June 26, 2017 / 3:30 PM / in a month

AIRSHOW-Italy's Leonardo looks abroad as new CEO Profumo takes helm

4 Min Read

* Profumo picked for his international profile

* Chief Executive to embark on aggressive expansion drive

* Focus also on improving group's non-investment credit rating

By Giulia Segreti

PARIS, June 26 (Reuters) - The new chief executive of Italy's defence and aerospace group Leonardo will target the Gulf and Far East as part of an aggressive expansion drive to boost its international presence, according to company and government insiders.

After years of cuts to defence budgets that have curbed demand for military equipment, including in Italy, Alessandro Profumo is looking to establish joint ventures with peers and seal more deals with higher spending countries.

The 60-year old veteran banker, who is credited with turning Milan-based UniCredit into a pan-European player during his years as CEO, was appointed to the helm of state-controlled Leonardo by Italy's government in May.

Giovanni Soccodato, Leonardo's head of strategy and development, said the group, among the top 10 companies by revenue in the global defence sector, aimed to expand in emerging markets, particularly those with deeper pockets and higher security demands, such as the Gulf or the Far East.

"In coming years we will have to make strong decisions on where to position ourselves to grow further," he told Reuters.

Leonardo's hunt for new market opportunities comes after a three-year restructuring programme kick-started by Profumo's predecessor Mauro Moretti, who cut the group's debt by a third to 2.8 billion euros last year and streamlined its operations.

Moretti was criticised for not winning big deals, and for not focusing outside of Italy, which accounted for more than 2 billion euros of total revenue of 12 billion euros last year. Europe represented 27 percent of sales and North America just under a quarter.

"Leonardo has been static in the last years... it's been a long chain of lost opportunities," an industry insider said.

Rome is pushing Leonardo to open new headquarters in the United States, where it operates through subsidiary DRS, and to expand its UK offices in order to closely monitor any fallout from Brexit, a government source said.

Unlike Moretti, tasked to focus on Leonardo's books and simplify its structure, Profumo was picked by the government to outline a broader and longer-term strategy for the group.

"Profumo's mission is to make Leonardo a big international company again, opening it further to foreign markets and diversifying its clients in Italy," a government source said.

People familiar with the defence group said Profumo should help raise its profile after the firm's reputation was severely tarnished by a big corruption case over a 2010 helicopter deal in India, involving top managers before Moretti took over.

Speaking at last week's Paris Air Show, his official debut as CEO, Profumo told Reuters that he was studying the company and sector in depth. The manager has given himself 100 days to set out key guidelines for the company.

He will also focus on improving Leonardo's credit rating, currently one notch below investment-grade level with all three major rating agencies, people with knowledge of the matter said.

That could include controlling costs and scaling down its portfolio of products, which range from helicopters to military aircraft, training jets and communication systems.

But sources say that Profumo won't want to sell assets nor embark on an acquisition drive like that he oversaw at UniCredit but rather combine lines of business that use similar industrial processes and skills to produce economies of scale.

Leonardo expects new orders to total between 12 billion and 12.5 billion euros this year after it reached 19.9 billion euros in 2016, lifted by a major contract with Kuwait.

"The group certainly intends to continue on the path of financial stability, to compete with its peers. We need a profitable business, this is a priority," Soccodato said. (Editing by Catherine Evans)

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