Leonardo Spa · MIL:LDO
Leonardo Spa — Finmeccanica — Investor Day (January 2015)
64 slides from Leonardo Spa's investor day presentation, Jan 28, 2015
Slide 1: Industrial Plan Presentation
Industrial Plan Presentation Mauro Moretti Chief Executive Officer and General Manager Gian Piero Cutillo Chief Financial Officer London, 28 January 2015
Slide 2: Agenda
Agenda 11.00 – 12.00 Mauro Moretti KEY MESSAGES CEO and General Manager ASSESS – INPUTS TO THE INDUSTRIAL PLAN • Approach • Finmeccanica past performance • Market environment • Business review 12.00 – 12.30 Gian Piero Cutillo STRENGTHEN – INDUSTRIAL PLAN CFO • Improving profitability • FY2014 last e
Slide 3: Key Messages
KEY MESSAGES (CEO and General Manager) ASSESS – INPUTS TO THE INDUSTRIAL PLAN (CEO and General Manager) STRENGTHEN – INDUSTRIAL PLAN (CFO) DEVELOP – STRATEGIC PLAN (CEO and General Manager) CONCLUSIONS (CEO and General Manager) Q&A
Slide 4: Key Messages: 10 things to take away
Key Messages 10 things to take away 1. Serious turnaround plan ASSESS 2. Based on a rigorous review … and prudent assumptions 3. Major cost cutting to deliver a significant step up in profitability 4. New discipline on capex, R&D and working capital to drive a STRENGTHEN material step up in cash 5.
Slide 5: We have done a lot… but there is a lot more to do
Change is already happening We have done a lot… 2014 last estimates ahead of guidance Increasing control through centralisation, “moving towards one company” started Significant and immediate actions on costs started Strategic assessment of business portfolio completed Disposal process within Transp
Slide 6: Assess – Inputs to the Industrial Plan
KEY MESSAGES (CEO and General Manager) ASSESS – INPUTS TO THE INDUSTRIAL PLAN (CEO and General Manager) STRENGTHEN – INDUSTRIAL PLAN (CFO) DEVELOP – STRATEGIC PLAN (CEO and General Manager) CONCLUSIONS (CEO and General Manager) Q&A
Slide 7: Industrial plan approach
Industrial plan Approach Detailed analysis of the external environment Aerospace & Defence markets Competitive positioning Review of the financial health of the businesses ASSESS Profitability Cash Investments Industrial processes Identify the priorities to be solved in the short-medium term Detaile
Slide 8: Past performance has been unsatisfactory
Past performance has been unsatisfactory NET RESULT BEFORE EXTRAORDINARY TRANSACTIONS (€ MLN) FOCF (€ MLN) 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013 2013 700 521 565 557 323 563 506 469 443 375 -649 89 -943 -220 -307 -358 -2,728 RESTATED EQUITY (€MLN) GROUP NET
Slide 9: Unsatisfactory performance: main causes
Unsatisfactory performance Main causes Acquisitions: overpaid and funded through high debt with significant financial charges Contracts: cost overruns in some contracts across the businesses Impairments: Selex ES, DRS, Alenia Aermacchi Industrial structures: • Inefficient Supply Chain • Low producti
Slide 10: Macro environment is challenging
Macro Environment is challenging Impact on European Defence Industry WORLDWIDE KEY DYNAMICS Uncertainty due to the strong fall of the oil price EUROPEAN DEFENCE SCENARIO Continuing pressure on Defence Appreciation of the US Dollar against Euro investments and Yuan Convergence of requirements progres
Slide 11: Aerospace & Defence market expected to grow
Aerospace & Defence market expected to grow WORLDWIDE MARKET: EVOLUTION BY MACRO-BUSINESS SECTOR (2014-2023) - € BLN CAGR % 2014-2023 € 630 € 550 8 8 Civil helicopters 2.1 € 445 8 104 10 Military helicopters -6.3 6 91 15 Space 3.9 187 74 150 6.3 Security 108 137 2.5 126 Systems and Defence ele
Slide 12: Major spenders not expected to change dramatically
Aerospace & Defence Market Major spenders not expected to change dramatically… 2014 PROCUREMENT AND RDT&E* – TOP SPENDER EVOLUTION (% OF GLOBAL BUDGET) Defence 42% Procurement + RD&TE* € 290 Bln 24% 10% 5% 4% 4% 3% 3% 2% 2% 1% USA China Russia India France UK Japan Saudi Arabia Germany Australia RoW
Slide 13: Different dynamics in our major markets
Aerospace & Defence Market Different dynamics in our major markets ITALIAN MOD AND MOED BUDGET - € BLN UK DEFENCE BUDGET - € BLN US DEFENCE BUDGET - € BLN CAGR 12 150 -3.9% 4.7 132 20% 11 4.5 10 33% 121 4.0 17% 35% 20% 44% 39% 49% 52% 80% 80% 83% 67% 65% 66% 61% 61% 48% 2011 2014 2017 2011 2014 2018
Slide 14: Finmeccanica has already a strong international presence
Finmeccanica has already a strong international presence NATIONAL VS INTERNATIONAL 2013 REVENUES 14% 22% 20% 18% 27% 40% 72%* 74%** 59% 57% Sector 65% 71% average 78% «National» 57% 86% 78% 80% 82% 73% 60% 10 % 11% 41% 43% 35% 29% 22% 18 % 15% FINMECCANICA FINMECCANICA (ITALY AND UK) A,D&S (ITALY AN
Slide 15: Rebalance portfolio mix towards civil
Finmeccanica still needs to do more to rebalance its portfolio mix towards civil MILITARY VS CIVIL 2013 REVENUES Safran 20% 80% Airbus 23% 77% Boeing 36% 64% Honeywell 48% 52% Rockwell Collins 56% 44% Finmeccanica A,D&S 70% 30% Finmeccanica 60% 40% Thales 64% 36% Lockheed Martin 78% 22% Raytheon 81%
Slide 16: Competitive positioning: benchmark vs sector peers
Competitive positioning Benchmark vs sector peers POSITIONING OF THE MAIN PLAYERS IN THE SECTOR - 2013 NET RESULT AND REVENUES US “big prime” cluster supported by the captive market, still significant in size, that assures adequate Boeing volumes and profitability NET RESULT (€ Mln) Lockheed Martin
Slide 17: Our business portfolio is too diversified
Our business portfolio is too diversified Presence MBDA A,D&S KEY PLAYERS Military Helicopters Civil Military Aeronautics Civil Defence Defence Electronics and Security Security Missiles Defence Tropedos Systems Ammunitions Space Transportation 17
Slide 18: A diversified portfolio is not an advantage
A diversified portfolio is not an advantage Often a follower and not a leader FNM Sectors Main Lines of Business FNM Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Civil Helicopters L L Helicopters Military Helicopters KP L F TP regional aircraft L L Aeronautics Military airc
Slide 19: Our different businesses have produced very different results
Our different businesses have produced very different results 2013 20,0% Agusta Westland Finmeccanica Group Aerospace Defence & Security Oto Melara Ansaldo STS DRS 10,0% Wass AleniaAermacchi 0,0% -300 -100 100 300 500 700 900 1.100 Selex ES -10,0% EBITA % -20,0% -30,0% -40,0% Ansaldo Breda -50,0% EB
Slide 20: Our review goes beyond Divisions
Our review goes beyond Divisions Focus on segments and products Two key questions: What is our competitive position? What is our Profitability? EXAMPLES ASSESSMENT ACTIONS – OPTIONS Some non core/loss making activities identified in two lines of business DRS Aviation & Logistics 1. Exit non core/ un
Slide 21: Strategic roadmap
Finmeccanica Strategic roadmap 1 ASSESS PROFIT Cut costs 2 TURNAROUND STRENGHTEN INDUSTRIAL CASH Rationalise investments and PLAN working capital CAPITAL Balance net equity and STRUCTURE net debt PORTFOLIO More focused on A,D&S 3 Internationalisation MARKETS DEVELOP STRATEGIC PLAN Standardisation &
Slide 22: Industrial Plan: observations and objectives
Industrial Plan Observations and objectives Increase the efficiency through the cost reduction in: Staff Rationalisations expected to ensure total savings for ca. Engineering New Organisational and Operating Model 150 €m, of which >25% already included in 2015-2019 Supply chain Industrial Plan
Slide 23: Strengthen – Industrial Plan
KEY MESSAGES (CEO and General Manager) ASSESS – INPUTS TO THE INDUSTRIAL PLAN (CEO and General Manager) STRENGTHEN – INDUSTRIAL PLAN (CFO) DEVELOP – STRATEGIC PLAN (CEO and General Manager) CONCLUSIONS (CEO and General Manager) Q&A
Slide 24: Financials: objectives
Financials Objectives Through execution of actions described, Finmeccanica will significantly improve its financial performance Financial targets: Profitability improvement Adequate Cash Flow generation, with FOCF turning to positive in 2015 and increasing over the next years Capital Structure stren
Slide 25: Levers for a Turnaround Plan
Financials …Levers for a Turnaround Plan Prudent and solid Full control of all assumptions the key drivers Orders and volumes are (360°analysis and control consistent with market growth of all the cost items) Deep and granular analysis and action Significant Savings on all the key in SG&A and Indust
Slide 26: Actions
Financials …Actions STREAM ACTIONS / INITIATIVES IMPACTS / TARGETS Engineering • R&D Execution • Productivity increase productivity • Organisation • Investments rationalisation • Product cost reduction • New approach Supply Chain • Working Capital reduction • Supply Chain review optimisation • “Shou
Slide 27: Engineering productivity
Financials Engineering productivity Deep analysis across all A,D&S Companies on Engineering processes executed ASSESS Highlighted significant actions for improvement even considering external best practices Actions focus on: R&D Execution Process streamlining (existing and New Product Introduction)
Slide 28: Supply Chain optimisation
Financials Supply Chain optimisation Complete review over A,D&S businesses performed over the last months, ASSESS From the traditional view by “commodity” to the new approach by “supply chain” ~20 main initiatives identified to be developed over 2015-17 Key drivers: Supply chain review, with rationa
Slide 29: Manufacturing efficiency
Financials Manufacturing efficiency Deep analysis of each single plant ASSESS Several initiatives within A,D&S strongly focused on: workload stabilisation on all production lines/plants, even with ramping volumes; better interaction with procurement, logistic etc. to improve production lines feeding
Slide 30: New Organisational and Operating Model
Financials “New Organisational and Operating Model” Finmeccanica is implementing a new organisational and operating model that is more homogeneous, cohesive and integrated, moving towards a single A,D&S company. The new Model will imply the Business Support Functions rationalisation/efficiency lever
Slide 31: SG&A Reduction
Financials SG&A Reduction € Mln 1,278 9.3% Total 10% reduction after the first 2 years Flat despite inflation and Revenue growth 2013 2014 2015 2019 Restated SG&A/Revenue ratio Aggressive action plan with material results already in 2014 (approx € 30 Mln savings in Corporate costs) and 2015 Incidenc
Slide 32: Change is already happening: FY2014 guidance
Financials …Change is already happening FY 2013 GUIDANCE GUIDANCE GUIDANCE FY 2014 FY 2014 FY 2014 Actual (as at March 2014) (as at November 2014) (as at January 2015)** New orders €b 15.1 13.0 - 13.5 13.5 - 14.0 15.2 - 15.5 Revenues €b 13.7 13.0 - 13.5 13.5 - 14.0 14.4 - 14.7 EBITA €m 878 930 - 980
Slide 33: 2015-2019 Assumptions
Financials 2015-2019 Assumptions “Continuity assumptions”: Transportation sector included in the total results of the Group, with the only exception of bus sector (de-consolidated since the end of 2014) Financial data do not include any effect related to some strategic option under evaluation (ATR,
Slide 34: Orders
Financials Orders € Bln 15.1 15.2 – 15.5 14.0 – 14.5 12.2–12.5 12.0-12.5 13.0 2.2 2013 2014 2015 2019 Restated Last Estimate Guidance Trasportation Aerospace and Defence Cumulated new Orders expected in the period 2015-19 are around € 70 Bln «Book to Bill» ratio equal or higher than 1, keeping the b
Slide 35: Revenues
Financials Revenues € Bln 14.4 – 14.7 14.0 – 14.5 13.7 12.2-12.5 12.0-12.5 12.0 2.0 2013 2014 2015 2019 Restated Last Estimate Guidance Trasportation Aerospace and Defence 2015 vs. 2014 decline due to the changes in perimeter for about € 500 Mln: transfer of “pass-through” activities on B787 from Al
Slide 36: EBITA and ROS
Financials EBITA and ROS € Mln 1,150 – 1,200 1,040 – 1,060 878 6.4% 1,080-1,130 990-1,010 988 -110 2013 2014 2015 2019 Restated Last Estimate Guidance Trasportation Aerospace and Defence ROS Substantial increase driven by: Helicopters (underlying profitability firmly at “double-digit”) Selex ES soli
Slide 37: Material rationalisation of Investments (CAPEX + R&D)
Financials Material rationalisation of Investments (CAPEX + R&D) Investments selection strictly CAPEX reduction and tooling based on financial return optimisation Improvements in Engineering productivity and reduced Capitalized R&D ≈€ 1 bln Higher self-financing > 20% rationalisation by 2017 Increas
Slide 38: Reduced Operating Working Capital net of Customer Advances
Financials Reduced Operating Working Capital net of Customer Advances ≈ 6.5 bn > 15 % reduction by 2017 2013 2014 2015 2019 Restated Customer Advances winding down (approx -6% per year) Net of Customer advances impact, initiatives put in place lead to an operating working capital reduction, even wit
Slide 39: Back to cash generation
Financials Back to cash generation € Mln 100 - 200 (220) (160) – (140) 200-300 135 80-100 -355 2013 2014 2015 2019 Restated Last Estimate Guidance Trasportation Aerospace and Defence Positive and growing Cash Flows as a result of profitability improvement, investments focalization and selectivity, e
Slide 40: Combined effects lead to Group Net Debt reduction
Financials Combined effects lead to Group Net Debt reduction Group Net Debt (year end) Operating Working ≈ €4.1bn Capital Below € 3.5 bn by 2017 Industrial Plan Actions Engineering Productivity + Supply chain optimisation Manufacturing efficiency SG&A reduction 2014 2017 2019 CAPEX and Capitalized R
Slide 41: FY 2015 Guidance
Financials FY 2015 Guidance Guidance FY2014 FY2015E (as at January 2015)* GROUP A&D GROUP A&D New orders € bn 15.2 – 15.5 12.2 – 12.5 14.0 – 14.5 12.0 – 12.5 Revenues € bn 14.4 – 14.7 12.2 – 12.5 14.0 – 14.5 12.0 – 12.5 EBITA €mln 1,040 – 1,060 990 – 1,010 1,150 – 1,200 1,080 – 1,130 FOCF €mln (160)
Slide 42: FY 2015 headlines
Financials FY 2015 headlines Orders and Revenues: moderate growth taking into account the changes in perimeter Profitability: meaningful step up in 2015 and 2016, with a cumulative increase by 20% in A&D EBITA Below EBITA line: much lower volatility with material improvement in the bottom line Restr
Slide 43: Develop – Strategic Plan
KEY MESSAGES (CEO and General Manager) ASSESS – INPUTS TO THE INDUSTRIAL PLAN (CEO and General Manager) STRENGTHEN – INDUSTRIAL PLAN (CFO) DEVELOP – STRATEGIC PLAN (CEO and General Manager) CONCLUSIONS (CEO and General Manager) Q&A
Slide 44: Strategic roadmap
Finmeccanica Strategic roadmap 1 ASSESS PROFIT Cut costs 2 TURNAROUND STRENGHTEN INDUSTRIAL CASH Rationalise investments and PLAN working capital CAPITAL Balance net equity and STRUCTURE net debt PORTFOLIO More focused on A,D&S 3 Internationalisation MARKETS DEVELOP STRATEGIC PLAN Standardisation &
Slide 45: Development: five key pillars
Development Five key pillars Quality & Effectiveness Costs Internationalisation & Market Disposals FEWER BUSINESSES – Rolling Stock 1 Bus business FOCUS ON «A,D&S» Industrial plants Other minor activities SELECTED JVS AND «A,D&S» Selection of «core» businesses 2 SEGMENTS Repositioning of
Slide 46: Fewer businesses - focus on A,D&S: disposals update
Fewer businesses - focus on «A,D&S» 1 Disposals update Bus business: all the industrial activities, except for some old critical contracts, merged in a newco. 80% owned by King Long Italia («KLI») and 20% by FNM. Completed BREDAMENARINI-BUS («BMB») AND FATA Industrial Plant: the competitive process
Slide 47: Selected JVs and A,D&S segments: selection criteria
Selected JVs and «A,D&S» segments 2 Selection Criteria SEGMENTS Helicopters Satisfactory profitability Electronic Airborne «CORE» ACTIVITIES Relevant positioning on the markets Aeronautics TO DEVELOP Strategic relevance for the Group Land and Naval Systems Control granted Space Security «CORE» ACTIV
Slide 48: JV's – assess & select: Space and Defence Systems
Selected JVs and «A,D&S» segments 2 JV's – assess & select SPACE Recent efforts made by Italian Government to maintain an appropriate level of investments to sustain the Space sector Space is one of Group’s «Core» sectors, in which Finmeccanica intends to: reinforce the role of Telespazio (Space Ser
Slide 49: JV's – assess & select: Aeronautics
Fewer «A,D&S» segments 2 JV's – assess & select AERONAUTICS Finmeccanica/ Alenia Aermacchi (50%), Airbus Group (50%) ATR – worldwide leader in turboprop regional aircraft – achieved significant results, with 1,470 aircraft sold since 1985, of which 1,190 delivered so far The current programme «as is
Slide 50: DRS Technologies
Selected JVs and «A,D&S» segments 2 DRS Technologies MAIN ISSUES Difficulties in managing the company effectively as a real “domestic player” in the US market Continuing reduction in volumes (approx. -50% from 2009), also due to the US Defence budget reduction Too diversified product portfolio Few s
Slide 51: More focus does not mean getting smaller
Improve international footprint / extended reach 4 More focus does not mean getting smaller DOING MORE WITH LESS RESOURCES Extended More customers More More markets focused M= Standardisation and portfolio Modularity Dual use Reach Integrated Capabilities Customer service Unmanned New Finmeccanica O
Slide 52: More customers: Helicopters
Improve international footprint / extend reach 4 More customers MAIN OBJECTIVES Enlarging positioning in Service segment (mainly commercial) Reinforce positioning in key export markets (Asia, Middle East, China) HELICOPTERS Optimising new developments to fill the portfolio (“heavy lift”) Marketing c
Slide 53: More customers: Defence Electronics and Security
Improve international footprint / extend reach 4 More customers MAIN OBJECTIVES Focus on civil avionics opportunities and specific competencies in Defence and Security Reinforce positioning in electronic warfare DEFENCE ELECTRONICS Consolidate positioning in Security (e.g. Cyber Security, ICT & AND
Slide 54: More customers: Aeronautics
Improve international footprint / extend reach 4 More customers MAIN OBJECTIVES Reinforce presence in regional aircraft segment Reinforce positioning in Trainers – developing operational version of the M-346 dual role, and completing Basic Trainer M-345 AERONAUTICS Maintain presence in combat aircra
Slide 55: Focus on Unmanned Aerial Systems
Improve international footprint / extend reach 4 Focus on Unmanned Aerial Systems («UAS») MARKET SCENARIO OVERALL UAS MARKET (2014 – 2023) - € BLN One of the most dynamic markets in A,D&S CAGR Application to civil (i.e. surveillance) subject to certifications required for a massive utilisation ~ 5,9
Slide 56: More markets - Internationalisation
Improve international footprint / extend reach 4 More markets - Internationalisation FINMECCANICA 2013 REVENUES BY EXPORT MARKET • Denmark (2%) Middle East (4%) • Turkey (1.5%) • Saudi Arabia (2%) • Sweden (0.8%) • United Arab Emirates(1%) • Poland (0.6%) • Oman (1%) • Qatar (1%) N.B.: France and Ge
Slide 57: Towards a new structured model for strategic markets
Improve international footprint / extend reach 4 More markets - Internationalisation Towards a new structured model for strategic markets A DEFINE A SUSTAINABLE AND COMPETITIVE PRODUCT PORTFOLIO B SELECT KEY GEOGRAPHIC AREAS C Group positioning in the country SET UP THE MODEL TO PROTECT AND PENETR
Slide 58: New Group Organisational and Operating Model
5 New Governance: New Group Organisational and Operating Model Divisional Model OBJECTIVES Integrated Governance with benefits in terms of industrial productivity, scale economies and competitiveness Simplification/shortening of the chain of command, with consequent improvement in efficiency, flexib
Slide 59: Conclusions
KEY MESSAGES (CEO and General Manager) ASSESS – INPUTS TO THE INDUSTRIAL PLAN (CEO and General Manager) STRENGTHEN – INDUSTRIAL PLAN (CFO) DEVELOP – STRATEGIC PLAN (CEO and General Manager) CONCLUSIONS (CEO and General Manager) Q&A
Slide 60: Immediate Priority: Strengthen the business
Immediate Priority Strengthen the business Profitability Below the line Working capital Capex + R&D Much lower volatility + Net income FOCF Net Equity + Net Debt More balanced and flexible Capital Structure to support DEVELOPMENT 60
Slide 61: Key Messages: 10 things to take away
Key Messages 10 things to take away 1. Serious turnaround plan ASSESS 2. Based on a rigorous review … and prudent assumptions 3. Major cost cutting to deliver a significant step up in profitability 4. New discipline on capex, R&D and working capital to drive a STRENGTHEN material step up in cash 5.
Slide 62: Appendix
APPENDIX
Slide 63: 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 64: Investor Relations Contacts
Investor Relations & Sustainable Responsible Investors (SRI) Contacts Raffaella Luglini Head of Investor Relations & SRI +39 06 32473.066 raffaella.luglini@finmeccanica.com Valeria Ricciotti Alessio Crosa Paolo Salomone Financial Communication Fixed Income ESG +39 06 32473.697 +39 06 32473.337 +39 0