACTIVITIES 1,565 1,413 Changes in working capital 347 204 Changes in other operating assets and liabilities (594) (662) CASH FLOW GENERATED BY (UTILISED IN) OPERATING ACTIVITIES 1,318 955 N
Slide 47: Divisions
Divisions 2006 Helicopters Defence Aeronautics Space Defence Energy Transport Other Activities Eliminations Total Electronics Systems and Corporate Revenues 2,727 3,747 1,908 764 1,127 978 1,368 229 (376) 12,472 EBIT 290 300 203 44 91 63 15 (128) 878 EBIT margin (%) 10.6% 8.0% 10.6% 5.8% 8.1% 6.4% 1
Slide 48: IR Contacts
IR Contacts Investor Relations Finmeccanica investor_relations@finmeccanica.com Website: http://www.finmeccanica.com/Investor Relations 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