Italy’s expects to return to profitability this year as the restructuring of the aerospace and defense conglomerate over the last 18 months begins to reap rewards.
Progress was slowed by goodwill write-downs in 2012 on its U.S.-based DRS and Europe-based Selex ES defense electronics businesses, and the removal of top management in February amid allegations of corruption that the company strenuously denies.
New CEO Alessandro Pansa says he plans to further increase the restructuring measures introduced by predecessor Giuseppe Orsi, accelerate the review of the company’s portfolio, consider the disposal of further assets to improve its cash position, and concentrate capital into key products that are successful in the marketplace.
Finmeccanica is faced with cuts in defense spending in what it considers its three domestic markets — Italy, the U.K., and the U.S. — lending further urgency to restructuring its core businesses, says Giovanni Soccodato, Finmeccanica’s executive vice president for strategy, business development and innovation.
The group suffered losses of €786 million ($1 billion) in 2012, a considerable improvement on its 2011 results, which saw it lose €2.3 billion. Revenues were down slightly to €17.2 billion. Goodwill write-downs were €155 million on Selex ES and €993 million on DRS. Without these, Finmeccanica would have earned a profit of €362 million.
Order intake was down €731 million to €16.7 billion, with many of the losses felt in Finmeccanica’s defense systems and space companies, as well as those in transportation and energy. Defense systems suffered because of the postponement of several key contracts, while space revenue dipped because of the delay in the acquisition of the Cosmo 2G observation satellites.
The losses were offset, however, by stronger performance in thehelicopter manufacturing and divisions. AgustaWestland’s new AW169 and AW189 products recorded 98 orders in 2012, while orders for the , jet trainer, C-27 Spartan airlifter and the family of regional airliners also received a boost.
“Starting this year, we should see a return to profitability and an improvement in our overall cash position,” Soccodato says. “We will continue to reassess the portfolio across the group and within the businesses—that’s our next phase.” It already sold off its Avio aero engine business tofor $4 billion at the end of last year.
Consolidation of Alenia Aermacchi was the first priority at the beginning of 2012, and the aeronautics company has since rationalized its industrial and management structures with the creation of a military center in Turin and a civil center in Naples. It has since seen significant savings and improvements in competitiveness, Soccodato says.
Next was the Selex group of defense electronics companies, which has emerged as Selex ES. This has become customer focused and will now concentrate on competitiveness, performance, price and value, capitalizing on as much commonality as possible across its product range. “We might reduce the number of products” in this range, Soccodato says. But at least managers from different Selex companies should no longer find they had unknowingly teamed with opposing bidders on various contracts, putting themselves in competition with each other. “We need an effective group here, in the right businesses,” Soccodato says.
Finmeccanica’s response to declining defense budgets is to seek out emerging markets, especially in aeronautics, defense electronics and helicopters, highlighting technology for government and civil uses. Targeted strategic geographical areas include Brazil, Russia, India, Turkey, the Middle East, and North Africa. It is sharpening its approach to become more competitive, with time-to-market an essential factor. The company has previously stated it must change the way it thinks about marketing, sales and post-sales support, to adapt to the changing market conditions.
Meanwhile, investigations by Italian and Indian authorities following the arrest of prior chairman and CEO Giuseppe Orsi and AgustaWestland CEO Bruno Spagnolini are continuing. Those arrests have prompted wholesale changes to the management teams in a number of Finmeccanica-owned businesses. The company has also created an ethics committee in light of the scandal.