Annual Financial Report 2017
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Annual Financial Report 2017 ANNUAL FINANCIAL REPORT 2017 In 2018, Leonardo celebrates 70 years, an anniversary that brings together two meaningful concepts: the legacy of the past and the driving force of the future. 1948 marks the beginning of a story built upon people and their professional know-how that enabled Leonardo to face years of challenges, changes and evolution, becoming an extraordinary heritage of competencies, capabilities and technologies: a legacy to transfer to future generations. 1948 • 2018 LEONARDO TODAY Helicopters Helicopters Division Electronics, Land & Naval Defence Electronics Defence Division & Security Airborne & Space Systems Division Security & Information Systems Systems Division Defence Systems Division Leonardo DRS MBDA (*) Aeronautics Aircraft Division Aerostructures Division ATR (*) Space Telespazio (*) Thales Alenia Space (*) (*) Joint Venture FINANCIAL HIGHLIGHTS (Group financial results for 2017 in ¤ millions) Revenues Electronics, Defence & Security Systems 5,506 Helicopters 3,262 11,527 Aeronautics 3,107 Other activities 338 Eliminations (686) Order backlog Electronics, Defence & Security Systems 12,053 Helicopters 9,706 33,578 Aeronautics 12,513 Other activities 199 Eliminations (893) New orders Electronics, Defence & Security Systems 6,146 Helicopters 3,153 11,595 Aeronautics 2,615 Other activities 216 Eliminations (535) RESULTS 2017 TOTAL SHAREHOLDER COMPOSITION Revenues 11,527 Institutional investors 51.8% New orders 11,595 Ministry of Economy and Finance 30.2% Order backlog 33,578 Retail investors (Italy only) 17.2% Research and development 1,539 Treasury shares 0.6% Workforce (no.) 45,134 Unidentified0.2% CONTENTS LETTER TO SHAREHOLDERS 10 BOARDS AND COMMITTEES 12 REPORT ON OPERATIONS AT 31 DECEMBER 2017 14 Group results and financial position 16 HELICOPTERS 24 ELECTRONICS, DEFENCE & SECURITY SYSTEMS 28 AERONAUTICS 32 SPACE 36 Other performance indicators 40 Non-GAAP alternative performance indicators 41 Effects of the new IFRS 15 accounting standard “Revenue Recognition” 46 Outlook 47 Related-party transactions 48 Industrial and financial transactions 50 Leonardo and the scenario 53 Leonardo and risk management 62 Leonardo and sustainability 69 Share price 89 Corporate governance 91 Performance of the Parent Company 95 The Parent Company’s offices 99 Reconciliation of net profit and shareholders’equity of the Group Parent with the consolidated figures at 31 December 2017 99 Proposal to the Shareholders’ Meeting 100 CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017 102 Consolidated accounting statements 105 Consolidated separate income statement 105 Consolidated statement of comprehensive income 106 Consolidated statement of financial position 107 Consolidated statement of cash flows 108 Consolidated statement of changes in equity 109 Notes to the consolidated financial statements at 31 December 2017 110 1. General information 110 2. Form, content and applicable accounting standards 110 3. Accounting policies adopted 111 4. Significant issues and critical estimates by management 126 5. Effects of changes in accounting policies adopted 128 6. Significant non-recurring events or transactions 128 7. Significant post-balance sheet events 128 8. Segment reporting 129 9. Intangible assets 131 10. Property, plant and equipment 136 11. Equity investments and share of profits/(losses) of equity-accounted investees 137 12. Receivables and other non-current assets 141 13. Business combinations 142 14. Inventories 143 15. Contract work in progress and progress payments and advances from customers 143 16. Trade and financial receivables 144 17. Other current assets 144 18. Cash and cash equivalents 145 19. Equity 145 20. Loans and borrowings 147 21. Provisions for risks and charges and contingent liabilities 152 22. Employee benefit obligations 160 23. Current and non-current liabilities 164 24. Trade payables 165 25. Guarantees and other commitments 165 26. Revenues 165 27. Other operating income/(expenses) 166 28. Purchases and personnel expenses 167 29. Amortisation, depreciation and impairment losses 168 30. Financial income and expenses 169 31. Income taxes 170 32. Assets held for sale and discontinued operations 171 33. Earnings per share 172 34. Cash flows from operating activities 173 35. Related-party transactions 174 36. Financial risk management 180 37. Remuneration to key management personnel 186 38. Share-based payments 187 Attachment: Scope of consolidation 188 Statement on the consolidated financial statements pursuant to Article 154-bis, paragraph 5 of Legislative Decree 58/1998 as amended 195 Independent Auditors’ Report on the consolidated financial statements at 31 December 2017 196 SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017 LEONARDO - SOCIETÀ PER AZIONI 204 Accounting statements to the separate financial statements at 31 December 2017 207 Separate income statement 207 Statement of comprehensive income 208 Statement of financial position 209 Statement of cash flows 210 Statement of changes in equity 211 Notes to the separate financial statements at 31 December 2017 212 1. General information 212 2. Form, content and applicable accounting standards 212 3. Accounting policies adopted 213 4. Effects of changes in accounting policies adopted 213 5. Significant non-recurring events or transactions 214 6. Significant post-balance sheet events 214 7. Segment reporting 214 8. Intangible assets 215 9. Property, plant and equipment and investment property 219 10. Equity investments 220 11. Receivables and other non-current assets 221 12. Inventories 222 13. Contract work in progress and progress payments and advances from customers 222 14. Trade and financial receivables 223 15. Income tax receivables and payables 223 16. Other current assets 223 17. Cash and cash equivalents 224 18. Non-current assets held for sale 225 19. Equity 225 20. Loans and borrowings 226 21. Provisions for risks and charges and contingent liabilities 230 22. Employee benefit obligations 235 23. Other current and non-current liabilities 236 24. Trade payables 237 25. Guarantees and other commitments 237 26. Revenues 238 27. Other operating income/(expenses) 238 28. Purchases and personnel expenses 239 29. Amortisation, depreciation and impairment losses 240 30. Financial income and expenses 241 31. Income taxes 242 32. Cash flows from operating activities 244 33. Related-party transactions 244 34. Financial risk management 252 35. Remuneration to key management personnel 256 36. Share-based payments 256 Appendices 258 Statement on the separate financial statements pursuant to Article 154-bis, paragraph 5 of Legislative Decree 58/1998 as amended 272 Independent Auditors’ Report on the separate financial statements at 31 December 2017 274 REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS’ MEETING 282 Information pursuant to Article 149-duodecies of the Issuers’ Regulations 296 LETTER TO SHAREHOLDERS TESTATINA DI CAPITOLO LOREM IPSUM Giovanni De Gennaro CHAIRMAN Alessandro Profumo CHIEF EXECUTIVE OFFICER Dear Shareholders, your Company is now a global entity with advanced technology, a relevant presence in international markets, employing highly skilled people who are able to provide customers with effective, reliable and accessible solutions. Much has been done in the past few years to focus the portfolio on core business, to recover efficiency and improve the effectiveness of decision- making and operational processes by launching the “One Company” operating model. The path we intend to follow in the coming years will be intense: the five-year Industrial Plan, in fact, is based on solid and sustainable long-term growth in all our key areas of business. The generally favourable prospects in our reference markets, especially in the international market, the solid order backlog, which amounted to almost €bil. 34 at the end of 2017, and the evolution of the “One Company” organisational model, whose goals are to strengthen your Company’s structure and improve our commercial approach in line with highly challenging market requirements, all mean that we can contemplate the future with confidence. 2017 was an especially challenging year and the results we achieved were affected, as expected, by some non-structural issues in Helicopters; these issues were clearly understood and tackled promptly by means of corrective actions, as well as changes in the organisation, processes and governance. Helicopters are a key business area for your Company: they are an excellence at global level, with a wide range product portfolio very much appreciated by customers, holding a leading position in target markets, with increasing shares in the most attractive market segments. From a commercial point of view, if we exclude the contract for the supply of Eurofighters to Kuwait, which was gained in 2016, the year 2017 ended with a slight decrease in orders, one of the reasons for which was the unfavourable exchange rate, a book to bill of 1 and an order backlog which covers us for almost 3 years in terms of equivalent production. From an economic and financial point of view, 2017 was characterised by slightly lower revenues, one of the reasons for which was the unfavourable exchange rate, and by lower operating profits, with a ROS of 9.2%. The net profit before extraordinary transactions recorded a decrease due to lower EBITA and higher net financial costs, mainly due to the repurchase of a portion of bond issues. Compared to 2016, 2017 cash flow was affected by higher investments, which were focused on key