Leonardo S.p.A. — Investor Presentation 2018

Jan 30, 2018

Industrial Plan Presentation

Vergiate (VA), 30 January 2018

Agenda

Part 1: Context and overview

• Context and industrial plan overview
• Helicopter division insight and action

Part 2: Strategy for growth

• Executing our growth strategy
• Enhanced commercial strategy
• Financial Plan
• Concluding remarks
• Q&A

Introduction Raffaella Luglini, EVP External Relations, Communication, Italian Institutional Affairs, Investor Relations and Sustainability

Alessandro Profumo, CEO

Gian Piero Cutillo, MD Helicopters Division

2

Lorenzo Mariani, CCO Alessandra Genco, CFO Alessandro Profumo, CEO Alessandro Profumo, CEO

Leonardo Industrial Plan

Context and industrial plan overview

Alessandro Profumo Chief Executive Officer

Vergiate (VA), 30 January 2018

A plan to return to sustainable profitable growth

A lot was achieved in Leonardo in recent years

Took the right steps in weak markets…

STRONG ACTIONS ON COSTS

…hard for the business…but necessary

The re-set in 2017 was disappointing

Created two perspectives for today…

Addressing the short-term to move forward with our long-term discussion

The re-set in 2017 was disappointing

Temporary issues in the Helicopters division

EXTERNAL FACTORS INTERNAL FACTORS FINANCIAL IMPACTS

 Lower profitability on young products
 Some extra costs & delays
 Customer claims
FY17E	FY17E
 Revenues	 EBITA

The re-set in 2017 was disappointing

Helicopters remains a strong and high quality business

Fundamentals remain strong

• Taking market share
• Quality leadership vs. peers
• Strong profitability vs. key peer

Confidence in a recovery

• Changed leadership
• New disciplines
• New commercial strategy
• But realistic on timing

Leonardo still taking market share…

Civil market share…

Strong profitability in Helicopters FY17e

Confident about the opportunity for Leonardo

We are entering a new phase: back to growth

• Our target markets will grow by 6%
• High quality products
• Highly valued by our customers
• International footprint
• Balance of Civil and Military
• Leverage a broad product portfolio
• Positioned for market trends

High quality products valued by our customers

trends%¹

© Leonardo - Società per azioni

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We are going to set this business up to win

We are going to set this business up to win

We cannot cut our way to sustainable growth…

New commercial strategy

• New CCO organisation
• Increased presence in international markets
• Leverage «One Company»
• Increased Customer Support & Services

Focused investment

• Sales organisations
• Product leadership

Digitalisation

Investing in an extended representative offices network 2018-2022

We are going to set this business up to win

Strict cost control delivered through clear actions

Initiatives

• Strategic Sourcing
• Spending continuous improvement
• Offload optimization
• Should cost on proprietary products
• Engineering excellence
• Zero defects manufactoring and industry 4.0
• Material handling & logistic optimization
• Real estate management
• Discretional cost management
• Competence mix change

A new sustainable financial model

Doing the right things for the long-term: Sustainable profitable growth…

Return to top-line growth

Strict cost control, reinvested in growth Sustainable improvement in profitability

Focus on cash and a stronger capital structure

2018-2022 cumulated orders

Annualised savings identified

C.€200mln

5%-6% C.80%

5 yr. Revenue CAGR

Reinvested in competitiveness & capability

ROS by 2020

8%-10%

Avg. 2015-2018 CF Conversion; Accelerating FOCF from 2020

Investment grade

5yr EBITA CAGR

Credit rating

13

…2018 planting the seeds for growth

A plan to return to sustainable profitable growth

We are confident about the opportunity for Leonardo

We are going to set this business up to win

A sustainable financial strategy

Now it's time to execute

Leonardo Industrial Plan

Helicopter division insight and action

Gian Piero Cutillo MD Helicopters Division

Vergiate (VA), 30 January 2018

Key Messages

We have a high quality Helicopters business with the right product strategy We are clear why we didn't perform in 2017 and we have taken action We have a great opportunity in the right areas of an improving market We are executing a plan to deliver a return to sustainable growth

We have a high quality Helicopters business

There is no structural problem

We have a high quality Helicopters business

The answers in two very different business/markets

We are clear why we didn't perform in 2017…

Strong External Factors in the Civil Market

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Source: Internal analysis on Leonardo Helicopters reference civil market; Economic Condition 2017; third parties analysis

Illustrating the mix shift in civil 3–10 tonnes range

Leonardo 3–10 tonnes classes revenues have grown between 2012 and 2017 – taking share, but mix impacted profitability

Source: Internal analysis on Leonardo Helicopters reference civil market; Economic Condition 2017; third parties analysis

We are clear why we didn't perform in 2017…

Lack of Discipline and Agility in our industrial response

Financial impacts We are clear why we didn't perform in 2017…

Lower revenues due to

• Decline in the civil market
• Mix effect

• Reduced contribution from military programs in 2017

• Lower profitability due to

• Lower volumes
• Mix change
• Reworks and inefficiencies
• Issues on specific 2017 military contracts

Action taken to restore core disciplines in our processes

…and we have taken action

Discipline in the governance

• Agility in the industrial operations, both in internal production shop floors and in supply chain management
• Effectiveness, driven by an Integrated Planning & Control process across all key stakeholders
• Clear accountability, though operating model revamping, impacting organization, processes and key people
• Financial awareness spread across the entire organisation

GUIDING PRINCIPLES IMMEDIATE ACTIONS TAKEN

• Execution Excellence programme enhanced
• New integrated planning and control operating model launched
• Production flow and supply chain logics changed
• Commercial organisation and approach to market improved, also enhancing forecasting capabilities

We have a great opportunity in an improving market

Well positioned in the right areas of Civil

CIVIL HELICOPTERS MARKET FORECAST

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Source: Internal analysis on Leonardo Helicopters reference civil market; Economic Condition 2017; third parties analysis

We have a great opportunity in an improving market

Catching non linear opportunities

MILITARY HELICOPTERS MARKET FORECAST

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Source: Internal analysis on Leonardo Helicopters reference civil market; Economic Condition 2017; third parties analysis

Executing a plan to deliver a return to sustainable growth

Key pillars for sustainable growth

Executing a plan to deliver a return to sustainable growth

Focus on Technology & Innovation Leadership

Consolidate innovation leadership and technological excellence by developing, maintaining and expanding state-ofthe-art and front-end product development & innovation capabilities across the entire Product Portfolio

Executing a plan to deliver a return to sustainable growth

Focus On Execution Excellence: Improvement Program

Continuous improvement program to deliver execution excellence and improve product market attractiveness, lower operating costs and cash generation

Executing a plan to deliver a return to sustainable growth Realistic expectations

LEONARDO HELICOPTERS REVENUES € bn

• Back to double digit profitability by 2020
• A return to growth supported by an healthier market outlook
• Capturing growth by improving actions already deployed
• Aimed at delivering effectively what we have planned
• Roughly 90% of our deliveries in 2018 already have a clear configuration

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Well balanced growth across the three key segments of Civil, Military and Customer Support & Training

Key Messages

We have a high quality Helicopters business with the right product strategy We are clear why we didn't perform in 2017 and we have taken action We have a great opportunity in the right areas of an improving market We are executing a plan to deliver a return to sustainable growth

Leonardo Industrial Plan

Executing our growth strategy

Alessandro Profumo Chief Executive Officer

Vergiate (VA), 30 January 2018

Executing our growth strategy

Improving markets provide a strong backdrop for our future growth

More than just helicopters– strong portfolio focused on 3 core business

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We are setting up this business to win

Strong fundamental growth drivers

• Uncertainty in Europe (immigration flows and election in several Nations)

• New US Defence and international policy

• About 3% CAGR of Procurement + RDT&A in 2017-2022

• European growth mainly driven by France, Germany and UK
• Flat Italian Defence Budget, still below 2% NATO Target

GLOBAL OUTLOOK LEONARDO TARGET MARKET

• Our reference market is € 113 bn per year, 19% of total A,D&S reference market
• Ca. 6% 5 years CAGR in 2018-2022
• Highest growth perspectives in Military Aircraft, Civil Helicopters and Security; slight contraction in Military Helicopters

DEFENCE BUDGETS LEONARDO COMPETITIVE POSITIONING

• 10 global A,D&S players; new comers are changing the competitive landscape

• Most diversified portfolio vs Peers
• Some areas of leadership (i.e. civil helicopters, trainers, radar and sensors, naval guns)

Our core categories are all expected to grow

TOTAL A&D MARKET- EVOLUTION BY BUSINESS - € bn

• Material recovery in Civil Helicopters
• Major key programmes in Military Aeronautics (Combat & Trainers)
• Defence Systems & Electronics sustained by international crisis threats

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Key opportunities in Space

Focus on Defence Budgets - Worldwide

Sources: IHS Jane's Nov2017 and Leonardo estimates; Exchange rate \$/€= 0,90372; IHS Janes - Nov. 2017 RID 7/17

Our domestic markets remain stable… with some opportunities

Substantially flat Defence Budget

• Possible additional funds in the next few years
• Italy is bucking the trend compared to other NATO Countries

• Procurement continue to receive a limited amount

• Confirmation of the Security initiatives outlined in the SDSR and funding

• Defence Equipment Plan in place
• Brexit uncertainties

Increasing trend in US Defence Spending more than 3% of National GDP

Procurement expected to grow

Boosted Cyber Security funds (Cyberspace included)

Some funds allocated to Foreign Military Financing

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Sources: IHS Jane's Nov2017 and Leonardo estimates; Exchange rate £/€= 1.22448; IHS Janes - Nov. 2017 RID 7/17

Potential opportunities from European spending and 2% GDP NATO countries target

Source: Leonardo elaboration on Budget NATO estimate, 2017

More than just a helicopters business

…Strong portfolio focused on 3 core divisions

Helicopters	Defence and Electronics	Aeronautics
30% of 2016 Revenue	45% of 2016 Revenue	25% of 2016 Revenue

More than just a helicopters business

European leader in Electronics, Defence and Security Systems

Leader in Military Defence Electronics

• Radars and sensors
• On-board avionics
• Electronic warfare systems
• ISTAR Avionic Surveillance
• C4I Systems / Aero Defence
• Naval systems
• Combat systems
• Combat management Systems
• Cyber Security

Exposure to the Biggest Defence Market (US) through DRS

More than just a helicopters business

Key programmes and technologies to sustain Aeronautics in the long term

International Cooperation Programmes
 Eurofighter Typhoon
 F-35 Lightning II
Able to provide complete solutions in Military Training Syllabus
 Trainer Aircraft (M-345 HET, M-346)
 Ground Based Training System (GBTS) for pilots and ground crew
UAVs Evolution (UCAV)
Tactical Transport Aircraft & Special Mission
 C27-J
Cutting Edge Technologies in structural components (i.e. B787)
Regional Transport Aircraft (ATR)

Strong portfolio based on 3 core divisions

We are clear on our strengths and weaknesses

STRENGTHS

Strong and innovative product portfolio

• Civil Helicopters, Trainers, Naval Armaments, Radars and Sensors
• Space, Missiles, Regional Turboprop (in JVs / Partnerships)
• Well recognized position as a «trusted partner»

WEAKNESSES

Business Technologies

Mastering of «CORE» technologies

• Radar systems
• Electro-optical systems
• Cyber security and intelligence
• Aircraft systems integration and certification
• Continuous upgrading of products by technology insertion, following Customer requirements

Too diversified portfolio compared to other international peers

• Fragmentation / scattering of resources
• Different positions along the industrial value-chain
• Sub-optimal cash generation in some business lines
• Limited market share in a number of business lines

Business Technologies

• More technology driven than market oriented

• Cautious exploration and adoption of «NEW» technologies

• Digital transformation of products

• More electric
• New materials and processes

Strong portfolio focused on 3 core divisions

Still too diversified product portfolio

	Main Lines of business
	Civil Helicopters						
HELICOPTERS	Military Helicopters						
	Civil Aircraft*		
	Military Aircraft						
AERONAUTICS	Trainers						
	UAS							
	Aerostructures		
DEFENCE	Avionics Systems							
ELECTRONICS &	Land and Naval Systems							
SECURITY	Security							
DEFENCE SYSTEMS	Land Armaments			
	Naval Armaments			
	Missiles							
	Underwater-Torpedoes							
SPACE	Services					
	Manufacturing							

Note: benchmark based on quali-quantitative evaluation with reference to: (i) revenues by segment, (ii) technology / product portfolio, (iii) market positioning, and (iv) market competitiveness

(*): Leonardo is active in the Regional Aircraft business through ATR

We have a well positioned portfolio focused on 3 core business

Still too diversified – what are we going to do about it?

Portfolio reshaping

• 1. Allocation of capital
• Directed to our core businesses and competencies
• 2. Partnering with other/larger companies
• Broader shoulders to access commercial opportunities
• Reduces investment of capital and management time
• 3. Selected disposals and acquisitions
• We will update you when we have something to say

We are setting up this business to win

We are setting up this business to win

Leonardo 2.0 in a Nutshell

INSPIRING PRINCIPLES OPERATIONS

• Gather Leonardo's people under the same core values, revolving around customer satisfaction, technological innovation and integrity
• People at the center of Leonardo
• Enhance the "ONE Company" organization model

COST TRANSFORMATION

• Materially improve cost position through short-term and long term initiatives

• Launch Group wide cost transformation program

• Materially improve industrial performance across the entire value chain

• Enhance engineering
• Revamp shop-floor "Zero Defects Manufacturing & Industry 4.0" Program
• Evolve relationship with suppliers

ORGANIZATION ENABLERS

• Set-up central governance of Group improvement initiatives
• Improve working environment through office spaces and buildings rationalization

We are setting up this business to win

Research and Development Activities

List of products is not exhaustive

Leonardo Industrial Plan

Enhanced commercial strategy

Lorenzo Mariani Chief Commercial Officer

Vergiate (VA), 30 January 2018

Key Messages

Solid Order Intake Plan

Key Strategic Campaigns

Leveraging International Presence: Offices & Subsidiaries

• Enhanced Customer Support

……back to growth

We are entering a new phase of sustainable growth

A challenging but realistic Order Intake Plan

2018-2022 Order CAGR >6%, well balanced on the three Key Business

• Helicopters
• Aircrafts
• Electronics for Defence & Security

Three Key Pillars for Growth

• Internationalization
• International Offices
• Subsidaries & JVs
• Regional Logistic Hubs
• Strategic campaigns

• € 20 bn

• 70 key campaigns

Customer Support Development growing market and emerging requirements

Customer intimacy ……back to growth

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Solid Order Intake Plan supported by strategic caimpaigns

• Material recovery in Military Helicopters driven by Key Large Campaigns
• Aircrafts growth sustained by EFA and Trainers
• ED&S' positive trend driven by Avionics, Naval, Cyber & DRS
• Customer Support up from current <20% to > 25%

Key Strategic Campaigns

Being closer to the customers and its needs

• 70 Key Campaigns for over € 20 bn in 2018-2020, excluding US «Big shots» in US, not included in baseline plan: T-100, UH-1N Top priority Countries accounting for over € 1 bn each Algeria Qatar Poland Pakistan

• Kuwait

Malaysia

Saudi

Egypt

Centralised Governance challenging and control, full divisional accountability, continuous tracking, focused team

Tight link with the Country & Regional Offices, full Support of Italian & UK Institutions, coordinated UK & IT efforts on Export caimpaigns (i.e. Helicopters)

Key Strategic Campaigns

Strong opportunities to address worldwide customers needs leveraging on the «One Company» – «One Voice»

Leveraging on International presence

Offices & Subsidiaries

• 25 Offices & Subsidaries at the end of 2017 More than 10 new initiatives in 2018 – 2019 More than 25 new initiatives in the Plan Link with key strategic campaigns: Algeria Bahrain Azerbaijan Egypt Poland Pakistan Australia Thailand
• Proximity to the Customer
  • Daily check of Key Campaigns
  • Building requirements
  • Logistic support
  • Better understanding of the competitive environment

Offices and Subsidiaries

Strengthening exisisting International Representative Offices Network

© Leonardo - Società per azioni

Enhanced Customer Support

• 2017 2022 CAGR c. 10%
• Customer Support Target: >25% of Order Intake by end of plan
• Positive trend in Aircraft, Helicopters and Electronics
• 4 Main Areas
• Regional Hubs for enhanced local capability
• Dedicated Organization in each Division with challenging & control from CCO on best practices
• Manufacturing & Supply Chain specific processes
• Enhanced product portfolio

CUSTOMER SUPPORT & SERVICE

GROUP ORDER INTAKE

…exploiting significant opportunities

© Leonardo - Società per azioni

Mid Life Upgrade (MLU):

Already applied to Land and Naval environment

Advanced Training

Training School: an innovative approach in partnership with Italian Air Force

Leonardo Industrial Plan

Financial Plan

Alessandra Genco Chief Financial Officer

Vergiate (VA), 30 January 2018

Key Messages

Entering a new phase…

…back to growth

2017 was a year of rebasing

We had to reset in challenging markets…

		FY2016A	FY2017E (as at March 2017)	FY2017E (as at November 2017)
New orders	€ bn	20.0	12.0 – 12.5	c. 12.0 Assuming finalization of C27J export contracts	11.3 – 11.7
Revenues	€ bn	12.0	c. 12.0	11.5 – 12.0
EBITA	€ mln	1,252	1,250 – 1,300	1,050 – 1,100
FOCF	€ mln	706	500 – 600	500 – 600 Assuming cash-in of EFA Kuwait payments related to 2017 milestones
Group Net Debt	€ bn	2.8	c. 2.5	c. 2.6 Including the effect of US bond buyback

Exchange rate assumptions: €/USD 1.15 and €/GBP 0.85

Re-base in Helicopters

• Order intake affected by key export order slippage
• 2017E Revenues, EBITA and FOCF towards the lower end of Guidance

… continued confidence in medium-term opportunities

Core strenghts of our Group

• Best in class business
• Outstanding product portfolio

Leading margins

HELICOPTERS DEFENCE ELECTRONICS AIRCRAFTS

• • Solid business built on long term contracts
• Healthy backlog
• Key export market exposure

Key player in leading international programmes

Strong backlog

Attractive product portfolio (i.e. Family Trainer)

Strong Order Intake

Stable and Sustainable Revenue Growth

Profitability back to double digit by 2020

Investing in sustainable growth

€ mln

• Emphasis on key technologies and products for long term sustainability
• Short term investments for the One Company full deployment (i.e. digital transformation)

Working Capital under control while supporting growth

€ mln

Operating Working Capital on Revenues, net of customer advances, almost stable/ slightly reducing thanks to initiatives

• Working Capital efforts aimed at improving industrial processes through effective integrated planning
• Set specific targets and actions on key working capital components
• Define clear accountability and set the appropriate incentive scheme

FOCF remains a priority, but timing will impact 2018 and 2019

…growing Cash flow conversion rate* beyond 2019

(*) FOCF/EBITA after cash financial charges and cash taxes

Executing on our Financial Strategy: Reduce Debt

Gross Debt Reduction¹

Only a portion of expiring debt refinanced

TARGET REDUCTION BY 2020

(1) Bonds and EIB Loan

Delivering more than promised in 2017

… And we plan to do more in 2018 – 2020

	As of today	Before last review	Date of review
Moody's	Ba1 / Positive Outlook	Ba1 / Stable Outlook	May 2017
S&P	BB+ / Stable Outlook	BB+ / Negative Outlook	April 2015
Fitch	BBB- / Stable Outlook	BB+ / Positive Outlook	October 2017

…fully committed to Investment Grade

Executing on our Financial Strategy: Reduce Cost of Funding

In 2017 retired bonds with an average coupon of 5.5% (both in euro and in dollar buyback transaction w/\$ 200mln NPV)

• New bond Issued in June 2017 at 1.6% yield
• Revolving Credit Facility renegotiated at lower margin

(1) Year End Bonds and EIB Loan Funding Cost

Revolving Credit Facility Renegotiation

Bank Commitments for €3.6bn → 2x Oversubscribed

2018 Guidance: planting the seeds for growth

		FY2017E	FY2018E
New orders	€ bn	11.3 – 11.7 Assuming finalization of C27J export contracts	12.5 – 13.0
Revenues	€ bn	11.5 –12.0	11.5 – 12.0
EBITA	€ mln	1,050 – 1,100	1,075 – 1,125
FOCF	€ mln	500 – 600 Assuming cash-in of EFA Kuwait payments related to 2017 milestones	c.100
Group Net Debt	€ bn	c. 2.6 Including the effect of US bond buyback	c. 2.6

Exchange rate assumptions: €/USD 1.20 and €/GBP 0.90

…moving to growth

Getting back to sustainable profitable growth

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© Leonardo - Società per azioni

Leonardo Industrial Plan

Concluding remarks

Alessandro Profumo Chief Executive Officer

Vergiate (VA), 30 January 2018

Concluding Remarks

A plan to return to sustainable profitable growth

We are going to set this business up to win

• Leonardo 2.0
• Enhanced Commercial Approach
• Investments for Growth
• Cost control

Disciplined financial strategy

THANK YOU FOR YOUR ATTENTION

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 Company's views and assumptions as of the date of the statements and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Given these uncertainties, you should not rely on forward-looking statements.

The following factors could affect our forward-looking statements: the ability to obtain or the timing of obtaining future government awards; the availability of government funding and customer requirements both domestically and internationally; changes in government or customer priorities due to programme reviews or revisions to strategic objectives (including changes in priorities to respond to terrorist threats or to improve homeland security); difficulties in developing and producing operationally advanced technology systems; the competitive environment; economic business and political conditions domestically and internationally; programme performance and the timing of contract payments; the timing and customer acceptance of product deliveries and launches; our ability to achieve or realise savings for our customers or ourselves through our global cost-cutting programme and other financial management programmes; and the outcome of contingencies (including completion of any acquisitions and divestitures, litigation and environmental remediation efforts).

These are only some of the numerous factors that may affect the forward-looking statements contained in this document.

The Company undertakes no obligation to revise or update forward-looking statements as a result of new information since these statements may no longer be accurate or timely.

Contacts

Raffaella Luglini

EVP External Relations, Communication, Italian Institutional Affairs, Investor Relations and Sustainability +39 06 32473.066 raffaella.luglini@leonardocompany.com

Valeria Ricciotti

Equity & Fixed Income Analysts & Investors and Relationship with Credit Rating Agencies +39 06 32473.697 valeria.ricciotti@leonardocompany.com

Manuel Liotta

Group Sustainability & ESG +39 06 32473.666 manuel.liotta@leonardocompany.com

© Leonardo - Società per azioni ir@leonardocompany.com www.leonardocompany.com/investors