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19 March 2015

Finmeccanica Expects Growth in the Aerospace, Defence and Security Sector

The Finmeccanica Group forecasts an overall growth in the markets of Aerospace, Defence and Security over the next years (4% CAGR over 2014-2023), mainly driven by civil and military aviation, increased defence spending from emerging economies and demand for systems for protection from asymmetric threats.

In this market environment, the Industrial Plan of Finmeccanica aims to achieve important targets, both in terms of profits and cash generation. The basis for achieving these goals is through actions being taken not only to reduce overhead and administrative costs, but, above all, also to improve efficiency and ensure greater effectiveness of the main operational processes (engineering, production and supply chain).

The forecasts for the next financial years no longer include operations in the Transportation sector, been sold to Hitachi at the end of February (excluding some minor operations).

2015 forecasts are based on the completion of the transaction involving the Transportation sector on the agreed terms and conditions, with an estimated overall positive impact of €600 million on the Group’s Net Debt, including the deconsolidation of negative cash flows from operations in the Transportation sector in 2015; organic growth in revenues, in particular in Helicopters and SES, offset by the expected transfer of some “pass-through” work packages in relation to B787 programme for about €300 million and by an expected exit from certain constituent businesses within DRS by an additional €200 million; meaningful improvement in operating profits, mainly driven by the improvement of SES, DRS’s return to its underlying profit margins and cost cutting initiatives, all supported by a strong profitability in the Helicopters segment; improved cash generation capacity driven by the above factors, paying constant attention to the selection of investments and working capital reduction measures.

Outlook for Finmeccanica’s Sectors:

In the Helicopters sector, AgustaWestland expects the excellent performance posted in 2014 to continue in 2015, with the growing commercial success of the new AW169 and AW189 helicopters and the important contribution to be made by Product Support orders. Finmeccanica forecasts revenues of around €4.5 billion and profitability firmly in the double digits.

In Defence and Security Electronics, i.e. Selex ES and DRS Technologies, Finmeccanica expects the positive performance posted in 2014 to continue in 2015, with a further improvement in business and financial results driven by the gradual recovery in industrial profitability in specific business areas and by the growing benefits associated with the restructuring plan under way. This will be furthered by the initial effects of additional streamlining and efficiency-enhancement efforts in production and engineering outlined in the Industrial Plan. Despite the persistent challenging environment, with budget tightening by major clients and rising competitive pressures on prices, DRS expects to quickly regain ground in 2015, driven by industrial profitability returning to adequate levels and by the benefits associated with efficiency-enhancement and streamlining efforts under way. Given this, the company is also considering reviewing and better focusing the scope of its business, which may lead to the elimination of certain non-core business lines. Excluding the effect of this, Finmeccanica expect new order acquisition and production volumes in 2015 to remain at the same levels as 2014, marking the end of the gradual decline in growth experienced by DRS in recent years.

In Aeronautics, Alenia Aermacchi expects the profitability levels for 2015 to be essentially the same as those for 2014, driven by additional efficiency-enhancement and cost containment actions that will offset the lower contribution of high-margin programmes. Production volumes are expected to fall in 2015 as compared with 2014 due to the expected transfer of work packages to Boeing under agreements for the B787 programme.

Space companies, Telespazio and Thales Alenia Space revenues are forecast to rise in 2015 due mainly to the manufacturing segment, specifically production on government and export programmes. There are also launch operations scheduled for the year in the satellite services segment. As a result, business performance is expected to improve, despite a decline in industrial profitability which reflects an unfavourable mix of activity and growing competitive pressure on prices.

Last but not least, Defence Systems companies OTO Melara, WASS, and MBDA are expected to have partial recover in 2015, with performance moderately better than in 2014 as a result of major deliveries of missile systems and rising production volumes for new orders to be signed during the year for land and sea weapons systems and underwater systems.

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