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FINMECCANICA SEES GROWTH IN DEFENCE AND AEROSPACE UNIT

16 Oct 03. Finmeccanica SpA aims to boost revenue from its core aerospace and defense businesses to EUR10bn by 2006 from the EUR6.3bn on a pro forma basis reported in 2002.

The growth will be internal, via acquisitions, and from the development of Eurosystems, Finmeccanica’s three-part joint venture alliance with BAE Systems PLC, Roberto Testore, chief executive of the Italian company, told reporters before a presentation to analysts.

Factoring in acquisitions made in the past year, Finmeccanica had consolidated net revenue of EUR9bn last year, with EUR2.7bin coming from its Ansaldo energy and transportation units and its Elsag information technology arm.

Testore said the planned growth would be spurred by acquisitions, although the company didn’t have its sights on any large targets. Finmeccanica expects to spend EUR3bn but could raise that budget in exceptional circumstances, he added.

Finmeccanica has a war chest available thanks to its potential monetization of a 16% stake in chipmaker STMicroelectronics NV and a debt-to-equity ratio of around 15%. An optimal ratio for the sector would be between 35% and 40%, said Finmeccanica Chief Financial Adviser Alessandro Pansa.

Pansa also said Finmeccanica planned to securitize part of its EUR1bn real estate portfolio in the first half of 2004, but noted that some properties were hard to sell because of security considerations. Pansa later said he believed the EUR10bn revenue target for Finmeccanica’s core businesses might take a year or two longer to achieve, depending on the acquisition market.

Internal growth will be spurred by projects such as Finmeccanica’s planned joint venture with its U.S. partner Vought to win as much as a 20% share of the work entailed in Boeing Co. (NYSE:BA – News)’s coming B7E7 “Dreamliner” project, Testore said. Finmeccanica’s core aerospace and defense division contributed two-thirds of revenue and 90% of earnings before interest, taxes and appreciation in 2002, the company said.

Testore said that in the long run Finmeccanica aimed to deconsolidate its non- core units but added that no decision has been made – nor deadline set to make a decision – on whether to spin them off to a new company revolving around Italian state shipbuilder Fincantieri. Meanwhile, the Ansaldo units have been turned around and are profitable, he said, adding that “lots of orders” had come in for railway products thanks to an Italian infrastructure plan.

Comment: Finmeccanica is busily building itself into a major force in the European defence scene. Could the next move be to buy out GKN from the AgustaWetland partnership and strengthen its partnership with Bell? Kevin Smith is said to be very pleased with the £74m gained from the GKN sale of its Alvis stake and the sale of the Westland stake in AgustaWestland would withdraw the company from defence altogether enabling it to build its core automotive and aerospace divisions, the latter of which is gaining key footholds in the JSF programme. There have also been suggestions that the company has been approached to provide core cockpit canopy technology for the F-22 programme. There are also rumours that the company’s Marconi unit has pulled ahead in the bid to supply the falcon system to the UK’s armed forces against incumbent BAE SYSTEMS.

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