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Innovation Challenges in Finmeccanica’s Supply Chain

Innovation Challenges in Finmeccanica’s Supply Chain. Giovanni Bertolone Executive Vice President Operations Finmeccanica. Montreal, December 6th 2011. Agenda. Finmeccanica Overview Technology & Supply Chain Innovation Finmeccanica presence in Canada Conclusions and Way ahead.

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Innovation Challenges in Finmeccanica’s Supply Chain

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  1. Innovation Challenges in Finmeccanica’s Supply Chain Giovanni Bertolone Executive Vice President Operations Finmeccanica Montreal, December 6th 2011

  2. Agenda • Finmeccanica Overview • Technology & Supply Chain Innovation • Finmeccanica presence in Canada • Conclusions and Way ahead

  3. 100% Finmeccanica Companies JVs Finmeccanica : seven sectors, one Group DEFENCE AND SECURITY ELECTRONICS AERONAUTICS HELICOPTERS DRS Technologies SELEX Elsag SELEX Galileo SELEX Sistemi Integrati Alenia Aeronautica Alenia Aermacchi ATR AgustaWestland SPACE ENERGY TRASPORTATION DEFENCE SYSTEMS Telespazio Thales Alenia Space Ansaldo Energia AnsaldoBreda Ansaldo STS BredaMenarinibus Oto Melara WASS MBDA

  4. 2010 RESULTS REVENUES 2010 ORDERS 2010 10% HELICOPTERS DEFENCE AND SECURITY ELECTRONICS AERONAUTICS SPACE DEFENCE SYSTEMS ENERGY TRASPORTATION 14% 19% 7% 26% 6% 6% ORDERS 2010 22.5 B€ REVENUES 2010 18.7 B€ 5% 5% 8% +2.9% +6.4% 38% 15% 30% 11% In 2010, the three strategic pillars (Helicopters, Defence and Security Electronics and Aeronautics) generated around 70% of Revenues and Orders

  5. Innovation and R&D in Finmeccanica in numbers Resources R&D expenditures 2010 2B€ = 11% revenues 2010 More than 20.000 people involved in R&D/Design & Development on Total FNM Resources more than 70.000

  6. Agenda • Finmeccanica Overview • Technology & Supply Chain Innovation • Finmeccanica presence in Canada • Conclusions and Way ahead

  7. Finmeccanica Strategic Framework Quality Strengthening Global Positioning • Technologies • Processes • Acquisitions • JV Investments Internazionalization Innovation • Integration/Synergies • Extracting value from business • Markets • Products Execution Competitiveness Profitability Value Creation – Customer Satisfaction

  8. Global Sourcing Footprint • Aerospace and Defence industry is an increasingly complex network of relationships, due to the shift from vertical programs to highly distributed, multinational and multi-stage operations • A large number of players are involved in an integrated and worldwide value chain, ranking from commodities suppliers (“Transactional Suppliers”) to strategic suppliers (“Fully Integrated Strategic Partner”) • OEMs in this environment have to drive and manage all the complex links and risks,running along their supply chain

  9. The demand What is Market asking for ? • Solutions to operational needs not only products • Greater flexibility to incorporate emerging technologies over the system’s life • Faster time to market • Risk resilience and cost-effective outcomes • Sustainability approach (development of “green” policies) • Full effective Life-Cycle Management Value Chain Global Integration Technologies & Processes Innovation Supply Chain Optimization

  10. Finmeccanica Group: Main Phases of INNOVATION CTO Board Competitiveness Plan IPR Europeanprojects Coordination Innovation and R&D Strategy Plan MindSh@re Start of Technology Governance 2002 2003 2004 2005 2008 2011 Phase 1:Knowledge Management Phase 2: Technology Governance Phase 3: Innovation Governance Phase 4: R&D&I Networking Governance ...from Knowledge Management to a “Strategic R&T Networking”.

  11. Technology Development Mapping Clear Leader Innovation Breakthrough by Internal development and External collaboration Core distinctive OPCos Technologies Core & Common Technology Platform Outsourcing opportunities Strong Favourable Tenable Weak Pacing Emerging Key Base

  12. Challenges and needs In the supply chain domain • Cost reduction and risk sharing lead to a shift from simple outsourcing towards partnerships and collaborative models among the supply chain players (Prime, OEMs, Suppliers, Sub-Suppliers, Logistic Operators, Support and Services Providers, Customers) New Business Models • The need to implement new processes, methodologies and tools is due to the large number of relationships and the complexity of our products Technology Network • Further KPI development for monitoring and to control suppliers’ performances, leading to enhance the responsiveness of each Supply Chain player. Key Performance Indicators • Capability to optimize the inventory management minimizing relevant costs along the whole lifecycle Operational Optimization FOCUS ON INDUSTRIAL COMPETITIVENESS

  13. Supply Chain Management: Leverage for Competitiveness • Extended Enterprise • Supplier Performance Management • Global Sourcing • Procurement efficiency • Make or Buy (outsourcing vs insourcing) • Information visibility / Communication Platform • Responsibility & Risk sharing Industrial Competitiveness Engineering Manufacturing ProcessQuality Program Management Supply Chain Delivery Support /Services Customer Satisfaction

  14. Supply chain TARGETS ACHIEVEMENT Improvement Initiatives in Supply Chain Economic Impact CLUSTER OF INITIATIVES BENEFITS ON GROSS MARGIN Supplier Management Total Projects Supply Chain Projects Global Sourcing Procurement efficiency Savings from Supply Chain Projects represent more than 50% of total savings Outsourcing & Processes improvement

  15. Finmeccanica Global Sourcing ROADMAP HIgh • GROWTH OF VOLUMES ADDRESSED TO GLOBAL SOURCING • OUTSOURCING PLANS IN LCC & BEST VALUE COUNTRIES 2013 2012 2011 2010 • FOSTERING GLOBAL SOURCING • FOCUS ON GEOGRAPHIC SCOPE WIDENING (USA AND CANADA) VOLUMES IN GLOBAL SOURICING 2009 INDUSTRIAL COMPETITIVENESS TASK FORCE FNM EU/USA BEST PRACTICE INTEGRATION OFF-SHORE ACTIVITIES REINFORCEMENT OFF-SHORE SOURCING IN LCC 2008 LAUNCH OF GLOBAL SOURCING PROGRAM IN LOW COST COUNTRIES (LCC) Low Low High INTEGRATION 2007 Finmeccanica is committed to collaborate with supply sources worldwide, according to the Best Valueprinciple

  16. GOODS AND SERVICES PURCHASED BY FNM GROUP IN 2010 (€ millions) 31 December 2010 IN 2010 PROCUREMENT COSTS ACCOUNTED FOR 65% OF TOTAL REVENUES “We promote cooperation and efficiency in the supply chain, ……. environmental sustainability and social responsibility become significant elements in negotiations with our suppliers” (Finmeccanica Sustainability Report 2010)

  17. Agenda • Finmeccanica Overview • Technology & Supply Chain Innovation • Finmeccanica presence in Canada • Conclusions and Way ahead

  18. Finmeccanica Presence in Canada • 392 people in Canada • 3 DRS Technologies facilities • Carleton Place, Ontario – Circuit Card Assembly • Kanata, Ontario – Secure Voice System for tactical comms, the SIRIUS passive LR- IRST system, EW training systems, Simulators • Bedford, Nova Scotia – Power Conversion, Inverters, Converters • Alenia Aermacchi Representative Office, Ottawa • AgustaWestland Representative Office, Ottawa FNM Acquired Contracts End User Civil Commercial 53 AW139, 3 AW 119 Koala for Skyline Helicopters 3 AW119 for London Air service (Vancouver) Military LINAPS artillery pointing system Howitzers 105/14 Army Testo finto 76/62 SR naval guns classTribalFregates DRS Canada activities Navy Air Force • CSH program (Canadian Search & Rescue Helicopter): 15 AW101 SAR Cormorant

  19. Finmeccanica footprint and perspective in Canada Long and successful history of Economic and Industrial Cooperation in Canada, in different sectors: • P&W for AgustaWestland helicopter engines. PW210 engine selected for the AW169. • AgustaWestland and CAE: ROTORSIM consortium for the development of flight simulation for helicopters training AERONAUTICS HELICOPTERS • Pratt & Whitney Canada for ATR 42-72 aircraft (3.5 B$ since 1982) • Bombardier on C-series commercial aircraft for tail plans • CAE for developing the simulator for the M346 Initial Training Capability • Acquisition of DRS Canada, as part of DRS C3 and Aviation Group (average revenues 80 M$/year) • CMC Electronics for the provisioning of avionics radios (SELEX Elsag) DEFENCE AND SECURITY ELECTRONICS SPACE • Partnership with MDA (MacDonald Dettwiler & Associates) and the Canadian Space Agency for various programs (Earth Observation and Space exploration). • Partnership with NOVATEL and CMC Electronics on GALILEO. Cooperation with NAV Canada for the GNSS (Global Navigation Satellite System) program TRASPORTATION • Strategic Industrial Agreement between Bombardier and Ansaldo Breda for the supply of high-speed trains to the Italian railways and other export markets (excluding Canada)

  20. FNM PROCUREMENT&OPPORTUNITIES FOR Canadian Industry (> 16 B$) TODAY 2005 1982 2009 4,2 B$ > 12 B$ total NEW REGIONAL TURBOPROP 6,5 B$ 3,5 B$ ATR vs P&W (*) NEW AW169 DEVELOPMENT AW vs P&W (**) 0,5B$ 2 B$ Others (DRS Canada, CAE, etc…) 2,8 B$ FUTURE OPPORTUNITIES 0,15B$ 0,15 B$ = Placed orders = Forecasted orders = Potential IRB benefit to Canada in case of FWSAR win Source: Finmeccanica Estimate (*): ATR orders placed from 1982 up to date. (**): AW orders placed from 2005 up to date.

  21. Canadian Supply Chain • Besides engines, most of procurements in the A&D sector concerns Electric & Electronic Components • More than 60 Canadian Vendors are actually included in FNM Suppliers Database • Pratt&Whitney Canada has been awarded “Finmeccanica Best Supplier 2010”. • The current vendor list can be further increased with a number of high technologies Canadian partners, supporting Finmeccanica in the major strategic opportunities in the Country: • Aeronautics (Fixed Wing Search & Rescue Program) • Helicopters (Canadian Search and Rescue Helicopter fleet upgrading) • Electronic Defence (Integrated Soldier Systems Program - ISSP) • Air Traffic Management (Air Surveillance Radar - ASR)

  22. Agenda • Finmeccanica Overview • Technology & Supply Chain Innovation • Finmeccanica presence in Canada • Conclusions and Way ahead

  23. Canada represents one of the high value markets where Finmeccanica intends to promote a coordinated strategy among the Group Operating Companies and to sponsor partnership/collaboration with local industry, Universities and Research Centers In the last decades, Finmeccanica has established a strong consolidated economic relationships with major Canadian industries. In order to increase Finmeccanica presence and recognition in the Country, we will continue to explore the relationship with Canadian suppliers, becoming part of a Global Innovative Network. High technology Districts, as Aéro Montréal, represent a fundamental support for Finmeccanica to enhance the Supply Chain policy in Canada References for contacts Finmeccanica Group Services Angelo Cecchini – Head of Sourcing angelo.cecchini@finmeccanica.com Conclusions and way ahead

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