Leonardo-Finmeccanica set to go on acquisition trail
Chief executive Mauro Moretti wants to secure control of ATR, the regional aircraft manufacturer
Mauro Moretti is in expansion mode. Barely two years after arriving to shake up and streamline the top 10 global defence company, Finmeccanica, the chief executive of the newly-rebranded Leonardo-Finmeccanica is talking about acquisitions.
“We are ready to buy or exchange businesses,” he says in an interview with the Financial Times. “We want to grow in our core areas, particularly in helicopters and defence electronics.”
Mr Moretti indicated that Leonardo could even be willing to swap part of the Italian industrial champion’s 25 per cent stake in European missile maker MBDA.
Airbus should take note. Europe’s leading aerospace and defence group has long coveted control of the missile company in which it and BAE Systems each have a 37.5 per cent stake.
Mr Moretti’s eye, meanwhile, is on winning control of ATR, the regional aircraft maker jointly owned by it and Airbus.
DRS Technologies, the US electronics business put up for sale by Leonardo last year and then withdrawn after a stronger than expected turnround, could also be a swap candidate, although the Italian company intends to retain control, says Mr Moretti.
The former trade union official — who was handpicked by Italy’s prime minister to revive the partially state-owned company — is feeling so flush after reporting a sharp rise in net profits, from €20m in 2014 to €527m in 2015, that he is even considering restarting dividend payments next year. Leonardo has not paid a dividend since 2010.
But not everything is quite as rosy as Mr Moretti would wish. A British vote this week to quit the European Union would pose a real threat, not just to Leonardo, which has significant interests in the UK, but to the country’s entire defence industry, he says.
“Europe is moving towards . . . common defence projects,” he says. “Obviously if [Britain] exits from Europe it is quite difficult to have the same opportunities in future.”
He adds that on its own, Britain or any other European country would not be able to fund development of the cutting edge technologies that are necessary to compete against richer defence budgets in China or the US.
Leonardo’s UK businesses — AgustaWestland, the helicopter maker, and Selex, a leading maker of radars and sensors — would be handicapped by a leave vote, says Mr Moretti. Eventually, he adds, Leonardo could be forced to review its investments in Britain.
A vote to leave would make life more difficult for Mr Moretti, he says, just as the outlook for Leonardo begins to improve. The company, once a ragbag of industrial interests struck by serial allegations of corruption, has in the past year shed its rail and bus businesses to focus on aerospace, defence electronics and security.
But rebuilding Leonardo’s reputation after high-profile corruption scandals will take time. This month a former chief executive, Giuseppe Orsi, saw his acquittal reversed by an appeals court for his role in alleged kickbacks in an Indian helicopter contract.
Reports have resurfaced in the Indian media that the Indian government has blacklisted Leonardo as a result, although Mr Moretti says the company has not been informed of any such move.
He admits there has been an issue with corporate culture at Leonardo but says this is changing. He challenged Indian authorities to come in and scrutinise the company’s practices.
Mr Moretti has sought to clean up Leonardo’s image, along with the chairman, Giovanni de Gennario, a former chief of police who led investigations into the mafia. Mr Moretti says he has replaced all executives who were tainted by corruption allegations.
His efforts at changing perceptions appeared to be paying off last year, with Leonardo’s shares reaching a seven-year high in November.
However, the stock has fallen by a third since the beginning of this year and the company still retains its junk credit rating.
Leonardo’s recovery still needs to prove itself, say analysts, even if good progress has been made. Uncertainty clouds the outlook for the company’s helicopter division — badly hit by the sharp downturn in its key market of oil and gas exploration.
These questions will be answered, promises Mr Moretti. As far as the oil and gas sector is concerned, this will be the trough year, he believes. The oil price has passed $50 a barrel, strengthening his conviction that the helicopter sector is on the brink of recovery. “By the end of 2016 we will have a positive trend,” he says.
Leonardo has come a long way in the nearly two years since Mr Moretti arrived, but there is still some way to go.
Just over a year ago he said he would be in a new job within two years. Now, his timeline has stretched a bit. Mr Mr Moretti says he will not be looking for a new challenge before 2020. “I would like to complete this mission,” he adds.