Bloomberg News

Finmeccanica Drops as Investors Await Restructuring Details

August 01, 2012

Finmeccanica SpA (FNC) shares dropped in Milan trading as investors held out for more details on Chief Executive Officer Giuseppe Orsi’s plan to restructure the aerospace and defense company.

Shares of Finmeccanica fell as much as 5.2 percent. Orsi said the Rome-based weapons maker remains on course to generate 1 billion euros ($1.2 billion) in cash from disposals this year, including rail operations. The CEO wasn’t specific on a call with analysts late yesterday.

“We find it difficult to bet on a long-term restructuring story in an industry that is witnessing a defense spending cut,” Massimo Vecchio, an analyst at Mediobanca Securities, said in a note to investors. “We don’t have visibility on when and how it would happen so we prefer to bet only on fundamentals.”

Orsi, appointed in May 2011, is a year into trying to rebuild the company after a record loss last year, a corruption probe, and a power struggle with a former chairman. The Italian company, which presented results to analysts late yesterday, has lost more than 44 percent of its value in a year. The overhaul extends to a stake in Italian engine-maker Avio. Orsi said he’s got a back-up plan to sell the 14.3 percent holding should Avio’s planned initial public offering be canceled.

Finmeccanica was trading down 3.6 percent at 2.87 euros as of 11:42 a.m. local time. The shares, cut to “neutral” from “outperform” at Mediobanca today, are flat this year, valuing the company at 1.65 billion euros.

Defense Electronics

Finmeccanica yesterday named Allan Cook chairman of its integrated defense electronics business that will be comprised of three units. Cook was formerly chairman of the Selex Galileo unit that makes radar systems. His CEO at that unit, Fabrizio Giulianini, will take up the same role of the merged business.

“We are now ready to carry out the major reshaping and the relaunching of this business,” Orsi said in the call with analysts. “We are heading in the right direction. There will be bumps on the road.”

Even though the costs of the integration have already been accounted for, the savings have not, Orsi said. The size of those benefits will be disclosed in coming months.

Improving purchasing and cutting headcount helped deliver a 134 million-euro profit boost in the first half, the maker of helicopters, military jets and munitions said. Finmeccanica is targeting 440 million euros by 2014.

Profit Increase

Earnings before interest, tax and amortization rose 4 percent to 459 million euros, excluding restructuring and other one-time costs. Nine analysts surveyed by Bloomberg estimated 417 million euros, on average. Net income was 53 million euros, missing analysts’ estimate of 80.4 million euros.

A slowdown in U.S. and European defense spending led sales in the first six months to fall 4.8 percent to 8 billion euros. The company boosted its order book to 46.1 billion euros from from 45 billion euros.

Finmeccanica has been weighed down by high debt, particularly since its purchase of U.S. defense electronics maker DRS Technologies in 2008. Total net debt at the end of June was 4.7 billion euros from 4.5 billion euros at the end of March.

To contact the reporters on this story: Robert Wall in London at rwall6@bloomberg.net; Marco Bertacche in Milan at mbertacche@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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