Finmeccanica Seeks Profit Return After Graft Probe Fells CEOMarco Bertacche and Robert Wall
Finmeccanica SpA wants to return to profit this year with the help of asset sales, a promise that Italy’s largest defense company failed to deliver in 2012 amid charges and a bribery probe that felled senior management.
The company, based in Rome, reported a loss of 828 million euros ($1.76 billion) last year because of 1.4 billion euros in writedowns on assets, according to a statement yesterday after markets closed. The loss compared with a deficit of 2.3 billion euros a year earlier. Sales dropped 1 percent to 17.2 billion euros, and new orders dwindled 4 percent, Finmeccanica said.
Finmeccanica was forced to delay publication of its 2012 results because of a fraud investigation into the sale of helicopters to India, which cost Chief Executive Officer Giuseppe Orsi his job in February after being jailed. Political turmoil in Italy further delayed disposal plans that were already behind schedule. Finmeccanica had sought to raise 1 billion euros to help repair a credit rating that’s below investment grade at Standard & Poor’s.
“This year is shaping up to be a year where we will continue to go ahead with restructuring and relaunch of our business,” Alessandro Pansa, the new CEO, said in an interview. “We expect increases in industrial profitability and in the capability to generate cash flow.”
Finmeccancia fell as much as 19 cents, or 4.7 percent, to 4 euros, and traded at 4.05 euros as of 12:10 p.m. in Milan, valuing the company at 2.35 billion euros.
The maker of M346 military training jets and parts for Boeing Co. 787 Dreamliner airliners ended the year with 3.37 billion euros in debt, 70 million less than the year prior. Moody’s Investors Service rates Finmeccanica at BB+, one level above non-investment grade, also known as junk. The rating company said yesterday that it may lower its grade.
“Current ratings may no longer be sustainable given indications of weaker than anticipated financial performance in recent periods and weaker prospects for several key defense markets over the forward rating horizon,” said Russell Solomon, Moody’s Senior Vice President and lead analyst for the company.
Sales will fall further in 2013, to between 16.7 billion euros and 17 billion euros, with adjusted earnings projected to be little changed at 1.1 billion euros, Finmeccanica said.
“There has been no tangible progress on asset disposals or arguably on restructuring,” Jeremy Bragg, an analyst at London-based Citigroup in London, said in a note to clients. “Given the bigger picture, the outcome could have been worse.”
Charges last year included a 993 million-euro impairment of goodwill related to the purchase of DRS Technologies, Finmeccanica’s U.S. defense electronics unit, and a 155 million euro writedown in its European Selex activities. Restructuring costs and charges on poorly performing contracts further hurt earnings, the company said.
Restructuring costs this year are projected to reach 320 million euros across the defense electronics activities in Europe and the U.S., the company said.
Finmeccanica has not taken any provisions for possible costs linked to India’s suspension of the purchase of 12 AW101s helicopters in the probe. The world’s second largest rotorcraft maker denies wrongdoing in the deal, and Pansa, who was chief operating officer under Orsi, said he expects no provisions from the sale.
Pansa said previous promises on asset disposal timing were unrealistic and told analysts he would not make promises. Efforts to sell units will continue, he said, including the stake in the Ansaldo Energia business with bids in hand.
Finmeccanica may exit rail activities as it focuses on aerospace and defense markets. The company has raised 260 million euros from the sale of a stake in engine maker Avio as part of General Electric Co.’s purchase from majority owner Cinven Ltd.
Profitability will increase this year, Pansa said, even given difficult economic conditions.
“DRS’s profitability won’t change dramatically despite the significant decline in expected revenue,” he said. The number of job cuts could increase to 5,000 positions, he said. DRS is not among the units for sale, Pansa said, with no plans to divest its holding in a space joint venture with Thales SA or the MBDA missile consortium.