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Leonardo Revving Up to 10 Percent Profit in 2020
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New leadership team expresses mild optimism; investors register strong disappointment in five-year forecast.
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New leadership team expresses mild optimism; investors register strong disappointment in five-year forecast.
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If 2017 represented a “reset” for struggling Italian aviation and defense company Leonardo, including a new chief executive officer and new managing director of its flagship helicopters division, 2018 “will plant the seeds for growth,” according to CEO Alessandro Profumo, addressing investment analysts and media at an industrial plan event in Vertgiate, Italy, on January 30.


After shares had dropped about 20 percent last November, when former banker Profumo issued a surprise reduction in 2017 guidance, investors were hoping for an aggressive forecast revision. But they were disappointed by Leonardo’s expectations of relative flatness in the 2018 to 2019 near term, sending the company's stock price down another 12 percent.


From 2018 to 2020, Leonardo is estimating order growth of more than 6 percent and a 10 percent increase in profitability by Fiscal Year 2020. Earnings before interest, taxes and amortization (EBITA) for 2018 is forecast to be between €1.075 billion and €1.125 billion on revenues of approximately €12 billion. Backlog is €34 billion, or equivalent to three years of revenue.


“We absolutely have the right product in the right market," said Profumo. “We have a plan and we know where we need to go. Now it’s time to execute.”


Leonardo Helicopters managing director Gian Piero Cutillo, who shifted to the role in September after serving as the parent company’s CFO, maintained that “there’s nothing wrong with the core product strategy.” While the company's addressable civil helicopter market had plummeted 45 percent from 2013 through 2016, he noted this was largely linked to the decline of oil-and-gas industry sales.


But within that shrunken space, Leonardo captured market share from its competitors on the strength of its dominant AW139 medium twin-engine multi-role platform. The company is currently producing five to six AW139s per month in Vergiate and Philadelphia, Pennsylvania, for emergency medical services (EMS), search and rescue (SAR), law enforcement, oil and gas, VIP transport and military customers. The 900 deployed AW139s recently passed two million flight hours.


In addition to market forces, Cutillo blamed some internal factors for a disappointing 2017, including “offering too much flexibility to push sales.” He declared a simple rule going forward: “We cannot change the configuration once the helicopter is on the final assembly line.”


Cutillo said the civil rotorcraft market is returning to growth; the CAGR forecast is 5 percent in the five-year period through FY2022. The strongest segments are predicted to be light intermediate, intermediate, and medium, where Leonardo offers the AW169, AW139 and AW189, respectively. “The medium/heavy segment is not attractive,” he added.


The military helicopter market is expected to continue to decline by 2 percent a year through the same period. One of the aircraft on the production line is the 16th and final ICH-47F Chinook, built under license for the Italian army.


Despite cash-flow concerns, Leonardo plans a robust investment strategy, fueled by €200 million identified savings from “strict cost control” and a “new phase” of its Leonardo 2.0 internal “one company” integration and optimization campaign, launched when the name was changed from Finmeccanica in 2016. Half of these investments will address platform-focused improvements, such as noise reduction, green technologies, and avionics.


More than one-third of investment is targeted to new product development, including the AW609 tiltrotor. Profumo said the company anticipates certification of the aircraft by the end of 2019. A fourth prototype is expected this year, incorporating Rockwell Collins’ Pro Line Fusion for avionics testing.


Certifications Nearing


During the presentations, a new AW109 Trekker light twin helicopter was performing maneuvers outside the hangar. The Trekker was awarded European Aviation Safety Agency (EASA) certification at the end of December.


Leonardo also anticipates regulatory approval of its Aermacchi M-345 trainer jet next year. Its T-100 trainer, based on the Alenia Aermacchi M-346, is competing for the estimated $2 billion U.S. Air Force T-X contract for 350 trainer aircraft; however, Profumo said it did not factor a win on that program into its future financials.


Also not factored into Leonardo’s net income projections are the results from regional turboprop aircraft manufacturer, an equal partnership with Airbus. ATR booked 113 orders in 2017, compared with 36 the year before. And in early January, it announced two deals worth 35 aircraft for the U.S. market, to be flown by Silver Airways.


“We are more than just helicopters,” Profumo reminded. A prime example is production of 28 Eurofighter Typhoons in an €8 billion order from Kuwait. Avionics, electronics, fuselage sections, and final assembly at Caselle, near Turin, net Leonardo about 36 percent share of the pan-European program.


Leonardo also has extensive capabilities in defense electronics such as radars, avionics, and electronic warfare systems; unmanned systems; naval and combat management systems; and cybersecurity. Subsidiary DRS also facilitates entry into the U.S. defense electronics market, with headquarters in Arlington, Virginia. In 2016, defense and electronics represented 45 percent of Leonardo’s revenue; helicopters, 30 percent; and aeronautics, 25 percent. FY2017 statistics will be released in mid-March.


Profumo suggested that Leonardo’s portfolio is “still too diversified,” which will lead to “portfolio reshaping.” He did not specify which parts of the business might be lopped off in the reshaping, but said, “We will update you when we have something to say.”

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Leonardo Revving Up to 10 Percent Profit in 2020
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If 2017 represented a “reset” for struggling Italian aviation and defense company Leonardo, including a new chief executive officer and new managing director of its flagship helicopters division, 2018 “will plant the seeds for growth,” according to CEO Alessandro Profumo, who recently addressed investment analysts and media at an industrial plan event in Vertigate, Italy.


After shares had dropped about 20 percent last November, when former banker Profumo issued a surprise reduction in 2017 guidance, investors were hoping for an aggressive forecast revision. But they were disappointed by Leonardo’s expectations of relative flatness in the 2018 to 2019 near term, sending the company's stock price down another 12 percent.


From 2018 to 2020, Leonardo (Booth C3225) is estimating order growth of more than 6 percent and a 10 percent increase in profitability by Fiscal Year 2020. Earnings before interest, taxes and amortization (EBITA) for 2018 is forecast to be between €1.075 billion and €1.125 billion (USD$1.3 billion and $1.4 billion) on revenues of approximately €12 billion (USD$14.7 billion). Backlog is €34 billion (USD$41.7 billion), or equivalent to three years of revenue.


“We absolutely have the right product in the right market," said Profumo. “We have a plan and we know where we need to go. Now it’s time to execute.”


Leonardo Helicopters managing director Gian Piero Cutillo, who shifted to the role in September after serving as the parent company’s CFO, maintained that “there’s nothing wrong with the core product strategy.” While the company's addressable civil helicopter market had plummeted 45 percent from 2013 through 2016, he noted this was largely linked to the decline of oil-and-gas industry sales.


But within that shrunken space, Leonardo captured market share from its competitors on the strength of its dominant AW139 medium twin-engine multi-role platform. The company is currently producing five to six AW139s per month in Verigate and Philadelphia, Pennsylvania, for emergency medical services (EMS), search and rescue (SAR), law enforcement, oil and gas, VIP transport and military customers. The 900 deployed AW139s recently passed two million flight hours.


In addition to market forces, Cutillo blamed some internal factors for a disappointing 2017, including “offering too much flexibility to push sales.” He declared a simple rule going forward: “We cannot change the configuration once the helicopter is on the final assembly line.”


Cutillo said the civil rotorcraft market is returning to growth; the CAGR forecast is 5 percent in the five-year period through FY2022. The strongest segments are predicted to be light intermediate, intermediate, and medium, where Leonardo offers the AW169, AW139 and AW189, respectively. “The medium/heavy segment is not attractive,” he added.


The military helicopter market is expected to continue to decline by 2 percent a year through the same period. One of the aircraft on the production line is the 16th and final ICH-47F Chinook, built under license for the Italian army.


Despite cash-flow concerns, Leonardo plans a robust investment strategy, fueled by €200 million (USD$245 million) identified savings from “strict cost control” and a “new phase” of its Leonardo 2.0 internal “one company” integration and optimization campaign, launched when the name was changed from Finmeccanica in 2016. Half of these investments will address platform-focused improvements, such as noise reduction, green technologies, and avionics.


More than one-third of investment is targeted to new product development, including the AW609 tiltrotor. Profumo said the company anticipates certification of the aircraft by the end of 2019. A fourth prototype is expected this year, incorporating Rockwell Collins’ Pro Line Fusion for avionics testing.


During the presentations, a new AW109 Trekker light twin helicopter was performing maneuvers outside the hangar. The Trekker was awarded European Aviation Safety Agency (EASA) certification at the end of December.


 

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