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"Non-GAAP" alternative performance indicators

Leonardo’s Management assesses the Group’s performance and that of its business segments based on a number of indicators that are not envisaged by the IFRSs. Specifically, EBITA is used as the primary indicator of profitability, since it allows us to analyse the Group’s marginality by eliminating the impacts of the volatility associated with non-recurring items or items unrelated to ordinary operations.

As required by CESR/05-178b Recommendation, below is a description of the components of each of these indicators:

  • New orders: this includes contracts acquired during the period that satisfy the contractual requirements for being recorded in the order book.
  • Order backlog: this figure is the sum of the order backlog for the preceding period and new orders, less revenues during the reference period.
  • EBITDA: this is given by EBITA, as defined below, before amortisation, depreciation and impairment losses (net of those relating to goodwill or classified among “non-recurring costs”).
  • EBITDA margin: it is calculated as the ratio between EBITDA and revenues.
  • EBITA: it is arrived at by eliminating from EBIT, as defined below, the following items:
    • any impairment in goodwill;
    • amortisation and impairment, if any, of the portion of the purchase price allocated to intangible assets as part of business combinations, as required by IFRS 3;
    • restructuring costs that are a part of defined and significant plans. This item includes personnel costs as well as any and all other costs deriving from the reorganisation (e.g. impairment of assets, costs for the closure of sites, relocation costs, etc.);
    • other exceptional costs or income, i.e. connected to particularly significant events that are not related to the ordinary performance of the business.

EBITA is then used to calculate Return on Sales (ROS) and Return on Investment (ROI).

A reconciliation of Income before tax and financial expense, EBIT and EBITA is shown below (the reconciliation by segment is reported in Note 9):

€ millions20162015
Income before tax and financial expenses687623
Equity-accounted strategic JVs295261
EBIT982884
Amortisation of intangible assets acquired as part of business combinations9798
Restructuring costs102114
Non-recurring (income)/costs71112
EBITA1,2521,208
 

Non-recurring costs are mainly related to estimated legal expenses for certain contracts that are subject to ongoing disputes, as well as write-downs which reflect management’s estimates in respect of the Group’s exposure in countries considered at risk. Restructuring costs refer to ongoing proceedings chiefly relating to Electronics, Defence and Security Systems and Aeronautics.

  • Return on Sales (ROS): this is calculated as the ratio of EBITA to revenue.
  • EBIT: this is obtained by adding to EBIT (defined as earnings before “financial income and expense”, “share of profits (losses) of equity-accounted investees”, “income taxes” and “result from discontinued operations”) the Group’s share of profit in the results of its strategic Joint Ventures (ATR, MBDA, Thales Alenia Space and Telespazio), reported in the “share of profits (losses) of equity-accounted investees”.
  • Net result before extraordinary transactions: this is the Net Result before the result from discontinued operations and the effects of the extraordinary transactions (key acquisitions and disposals). Below is the reconciliation:

€ millions20162015
Net result507527
Net result of discontinued operations-(258)
Effect on extraordinary transactions38(16)
Net result before extraordinary transactions545253
   

  • Group net debt: this includes cash, financial receivables and current securities, net of (current and non-current) loans and borrowings and of the fair value of derivatives covering financial debt items, as well as the main non-current receivables. In particular, at 31 December 2016 the Group Net Debt included the financial receivable (backed by bank guarantees) from SuperJet – previously recorded within current receivables – which will be repaid in 4 years based on the arrangements for the rescheduling of the Group’s participation in this programme (a transaction described in the section on “Industrial and Financial Transactions”). This indicator also includes the measurement of the residual interest in Ansaldo Energia in consideration – and assuming the exercise as well as in light of the creditworthiness of the other party – of the put & call rights based on which this amount will be paid by Fondo Strategico Italiano to Leonardo. Until 2015 this amount was classified, from an accounting perspective, under non-current assets; starting from 2016 this figure has been classified among current assets considering that the expiry date is nearing. The reconciliation with the net financial position required by the Consob communication no. DEM/6064293 of 28 July 2006 is reported in Note 19 to the consolidated financial statements.
  • Free Operating Cash Flow (FOCF): this is the sum of the cash flows generated by (used in) operating activities (excluding the changes in the Group Net Debt), the cash flows generated by (used in) ordinary investing activities (investment and divestment of intangible assets, property, plant and equipment, and equity investments, net of cash flows from the purchase or sale of equity investments that, due to their nature or significance, are considered “strategic investments”) and dividends. The calculation of FOCF is presented in the reclassified statement of cash flows shown in the section “Group results and financial position”.
  • Return on Investments (ROI): this is calculated as the ratio of EBITA to the average net capital invested in the two comparative periods.
  • Return on Equity (ROE): this is calculated as the ratio of the net result before extraordinary transactions for the financial period to the average value of equity in the two comparative periods.
  • Workforce: the number of employees recorded in the register on the last day of the period.
  • Funds From Operations (FFO): this is cash flow generated by (used in) operating activities net of changes in working capital and the repayment of debts under Law 808/1998, included within “Cash flow from ordinary investing activities” in the reclassified statement of cash flows. The FFO also includes dividends received.
  • Research and Development costs: the Group classifies under R&D all internal and external costs incurred relating to projects aimed at obtaining or employing new technologies, knowledge, materials, products and processes. The item includes:
    • development costs capitalised even if covered by grants;
    • research costs, whose activity is at a stage at which it cannot be demonstrated that the activity will generate future economic benefits, or development costs for which the accounting requirements for capitalisation do not obtain, are expensed as incurred;
    • research and development costs reimbursed by the customer as part of existing contracts (which fall under the scope of work in progress from an accounting viewpoint).
  • Net interest: this is calculated as the sum of the items “Interest”, “Premiums (paid) received on IRSs” and “Commissions on borrowings” (see the Note on “Financial income and expense” of the consolidated financial statements”);
  • Change in working capital: this is equal to the change in trade receivables/payables, contract work in progress and progress payments and advances from customers and inventories (in 2015 excluded changes relating to the Fyra contract held by AnsaldoBreda included among loans and borrowings). The reconciliation is as follows:

€ millions20162015
Change in trade receivables/payables, work in progress/progress payments and advances from customers and inventories(229)(637)
Payments on Fyra contract-41
Change in working capital(229)(596)
   

Reconciliation table between reclassified income statement and statement of financial position presented in the Management Report and income statements and statement of financial position are as follows:

 € millionsSchemePPA
amortis.
Restruct.
costs
Non-
recurring
costs
Strategic
JVs
Extraord.
transactions
Reclassified
scheme
Revenue12,002     12,002
Purchase and personnel expenses(10,549) 4324  (10,396)
Other operating income742      
Other operating expenses(730)      
Other net operating income/(expenses)12 5921  6
Equity-accounted strategic JVs    295 295
EBITDA      1,907
Amortisation, depreciation and impairment losses(778)97 26  (655)
EBITA      1,252
Non-recurring income/(costs)   (71)  (71)
Restructuring costs  (102)   (102)
Amortisation of intangible assets acquired as part of business combinations (97)    (97)
EBIT      982
Financial income493      
Financial expenses(815)      
Share of profits/(losses) of equity-accounted investees300      
Net financial income/(expense)(22)   (295)38(279)
Income taxes(158)     (158)
Net result before extraordinary transactions      545
Profit/(Loss) from discontinued operations-    (38)(38)
Net profit/(loss)507     507

 € millionsSchemeFinancial
receivables and
cash
Financial
payables
Hedging
derivatives on
debt items
FV Ansaldo EnergiaReclassified
scheme
Non-current assets12,184(65)   12,119
Non-current liabilities(7,384) 4,011  (3,373)
Capital assets     8,746
Current assets13,187(2,265) (1)(138)10,783
Current liabilities(13,628) 1,26736 (12,325)
Net working capital     (1.542)
Equity attributable to Owners of the Parent4,357    4,357
Equity attributable to non-controlling interests16    16
Equity4,373    4,373
Group net debt (2,330)5,27835(138)2,845
Non-current assets held for sale14    14