Non-Subscriber Extract
Strength in numbers: Italian defence industry
By Paolo Valpolini
31 March 2008
Strengthened by numerous export successes in the last year, Italy's defence industry is still mostly formed by state-owned companies, as the privatisation process advances slowly.
While Finmeccanica, the major player in the sector, has been on the stock market for some years, Fincantieri, the principal national shipyard, is still in public hands - although a move towards the market, which has been under discussion for years, was announced by the Prodi government in mid-2007.
If the political elections on 13-14 April assign a clear victory to one of the two major parties, the privatisation process should not be significantly affected: in the previous government, only the radical left was against the process while a victory for the centre-right Popolo della Libertˆ party should only marginally favour the process. Only the political uncertainty of a lack of a clear winner should hamper the drive towards the market.
One area on which the election outcome might have an impact, however, will be national military spending. In the two last years of the Berlusconi government, the defence budget suffered deep cuts that put some major programmes at risk, although the Prodi government has partially compensated for the cuts.
The reduced national budget has caused most companies to move their aim towards the export market, resulting in increasing international partnerships. For example, Finmeccanica was involved in the creation of Alenia Defense Company in North America, as well as joint ventures with French companies DCNS and Thales in the torpedo and sonar sector. Oto Melara is another Finmeccanica company that may soon be involved in a similar partnership.
Meanwhile, the prospect of an Asian penetration into the European shipyard arena (typically dual industries involved both in civil and military markets) may also result in further agreements, as discussed in recent talks between Finnish, French, Italian and Norwegian state leaders. The EU will rule on the purchase of a controlling minority interest in Aker Yards by Korean STX Shipbuildings in May.
Finmeccanica's 2007 financial results showed positive trends for the company, with revenues worth EUR13.43 billion (USD20.86 billion) - up 8 per cent - while adjusted earnings before interest, tax and amortisation (EBITA) rose 11 per cent to EUR1.045 billion. New orders went up 14 per cent to EUR17.92 billion with an order backlog up 10 per cent to EUR39.3 billion, equivalent to around three years of production.
Finmeccanica forecasts that EBITA will grow by between 12 per cent and 19 per cent in 2008 (with revenue growth of between 6 per cent and 11 per cent), while EBITA should rise between 11 per cent and 15 per cent in 2009 (with revenue growth of between 6 per cent and 7 per cent).
Pier Francesco Guarguaglini, Finmeccanica's chief executive officer, said: "In the last year the European industry has made considerable moves in the attempt to rationalise, but I doubt that further steps can be made without a true will from the military and political players in Europe."
The driver may come from what awaits some business areas in the future, such as the combat aircraft and military avionics sector, the markets for which are expected to shrink in the medium to long term.
Finmeccanica is still looking at possible new acquisitions, such as that of Vega in the UK, which was finalised recently, and possible further acquisitions in the UK and United States, in order to strengthen its position in various markets.