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Leonardo and sustainability

Human Resources The Environment Research and development

The concepts of an organisation’s sustainability and sustainable growth play a fundamental part in decision-making processes and in the evaluation of corporate strategic decisions, which are the object of the attention of an increasingly vast and demanding range of stakeholders. Leonardo, among the top players in the world in the Aerospace, Defence and Security sectors, is fully aware of this and acts throughout the world on the basis of an approach whose aim is to integrate sustainability with business in its Business Plan, in compliance with both national and international rules, laws and regulations, on the basis of a policy of ongoing search for value creation which also involves its customers and suppliers and the communities and territories in which the Group performs its activities.

Leonardo voluntarily reports on the sustainability of its performance in accordance with the Group’s Sustainability and Innovation Report, prepared according to the “Sustainability Reporting Guidelines” (version G4) set down by the Global Reporting Initiative (GRI) - in accordance with the “core” application level - and assured by KPMG.

This section contains a summary of the main information on various aspects of sustainability (Environment, Human Resources, Research & Development) and seeks to explain how “human capital”, “environmental capital” and “intellectual capital” are managed, protected and developed. Please refer to the 2016 Sustainability and Innovation Report, available on Leonardo’s website, for more detailed information.

Thanks to the development and circulation of the Governance tools described in the paragraphs below, and to its desire to communicate to all its stakeholders in a clear manner, Leonardo voluntarily reports its sustainability activities and services on an annual basis using the following tools:

  • Sustainability and Innovation Report, which provides a full and integrated picture of the Group’s approach to the issue of sustainability and the process of the improvement of performance and of the management aspects of its strategy and Industrial Plan;
  • inclusion in the Dow Jones Sustainability Indexes (DJSI): once again in 2016 the Group was included in the prestigious indexes of the DJSI family (both Europe and World) (for more information, refer to: http://www.sustainability-indices.com);
  • participation in the Carbon Disclosure Project (CDP): once again in 2016 Leonardo took part in the initiative of the non-profit organisation CDP, which is committed to reducing greenhouse gas emissions and to the sustainable use of water resources. The organisation acts on behalf of 827 institutional investors, representing managed and invested capital (Assets Under Management – AuM) equal to $tril. 100 (for more information, refer to https://www.cdp.net). In 2016 the CDP, which has adopted new procedures for awarding scores to the companies which belong to the project, placed Leonardo at the B “Management” level for its approach to carbon issues (levels from D-/D “Disclosure” and A-/A “Leadership”), as the Group has taken action and implemented policies and strategies in hand directed at environmental and carbon issues.

Human resources

Employees

2016 also saw a considerable reduction in the number of the Group’s staff members compared to 31 December 2015 (about 3%) bringing the workorce number at 31 December 2016 to 45,631 employees.

The Leonardo Group has a significant direct presence of subordinate employees in 15 countries (including domestic markets) and 13 Italian regions: about 98% of the Group’s workers operate in those markets that are considered “domestic” (Italy, the UK, the USA and Poland).

Below is the breakdown of employees by sector:

Employees by sector

Below is the geographical distribution of employees (of which about 36% working abroad):

Geographical distribution of employees

During 2016 work continued on the rationalisation of the Group’s management: with reference to the consolidation area, the executive/manager population was further reduced down to one hundred units (with a decrease of 8.3%) during the year.

Organisation

The year 2016 was a very intense year as regards organisation, with strong focus on the organisation required by the Divisional model implemented during the year.

In particular, the year saw the definition of the organisation charts of the Divisions, as well as of the Sectors, the first-level divisional organisational functions and of certain centralised functions.

We underline that a Data Protection Officer was appointed to supervise compliance with data protection rules and an Energy Manager was appointed to encourage the rational use of energy and to encourage the personnel at large to conduct themselves with an eye to saving energy and optimise its use.

After the establishment of the One Company, the system of internal rules was redrawn in conformity to the new corporate organisational model by associating certain types of documents with each area of activity/processes (“centralised”/centrally coordinated/managed at divisional level). In detail:

  • One Company Guidelines for centrally coordinated activities/processes, which must be formally adopted in each Division and at Corporate level when necessary by means of implementation procedures which lay down roles, methods of operation and monitoring of the work involved;
  • One Company Procedures for “centralised” activities/processes, immediately applicable throughout Leonardo without any need for formal adoption by Divisions/Corporate functions;
  • Corporate and Divisional Procedures (for the adoption of the One Company Guidelines or for the operational processes which are the sole responsibility of Corporate functions or of Divisions), applicable to centralised functions at Corporate or divisional level, respectively.

During 2016, 48 documents were prepared and issued at a central level in this context, of which 32 related to the areas at risk of crime identified within the framework of the new Model under Legislative Decree 231/2001 , which was approved by the Board of Directors on 17 December 2015 (“231 Protocols”).

Management and development of Human Resources

As last year, in 2016 Leonardo’s strategy for the management and development of Human Resources was based on the principles of ethics, transparency, equality and meritocracy.

In order to ensure the full implementation of these principles in all parts of the Group, an integrated set of processes and tools started to be used during the year, to value the professionalism of all resources, nurturing talent and measuring each person’s actual contribution to the attainment of the Group’s results consistently with business targets and in the conviction that this is the right road to take in order to assure Leonardo’s future sustainability and competitive differential.

In order to support the new Management and Development System and the even-handed implementation of HR processes throughout the Group, an innovative IT platform was launched for use by all parts of the Group (HRevolution). This platform ensures all employees to be part of the Group with the same opportunities, and it is constantly enriched with new functions. In 2016 the launching of HRevolution, the first transversal One Company IT system, was a clean break with the past, enabling Leonardo’s human resources to feel really a part of an organisation which is integrated even in terms of working processes and tools.

Human Resources management. The present human resources management strategy aims at rewarding individual contributions to the attainment of business targets and recognition of the work of the most competent resources ensuring, for the first time in the Group, that the findings of the appraisal processes in the new Management and Development System are consistent with the opportunities for advancement of the persons concerned. The tools adopted by the Group, which are innovative and in line with best market practice, have supported the implementation of the new divisional organisational model into a concrete form while also ensuring the consistency of the processes both among the Divisions themselves and between the Divisions and Centralised Functions. With the new divisional model, key processes of management and development have been revised and issues of great importance from the management and organisational point of view have been examined in depth and integrated. The processes and policies involved in this revision are:

  • Salary Review policies which ensure that remuneration is uniform and consistent with the Group’s values, governance principles and pay policy;
  • policies for the appointment of Executives which seek to find the best possible fit between key positions in the Group and the persons occupying them and are therefore based on a decision-making process which follows objective criteria and structured professional growth paths;
  • international mobility policies which support, through consistent management, all the personnel that have been seconded abroad, considering their various personal situations and ensuring efficiency, equity and cost reductions in compliance with the different legislations involved and in the light of the Divisions’ specific needs as they emerged from the round table meetings devoted to this aspect;
  • internal and external Recruitment and Selection processes (mobility and job posting) to meet the professional requirements that the Company expects, finding the candidates who best match the profiles required, on the basis of the annual programme of activities and its budget, ensuring equal opportunities in access to employment in compliance with the provisions of current law, collective labour agreements and the criteria of transparency and impartiality. The computerisation of recruitment work initiated in the HRevolution platform in support of these processes.

Human Resources development. To support the implementation of the new divisional organisational model, uniform processes for acquiring a detailed knowledge of the Group’s human resources and appraising them were initiated at Group level during 2016 and made the basis for all opportunities for growth and advancement. Specific processes based on traceable and transparent methods were included in the new Management and Development System during the year in order to acquire a better knowledge of the Group’s resources and appraise the results they achieved and their skills and potential.

My Profile - The module was implemented on the HRevolution platform in 2016: this is a tool which gives all employees the chance to consult the “public profiles” of all their colleagues throughout the world to see their contact details and the main information regarding their organisational roles, and, above all, which gives the Company the most significant information regarding their professional career in terms of experience, skills and aspirations for the future by means of their “private profiles”.

Performance & Development Management (PDM) - In 2016 a uniform Group process for the appraisal of the performance of human resources was launched which, in a traceable and transparent manner, measured the results achieved by persons in their work in order to put these findings at the basis of all advancement and management procedures. The process was conducted for the first time, involving more than 23,000 resources worldwide among executives, middle managers and office workers (up to Grade 6 in Italy) in divisions and subsidiaries Telespazio, Leonardo Global Solutions and Sogepa. In some organisations, above all abroad, the PDM process was immediately extended to take in all white and blue collar workers. For the first time in the Group, all the employees were able to discuss their targets and the Company’s expectations in terms of conduct and expected results with their managers. They were also given the chance to talk to their line manager in a private meeting about their aspirations and the opportunities for developing their careers. Many persons with different roles were involved in the appraisal procedure in order to gather more than one point of view, enhance the level of knowledge of the resources concerned and ensure internal equality. Line managers were responsible for each of their resources’ appraisal, which they drew up in consultation with their own superior. The PDM process was computerised on the HRevolution platform and obtained a level of participation of 98.5%. The findings of the appraisal, which is to be conducted yearly, are one of the basic elements in the new management policies, which seek to reward those who work most professionally: one of the forms of recognition is that the appraisal findings are linked to incentive and remuneration schemes.

Individual appraisals - As the Group had already started to do last year, some resources of particular interest underwent an individual appraisal process which was certified by an outside body. Added to the output from the internal appraisal, this second appraisal informed the Group of how the resources concerned are positioned on the external labour market with respect to a pool of comparable professionals. This constitutes an important database for the implementation of a transparent, structured human resources policy. Specifically, 120 persons were specially appraised with a view to:

  • further carrying forward the present organisational changes, particularly as regards the allocation of organisational responsibilities;
  • assessing the resources’ actual potential for being in charge of complex areas of responsibility in the case of candidates for managerial positions;
  • verifying to what extent the resources are ready to take on roles of greater responsibility in the case of candidates for succession

Succession planning – After the Chief Executive Officer and General Manager received a mandate from the Board of Directors, the present situation as analysed as to cover for first-level organisational positions in Leonardo (Divisions, Centralised Functions) and the Chief Executive Officer positions in Leonardo Global Solutions and Telespazio. The purpose of succession planning is to ensure business continuity, which depends on putting processes in place for the progressive replacement of the persons filling the most important positions in the organisation. The process includes an analysis of the expected future implications of the role to which a successor is to be appointed and possibilities of consequent action. Plans for succession started to be made as a result of some research into short- and medium-term corporate strategies conducted with the Group’s Chief Executive Officer and General Manager and Top Management and the identification of the main positions involved. The profiles expected of the potential successors were compiled on the basis of each position that had been identified and a shortlist of possible candidates to succession was drawn up by means of individual appraisals which assessed their qualities in depth. The results enabled the organisational risks arising from succession to the various positions to be assessed and the necessary corrective action to mitigate them to be determined.

HR Review – Finally, in 2016 the groundwork was laid for the computerisation of the HR Review process, which gives the Top Management a summary dashboard of the results of the various appraisal processes conducted by the staff working on the Leonardo Management and Development System and at the same names the new “High Potential” candidates to include in Talent Management plans. This process, which will be operational on the HRevolution platform in early 2017, will enter the data on the performance and potential of resources obtained from the PDM process and from the certified appraisals and will make this information regarding all the Group’s resources a valuable asset at the Group’s disposal. The HR Review will manage corporate population targets of particular interest with personalised methods, initiatives and tools in the framework of general, standardised rules valid for all. The Group will be able to acquire greater knowledge of some resources and obtain elements which will help it to make decisions regarding organisation and management and personal development ensuring fairness, consistency and equal opportunities regardless of where the persons concerned are serving.

Compensation systems

As thouroughly reported in the Company’s Remuneration Report, to which reference is made for more details, the Board of Directors’ meeting held on 16 March 2016 approved, and then presented to the Shareholders’ Meeting, the remuneration policy for 2016 and subsequent financial years With regard to the short-term incentive system (MBO), its underlying rationales, general structure and operational mechanisms, aimed at ensuring a strict correlation between the incentives and “excellence” in operating performance, were confirmed for the 2016 financial year. As to the medium- to long-term incentive component, as early as in the 2016 financial year some guidelines were developed for the gradual review of the Group’s remuneration system. Special distinctive features were added in support of Leonardo’s new strategy, while at the same time ensuring that there will be increasingly better alignment with shareholders’ expectations and the best market practices. Accordingly, in the implementation of the previous resolutions relating to the provision for medium- to long-term Incentive Plans for the Group’s Management, the 2016 financial year saw the start of the second cycle of the Co-Investment Plan and of the Long-Term Incentive Plan for the period from 2016 to 2018. These plans are based on the use of structured financial instruments in compliance with the essential principles of the Corporate Governance Code; specifically:

  • Co-Investment Plan: this provides for voluntary deferment for three years of all or a part of the annual bonus earned in accordance with the MBO scheme, converting it into shares. At the end of the vesting period, subject to the person concerned having constantly passed through the MBO system performance gate, 1 matching share is assigned for each 3 shares held;
  • Long-Term Incentive Plan: this is spread over recurring three-year cycles. Its aim is to encourage key personnel to improve the Group’s medium- and long-term performance from the points of view of both economic and financial competitiveness and the creation of real value for its shareholders.  The performance targets concern the Total Shareholder Return (TSR) of Leonardo compared to a panel of enterprises (50%), the Group’s Net Debt (25%) and the Return On Sales (25%) at the end of the three-year vesting period. The entitlement to incentive pays will accrue at the end of the three-year vesting period for all the beneficiaries who will still be working for the Group as at the date of payment, except for a restriction on the availability of the shares to the Top Management for 12 months. At the end of the vesting period and after it has been seen that the objectives assigned have been attained, incentives consisting of components in cash and ordinary shares of Leonardo are expected to be given, in proportions which differ according to personnel’s levels of responsibility, their contribution to the Company’s results and their position in its organisation.

Moreover, in 2016 the Board of Directors approved the preparation of an Incentive Plan for the Commercial Area, named “SSIP - Strategic Sales Incentive Plan”, whose goal is to encourage front-end resources selected from teams for commercial campaigns referable to specific strategic and/or high-value programmes for the Group. The plan gives the right to receive a cash bonus if set order acquisition objectives are attained. The bonus will be earned and paid to resources working on long-term contracts; during the vesting period, mechanisms may come into play which correct its value and it may even not be paid if there are fluctuations in the financial ratios of the order, if the contract is terminated or if penalties are imposed.

In 2016 the remuneration and incentive policies were mainly aimed at attracting and retaining said resources, with high professionalism and technical and management skills, paying them adequate salaries with respect to their duties, skills and behaviours. As a whole, the levels of remuneration were managed in accordance with the principles of transparency and merit, so as to ensure the pay progression to reflect not only the complexity of the positions held and of the duties assigned, but also the outcome of the appraisal processes applied. The management of the fixed component was aimed at ensuring a uniform and consistent pay so as to guarantee the application of equity principles in internal practices and adequate competitiveness levels with respect to the market.

Training and Change Management

During 2016 work continued on training sessions for various categories of the Group’s personnel. This was an integrated system to develop and foster key professionals and skills through discussions regarding best practice both within and outside the Group and comparison with the highest international standards. Leonardo has adopted a single reference framework, creating a common language and spreading best practices are measures which are necessary to enable the Group to achieve its business targets. The main training schemes in 2016 were:

  • Excellence in execution in Project Management, E2-PM. This was a modular programme launched in 2016 for about 450 employees including (senior and junior) Project Managers, Risk Managers and members of order teams with the goal of improving project management professionals’ execution ability by adopting best practices within and outside the company and conducting themselves coherently.
  • Enterprise Risk Management Programme (ERM). This was a Fondirigenti executive foundation funded project aimed to spread a corporate risk management culture and to give all ERM process players training in risk management programmes. The final users of this project were the Group executives in charge of business units and support functions and personnel responsible for Risk Management, who support the main phases of the ERM process (identifying and assessing corporate risk)
  • Initiative for the Group Internal Audit (GIA) Professional Family to support the function in performing its mission in the One Company, enhancing its expertise so that it has an efficient, flexible pool of resources.
  • Initiative for the Legal, Corporate Affairs and Compliance (LSC) Professional Family: training sessions were held to provide insights into financial issues.
  • Course in the Anti-Corruption Code: the programme was addressed to all employees of the Leonardo Group in Italy and abroad. The training path begun in 2015 with sessions for the Top Management continued in 2016, involving blue collar workers and office workers, middle managers and executives.
  • Course in the 231 Model: in 2016 the first organisational levels attended one-to-one sessions and online training in the 231 Model started for the One Company office workers and middle managers and all the workers were given training in classroom sessions.
  • Certifications: about 100 new PMs were accredited during 2016 according to the international standards PMI (Project Management Institute) and IPMA (International Project Management Association). At present Leonardo has about 350 accredited PMs and keeps up all the certifications by conducting ad hoc workshops with the support of the main Italian Chapters of the PMI.

To complete these technical and specialist training schemes, in 2016 courses were delivered to some personnel who have been targeted as being key persons in the change to Leonardo among which the courses listed below.

  •  “Change in Action”: the purpose of this project, which involved 50 executives, is to propose constructive action in support of change, bringing executives into the search for and the preparation of operational proposals to make the changes in the structure of some key cross-sector processes effective and sustainable. A basic nucleus of “Change Agents” took part in three benchmarking workshops (with representatives of big industrial companies (ENI, ENEL, FCA, Generali) also talking about their experiences) and three Executive LABs, lasting one and half days and including personal coaching sessions during the workshop.
  • “One Company… One Change”: the first international training course in view of the change for about 900 Middle Managers of the One Company, whose purpose is to enhance their managerial skills and their capacity of execution, to spread knowledge of the new divisional organisational model, to foster the full awareness of the persons to whom the campaign is addressed of the current change and encourage conduct which ensures increasing efficiency and effectiveness in day-to-day practice.
  • Trainer Training: a programme whose aim is to develop and consolidate the capacity of designing, constructing and conveying training content and seeing that it is learned with the ultimate purpose of supporting and strengthening the skills and expertise of Leonardo personnel. The first Italian session was completed for about 15 persons from the various business functions at present engaged in managing classroom lessons and monitoring and assessing the value of the training sessions.

E-learning: the new training system was launched within the HRevolution platform in September in which the users have a virtual desk on which they can find all the training programmes/courses recommended by each line manager, including mandatory courses on transversal themes and a vast choice within a training course catalogue which is continually evolving. The platform also manages classroom courses, sends notices, material if required, reserves locations (if inside the One Company) and records attendance and any certificates/attestations issued during the session.

Agreementsin order to start a virtuous training and career guidance collaboration circle, Leonardo made agreements in 2016 with the main Italian and foreign universities.

Employer Branding: among the steps that the Group took to improve its image in the labour market and young students and new graduates’ perception of the brand, Leonardo carried out the following projects in 2016:

  • participation in Job Meetings and Career Days at the most important Italian universities;
  • Innovation Prize, which has provided all the Group’s resources at worldwide level with a chance to submit new ideas and be rewarded for their contribution towards its steady progress;
  • continuous commitment to foster industrial talent at local level and revive technical crafts in Italy through its participation in the ITS (Istituti Tecnici Superiori) secondary technical school project managed by the Ministry of Education, Universities and Research in collaboration with the Ministry of Economic Development.

Industrial relations and labour regulations

Observation of labour law regulations in 2016 took the form, in addition to the dual monitoring of the production of Italian and EU laws, also of the evaluation of the impact on the One Company of the body of legislation referred to as the “Jobs Act”, taking account of the most recent case law rulings issued on the merits and by the Supreme Court. As regards Industrial Relations, the most significant event that occurred in 2016 saw the successful completion of the negotiations with the engineering industry’s bargaining units that are present in the division perimeter, which defined - under a single supplementing second level agreement for the Italian employees working in roles up to Middle Manager positions –common rules as to the wage and regulatory treatments applicable within the Group. The abovementioned agreement is aimed at superseding the numerous agreements applied as a result of a number of corporate events that have occurred over the years and allows a more adequate support of the transformation process of the Group. The negotiations involved the areas of interest of industrial relations, working time, remuneration structures and single pay slips, performance bonus, high professional skills, travels, corporate welfare, professional training, public contracts.

The provisions of the supplementary agreement for executives of 2015 came into effect during 2016, particularly aspects related to Supplementary Pension and Medical Care schemes:

  • Group executives were transferred to the national PREVINDAI executives’ pension fund and the Group welfare fund was liquidated.
  • supplementary medical care already included in the Italian collective labour agreement (FASI and ASSIDAI) was introduced and contribution rates were reviewed at the same time; the main Group medical care funds were liquidated.

Finally, we note the performance of the procedure of information to and consultation with the trade unions, pursuant to Article 47 of Law 428/1990, as amended and supplemented, as to the corporate transaction involving the merger by incorporation of Sirio Panel S.p.A..

In addition to negotiations, during the financial year, operations were also started in relation to the processes of restructuring and reorganisation that had already been started by former companies contributed to Leonardo in previous years. From the monitoring of redundancy schemes (based on the criterion of the forthcoming entitlement to retirement and the principle of “non-opposition to the placement on redundancy schemes” on the part of the workers concerned) and of the plans to access bridging pension schemes pursuant to Article 4 of Law 92 of 2012 (the so-called Fornero Act) it emerges that the results achieved in the Sectors involved, in terms of staff reduction, were in line with the present targets.

Privacy - Data Protection Officer

In March 2016 the position of Data Protection Officer (DPO) was created: this person’s responsibility is to ensure that corporate data protection regulations are correctly framed, in compliance with the new European General Data Protection Regulation (EU 679/2016).

After this appointment, the process of analysing and revising the One Company’s privacy policy began, focusing on Corporate functions and the Security & Information Systems Division. After mapping the data protection processing and of the related gap analysis, the action to take to make the necessary adjustments was determined and the new Privacy Organisational Model (POM) of Leonardo was outlined. Then all the Data Officers and Data Processors of corporate information were found and appointed and all their letters of appointment were drawn up and signed.

In order to establish the most appropriate guidelines for the governance of the One Company’s data protection, a Privacy Committee was formed whose duty is to steer data protection policy adopting an organic, centralised approach. The Data Protection Team was also created with the duty to be the DPO’s operational interface for all the Divisions’ data protection needs.

In the framework of data protection governance, the details were laid down for a training process for spreading awareness of the new provisions of the European Regulation which will come into force in May 2018.

The 6P1 project was launched in October to map all the personal data processed by the other Divisions and apply the new POM to all the Divisions, its aim being to make the necessary adjustments in the organisational units involved in view of the entry into force of the new Regulation (EU) 2016/679.

The Environment

The profound changes that the Leonardo Group passed through last year and the constant evolution of international scenarios have gradually heightened the need to consider environmental issues as an extremely important strategic and operational element in all parts of an organisation’s business. The new environmental vision seen from the One Company point of view, which is strongly sustained by Leonardo’s Top Management and presents the environment as a systemic factor to evaluate, safeguard and preserve in all the business activities, has led to the determination, planning and implementation of various measures for the monitoring of environmental risks as early as in 2015.

Strategic guidelines and management approach

Leonardo’s environmental issues are managed on the basis of two lines of operations, determined as a result of the profound transformations that have recently involved the Group and in compliance with the new corporate organisational model:

  • the Health, Safety & Environment (HSE) Integrated Policy at work is a high level tool which lays down the fundamentals of the sustainability path that the Group has been following for years with regard to these matters. With this tool are plans and programmes for monitoring environmental risk (including activities concerning the Group’s Environmental Risk Management, assessment and verification of conformity to current law);
  • each Division which has been given special responsibilities is to manage and monitor environmental matters according to dedicated Operational Procedures, Protocols and Instructions. These tools, which in most cases are accompanied by appropriate management systems, are indispensable for keeping up and improving the standards of the technical, operational and control methods followed at all Group sites. According to an approach based on the optimisation, effectiveness and efficiency of corporate processes, an ever-rising number of Leonardo sites have voluntarily chosen to adopt Environmental Management Systems (EMSs) and Occupational Health and Safety Management Systems (OHSMSs) that are certified according to the international standards ISO 14001 and OHSAS 18001, respectively.

Furthermore subsidiary Leonardo Global Solutions, as owner of most of the Group’s properties, conducts environmental investigations and checks (only regarding aspects which concern the properties) by means of environmental audits on the sites that it owns. In order to find any possible problems arising from either the past or present use of the areas on which the factories stand, in compliance with current environmental laws and in order to prevent and manage environmental risk 48 Environmental Audits were carried out in 2016 after which the Heads of Divisions/Companies utilising the sites were asked to provide the follow-up plans containing actions to be taken to resolve the problems identified and the timelines for such actions were prepared.

With specific regard to environmental issues, Leonardo Global Solutions manages and supervises the entire process of collecting, processing, analysing and evaluating the Group’s environmental information and data (including those relating to carbon management ) on a dedicated central platform, which is the heart of the Group’s environment history.

Relevant environmental issues and Group performance

In particular, the following specific issues were addressed.

  • Waste. Waste collection, which is carried out in compliance with current laws in the matter and as prescribed in site-specific Operational Procedures and Instructions, has always been checked, monitored and verified periodically during all its phases. Reducing the amount of waste produced, better waste sorting and the adoption of corporate policies aimed at reusing production scraps have always formed the basis of a sustainable management that is mindful of the environment.
  • Emission Trading Directive. 11 sites located throughout Italy covered by the application of the Directive, the instrument for implementing the Kyoto Protocol for reducing greenhouse gas emissions. These sites all received certification of their emissions by a body accredited by the Ministry for the Environment, Land and Sea. In addition, certain flights in the helicopters sectors fall under the scope of application of the Aviation Emission Trading Scheme (ETS), which extends the European CO2 emissions trading system to certain flight activities.
  • Hazardous substances. Considering the manufacturing processes carried out, some types of hazardous substances are employed when strictly necessary for technical/design purposes (in line with corporate procedures) in some sites. Their use is monitored in order to control and reduce the risks to worker health and to the environment to a minimum. Studies and in-depth research into less hazardous or even non-hazardous substances have been in progress for some time. Due to the amounts of substances used and the size of some industrial plants employed for the surface treatment of metals, some of these sites are classified as being a Major Accident Hazard (MAH). A portion of these, together with others which are not considered a MAH, are subject to the Integrated Pollution Prevention & Control (IPPC) Directive, and therefore are required to minimise pollution caused by various sources by adopting Best Available Techniques (BAT) to reduce their environmental impact.
  • Ozone-depleting substances. The management of ozone-depleting substances (ODS), which are now being decommissioned as required by the European regulations, and of fluorinated greenhouse gases (F-gases), is controlled and monitored on a periodical basis, in order to ensure its compliance with current regulations. As regards ODS, the Group has been carrying out plans for some years for the removal of systems and apparatus containing the refrigerants that are most harmful to the ozone layer, prior to installing ozone-friendly refrigerant systems.
  • Contaminated Sites. From the point of view of operations, an actual example of the adoption of a responsible and sustainable approach to the environment is the management of contaminated sites (environmental surveys, securing sites, characterisation, risk analysis, reclamation and environmental remediation), which is directly carried out by the Divisions/Subsidiaries of Leonardo (there were 20 ongoing reclamation procedures in 2016) and with the help of persons with specific knowledge and expertise who find the best technical and operational solutions which also ensure business continuity. In this context, Leonardo has not been found definitively liable for causing environmental damage. In addition, there have been no definitive penalties imposed on Leonardo for environmental violations.

Energy issues

Consistently with the establishment of the One Company, the Group has started to prepare a uniform energy management scheme with the objective of accompanying established procurement activities with a similarly structured governance of energy efficiency initiatives. From the point of view of organisation, an Energy Manager has been appointed in accordance with law 10/1991, and all the Divisions have been asked to name an energy contact responsible for the coordination of activities at operational sites.

Therefore the efficiency budget for 2017 for all the Divisions was coordinated centrally during 2016. A number of measures were decided upon by means of a standardised technical and financial model and this made it possible to divert the funds made available to more profitable intended purposes, which will be subsequently implemented during 2017.

The new Energy Management scheme which is being implemented envisages:

  • a set of common energy rules;
  • analysis of the energy absorption of the sites, carried out periodically;
  • the central coordination of the projects, progress on which will be made through a Long-term Energy Efficiency Programme;
  • the centralised management of obtainable incentives;
  • the study of a single energy monitoring programme;
  • the formation of technical working groups with the personnel on site in order to determine and spread the best practices that have already been tried out;
  • the promotion of ways of training all employees and heightening their awareness, focusing on the energy impact of each individual’s behaviour.

Research and development

Leonardo’s activities are directed towards technological research of a highly strategic nature and over a medium/long time horizon, as well as research applied to new products or to improving existing projects, which has a shorter time horizon. The planning and balancing of these activities helps reduce the risks related to new developments, thereby optimising the incorporation of new technologies into products for the launch of such products, so that they may establish themselves on the market in a timely manner and/or remain competitive.

The breakdown of research and development costs by segment is as follows:

Research and development costs

Group governance of technologies and products

The Group has been investing over 10% of its revenues in R&D for years, collaborating with the main universities, institutes, research organisations and technology partners in Italy and in the world in activities whose purposes are not only to develop technologies, products and services but also to carry out basic research. The Group, in fact, is strongly convinced that an effective process of technological innovation must be fuelled by constant interaction among all the players involved: the Group’s engineers, the customers that use the product, the world of research, other industrial groups, small- and medium sized enterprises and start-ups.

The Group’s Innovation and Technology Governance is therefore an ongoing, centrally coordinated, process which, based on the “One Company” approach, is intended to improve the technology and product positioning and to make divisional engineering more effective and efficient by means of a set of shared tools.

The objectives pursued during 2016 were to outline the issues and innovative technology in which Leonardo must and shall invest in the next future, to ensure a continuing direction and monitoring of any associated investment, in order to maximise its return while avoiding a waste of resources, and to pay constant attention to engineering performances.

The main tools used at a centralised level in support of this strategy were:

  • the “Product and Technology Innovation Plans” as a tool for the management and control of the Divisions and the Group’s requirements, in terms of technology needs, future developments, collaborative activities, etc., with particular attention to any possible cross-division opportunities;
  • the “Technology and Innovation Strategy” project which is aimed at selecting about 80 innovative technology issues, so as to gain and consolidate, in a rapid and effective manner, a state-of-the-art vision of the technology trends that are relevant to the Aerospace and Defence sector and in which Leonardo must invest in order to maintain and strengthen its technology leadership;
  • the “Engineering Performance Management (EPM)” project, i.e. a system to monitor and improve the timing, costs, quality, productivity, use of resources, workload / capacity / offload of the “distributed” engineering of the One Company.

These processes are useful to enhance our innovation organisation model that is based on the concept of “internal federation” of laboratories and skills spread out in the various Group sites all over the world, which improves on the conventional model that concentrates this work in a single research centre.

This manner of organising innovation responds to a modern vision in which the obstacles resulting from decentralisation are more than overcome by the globalisation of the network, which also acts as a multiplier of resources by means of constant exchange of ideas.

Funding programmes on research and innovation. The Group takes part in regional, domestic and European research and innovation initiatives and funding programmes. The regional and domestic initiatives include the Italian Technology Clusters (Leonardo is among the main promoters and is one of the founding partners of the “National Aerospace Technology Cluster”) and the Regional Technology Districts.

With regard to European initiatives within the framework of Horizon 2020, which is a European Research and Innovation Funding programme, Leonardo submitted, and was awarded, a number of project proposals during 2016, mainly in the areas of: Secure Society, Space, Transport (the Aeronautics sector is included under transport) and ICT.

Joint Technology Initiative. Leonardo’s Divisions continued to participate in research and innovation efforts through the following joint technology initiatives (JTIs):

  • Clean Sky and Clean Sky 2 (which focuses on the development of the most appropriate technologies to reduce the environmental impact of aircraft);
  • SESAR and SESAR 2020 (focusing on the development of the new European ATM system, including the insertion of unmanned vehicles in non-segregated airspace);
  • ECSEL (Electronic Components and Systems for European Leadership) for the development of new components and electronic sensor systems, including software and embedded systems.

Finally, Research and Innovation initiatives promoted within NATO, the European Defence Agency (EDA) and the Italian (ASI) and European (ESA) Space Agencies continued successfully.

Patents

In 2016, routine portfolio management activities continued through the monitoring of patents filed, the maintenance of patents, the patent protection, the supervision over patent activities of our leading competitors in the Helicopters, Space, Aeronautics, Electronics, Defence & Security Systems sectors, so as to protect the Group’s know-how and freedom-to-operate, in key business and emerging technology sectors.

In 2016, there was the review of the centralisation strategy concerning the management of the Group’s portfolio of patents, through a new internal Procedure involving the “capital and Intellectual Property”, with the goal of promoting greater accessibility to know-how, at an inter-division and a trans-national level. This would enable the optimisation of intellectual property (IP) resources, in an effort to better leverage them (including from an economic and financial point of view), through a more standardised system that is more supportive of the Group’s business.

At the end of 2016, after encouraging results achieved in 2015, Leonardo’s Divisions applied to the Italian Revenue Agency for new rulings on access to the income tax concessions for the utilisation of intangible assets in the form of R&D investments, as provided for in the Italian regulations governing “Patent Box”. Likewise, the same action was taken in accordance with law in the United Kingdom.

Research and development during the year

Following is a summary of the main activities conducted during the year:

Helicopters:

  • improving the helicopter fleet products on an ongoing basis, in terms of both the availability of new certified variants/configurations in the market and the availability of new kits to strengthen the products’ operational capacity. Specifically, there was the entry into full operation of the production of the AW169, which is now certified with a weight increase of up to 4,800 kg, including numerous configurations of equipment and interiors to meet the market requirements and product variants;
  • performing activities, as regards the RUAV (Rotary wing Unmanned Aerial Vehicle) platform, for the development and flight tests of a naval variant within the scope of the National Military Research Programme, and starting operations for approval from the Italian military authorities for the development of a naval variant with increased performance, while, as regards OPVs (Optionally Piloted Vehicles), there was the flight test for the demonstration of the ISTAR (Intelligence, Surveillance, Target, Acquisition & Reconnaissance) capability mission in real operational environment;
  • again within the framework of the Multi-role formula, a programme was reformulated and submitted to the European Commission for the development of a new-generation innovative technology demonstrator (NextGenCTR);
  • the programme COMFORT was launched, among others, for the development of new technology aimed at reducing noise and vibration on board helicopters.

Aeronautics:

  • within the framework of the M-346 programme, work continued on custom-designed products for Customers and the M-346 Advanced Jet Trainer certification process. Trade-off research continued into Dual Role / Light Fighter configurations according to roles/configurations;
  • as regards the M-345 programme, operations were started for the detailed development of structures and systems and the performance of the Critical Design Review for most of the major components / on-board systems;
  • as regards the C-27J programme, operations were started for the development of the baseline configuration, in order to mitigate obsolescence and take Should-Cost actions;
  • operations were started for the European MALE2020 programme for the unmanned Medium-Altitude Long-Endurance vehicle, in collaboration with Airbus Defence and Space and Dassault Aviation, with the objective of fulfilling high level (HLR) and operational (CORD - Common Operational Requirements Document) requirements and defining the certification and integration in non-segregated air space;
  • there was the completion of all the projects set out in the SESAR 1 programme, during which the technology and functionality preliminary to the inclusion of regional and military transport aircraft in the new Air Traffic Management were tested through ground and in-flight validation;
  • as regards the Clean Sky 2 project, work continued on the development of innovative technology and the design of full-scale demonstrators within the Regional Innovative Demonstration Platform (REG IADP), of which Leonardo’s Aircraft Division retains leadership, and within the Airframe Integrated Technology Demonstrator (Airframe ITD);
  • wrok continued on technological research into detect and avoid functionality and collaborative surveillance technologies for unmanned aircraft with a view to the insertion of the UAS in non-segregated air space;
  • work continued on research into structural design and manufacturing processes relating to various aspects, including crashworthiness, liquid resin infusion processes and automatic layering of composite fibres, “one piece” manufacturing processes for structural composite elements, automated prevention techniques, checking for and repairing defects that might arise during the manufacturing and assembly of structural composite elements.

Electronics, Defence & Security Systems:

  • Airborne & Space Systems Division:
    • continuation of activities connected with the participation in large programmes, both National and International: Eurofighter Typhoon aircraft, Forza NEC (Network Enabled Capability) for the modernisation of the Italian Armed Forces and the NATO AGS (Alliance Ground Surveillance) programme;
    • continuation of activities for the development of new generation NGC cockpits to be fitted in various aircraft, including the M-345;
    • continuation of activities for the development of the new UAS FALCO 48;
    • the main investments for the development of the product portfolio involved activities connected with: New Gen. Obstacle Warning System, Unmanned ISTAR mission systems, Mission Management Systems, Airborne AESA (Active Electronically Scanned Array) radar and IFF (Identification Friend or Foe), ATC Civil Transponders, Skyward IRST (Infra-red search and track), Radar Warning Receivers, Advanced RF ESM (Electronic Support Measures), Lasers, DIRCM Systems (Directional Infrared Counter Measures), Wide Band Data Links and Radio Comms;
  • Land & Naval Defence Electronics Division:
    • continuation of activities relating to the participation in both national and international major programmes, including the ships of FREMM 9/10 (FRegate Europea Multi-Missione);
    • continuation of activities connected with the national Programme linked to the “Naval Law”, in particular for the progress of developments for multi-purpose radar systems based on AESA (Active Electronically Scanned Array) technology in C-band, X-band with four fixed flats and in an integrated DBR – Dual Band Radar configuration. There were the definition of the architecture of the AESA radar in L-band. The architecture was also developed for the new fire-control radar in double X- and Ka-band with the availability of the array;
    • as regards communications, developments were completed for vehicular SatComs, Hand-Held Evolution SDRs (Software Defined Radio) and ComNECT Dismounted Soldiers;
    • as regards Optronics there were the completion of the qualification of the EOST 380 turret;
    • research continued, within the Galileo Geo-localisation programme, into an integrated receiver for PRS (Public Regulated Service) signals.
  • Security & Information Systems Division:
    • there was the completion of ATC (Air Traffic Control) activities on radar sensors in S- and L- band, while operations are being completed at the ATM (Air Traffic Management) centres and work continued on Air to Ground communication systems (ARES/DEMETRA and Aeromacs projects);
    • R&D work continued for products within Cyber Security, Cyber Intelligence, the evolution of Professional Broadband Networks, the new PMR (Professional Mobile Radio) terminals, SC2 (Smart City Main Operation and Security Centre) for critical infrastructures and the automation for the sector of parcel and baggage handling.
  • Defence Systems Division:
    • the procedure is being completed for bench testing and approval and tests are being started at sea for the new battery for heavy torpedoes (POWER project);
    • entry into service of the new battery for heavy torpedoes (ENERGY project), used in the test launches of the new SMG U212 submarines (ENERGY project);
    • work is being completed on the detailed definition of the VDS (Variable Depth Sonar) system; prototypes were constructed for the submerged portion and preliminary tests were started;
    • the demonstrators and the prototype of the new 76mm above-deck cannon were developed and preliminary tests were started;
    • work is being completed on the industrialisation and approval of guided ammunition Vulcano 127mm and 155mm, and operations were started for the development of guided munition Vulcano 76mm;
    • work was completed on the industrialisation of the new Nuova Blindo Centauro2 tank.
  • DRS:
    • investments continued in sensors for multi-domain awareness, including infrared sensors, thermal chambers and systems, both wearable and applicable to land, air and space platforms;
    • work continued on the development of C4ISR systems to improve information exchanges on the battlefield (battlespace awareness), including command and control hardware, communication systems, electronic warfare systems and software for land vehicles, air and naval platforms;
    • a continuing focus on next-generation naval components, including engines and drive components, as well as elements for on-board command and computational capacity.
  • Space:
    • development of HTS (High-Throughput Satellite) service architectures on platforms in Ka- and Ku-band (KaSat, GX, EPIC) for vertical segments (Oil&Gas, Broadband, …);
    • analysis of architectures of constellations of micro-satellites for TLC (TeLeCommunication) and EO (Earth Observation) applications;
    • design and development of application platforms in the service segments that are relevant to Geo-Information: agriculture, defence and security, territory management; asset management, crisis management, maritime surveillance;
    • development of integrated connectivity solutions for manned (e.g. railways) and unmanned transport vehicles;
    • analysis, design and development of Navigation-based systems and solutions: PRS - Public Regulated Service infrastructure, Railway and Aeronautics facilities);
    • Space Weather, Space Surveillance & Tracking, Space Situation Awareness: design of service platforms.