July 31, 2012 7:49 pm

Finmeccanica – take it easy

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The group is on the mend but should not try any acrobatics just yet

Recuperation can be a long process. And for all the radical surgery at Finmeccanica late last year, when a whopping €3.2bn in one-off charges was taken, the crawl back to health at Italy’s second-biggest industrial company by revenues is proving uncomfortably slow. On Tuesday evening, Giuseppe Orsi, the new chairman, produced first-half results which he claimed were better than those in the same period a year earlier.

Well, up to a point. Like-for-like revenues were 2 per cent lower at €8bn, while adjusted earnings before interest, tax and amortisation rose 9 per cent to €460m. New orders and the order backlog also moved higher. Against that, net debt was up 11 per cent, at €4.7bn. Free operating cash flow remained negative throughout the six months, albeit with an improvement in the second quarter. The outflow for the first half was €1.2bn.There is undoubted value in this group. The helicopter division, in particular, posted a second-quarter return on sales of 12.4 per cent, up from 10.5 per cent a year earlier.

But there are also big risks. Leaving aside the uncertainties surrounding corruption probes involving former executives, about one-fifth of the company’s €17bn annual sales come from Italy and are mainly defence-related. Budgets are tight and could face further cuts. The debt burden is substantial and Finmeccanica needs to secure around €1bn-worth of asset sales by year-end. Moody’s, the credit rating agency, meanwhile, has the company’s debt on review for a possible downgrade.

Mr Orsi promises adjusted ebita of around €1.1bn for the full-year and positive free operating cash flow. Investors, though, should tread carefully. Tuesday’s news came after European markets had closed, but Finmeccanica’s shares, at under €3, have gone nowhere over the past nine months. They may remain in the recovery ward for some time yet.

Email the Lex team in confidence at lex@ft.com

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