Leonardo outlook sends shares into tailspin

Shares in Italy’s Leonardo, one of world’s top ten defence companies, went into free fall on 30 January after the company presented a recovery plan that worried analysts said was too vague for comfort.

The group, formerly known as Finmeccanica, changed its name last year for a fresh start after getting embroiled in corruption scandals.

Leonardo, Europe’s largest maker of military hardware after BAE Systems and Airbus, said it hoped to return to ‘sustainable growth’ over the next five years thanks to a new sales strategy, accelerating orders, strict cost control and a better financial strategy.

But it acknowledged that it is still suffering from a difficult year in 2017, especially in its flagship helicopter division, and revised down its order book having already toned down almost all of its previous targets last November - a move it dubbed a ‘reset’.

Last year was ‘disappointing’, admitted Leonardo CEO Alessandro Profumo at the plan’s presentation, saying it was ‘a bottom year’.

But he said that the problems in the helicopter division, which makes up nearly a third of Leonardo’s sales, were temporary and that there were ‘no structural issues’.

The company was now targeting double-digit profitability for the division by 2020. Meanwhile, 2018 would be a year of consolidation with sales steady and a slight improvement in operating performance expected.

‘We are confident we are laying the seeds for a new phase of sustainable growth with steady improvement in our top line, profitability and cash flow,’ Profumo said.

But the stock market took a dim view of the trading update, sending Leonardo’s share price 12% lower to €9.94 ($12.32) in late European afternoon.

‘We are getting great transparency from management on the causes [of the helicopter weakness], but very little clarity on how to get past them,’ said Gregory Alegi, aerospace specialist at the Luiss University in Rome.

‘We have heard that the company has excellent products and an excellent strategy but that is more of a confirmation, not news,’ he told AFP.

Leonardo has sold its transport interests to re-focus its strategy on its core businesses of aerospace, defence and security, as well as to cut costs and reduce its headcount, which stood at 68,000 in 2014, to 45,000 now.

But that strategy led to a slowdown in investment and innovation, Alegi said. ‘If a company doesn’t generate new projects for the medium and longer term, its competitiveness suffers,’ he said.

The company’s order book also took a hit from legal cases against its three previous CEOs which cost it major contracts.

Profumo himself is under investigation for his alleged role in a tax evasion scheme when he headed up Italian bank Banca Monte dei Paschi die Siena.