VERGIATE, Italy (Reuters) - Italian defence group Leonardo promised double digit profit growth in its first business plan under Chief Executive Alessandro Profumo but disappointed investors on shorter term prospects, three months after a profit warning clubbed shares.
Leonardo, which cut its 2017 guidance in November due to questions over its helicopter business, trimmed order targets further on Tuesday and said revenues would be at the lower end of the range.
“The market was expecting more aggressive targets and on a day when markets in general have been correcting, investors were disappointed,” said Zenit fund manager Stefano Fabiani.
Leonardo shares were halted from trade several times due to excessive losses, ending the session down 12 percent.
After previous CEO Mauro Moretti turned the company round by cutting costs and debt and also reorganising the company, Profumo was picked to outline a broad and longer term strategy, focusing on an aggressive expansion drive.
The state-owned conglomerate, which said it expected 2018 to be a year of “consolidation”, said orders last year were now expected to be between 11.3 billion and 11.7 billion euros from a November target of about 12 billion euros, due to the change in timing of a C27J aircraft contract.
In its 2018-2022 plan, Leonardo said it expected orders to grow more than 6 percent per year while core earnings would grow 8-10 percent. The company said the sector was expected to grow at around 6 percent annually in the period.
In recent years falling oil prices, the slowdown in emerging markets and cuts in state defence budgets have dampened demand for military equipment, hurting Leonardo’s business.
Broker UBS said the mid-term targets were in line with its expectations but said the recovery would be loaded towards later in the period.
Asked why the plan was conservative in the short term, Profumo said the strategy aimed to deliver sustainable growth in the long term.
The 60-year-old executive, who previously headed Italy’s biggest bank UniCredit, said the group would press ahead with “strict cost control ... and a strengthening of its capital structure” to secure an investment grade rating.
Ratings agency Fitch upgraded Leonardo’s senior unsecured debt to investment grade in October, but ratings from Standard & Poor’s and Moody’s are still one notch below.
The group said it intended to reduce its gross debt, which was a little more than 4 billion euros at the end of September last year, by about 20 percent by 2020.
It said it had taken action to address the short-term issues at its helicopter unit, adding these were not structural. It said there were opportunities to improve the business in the civil sector.
Additional reporting by Stephen Jewkes; Editing by Mark Potter and Edmund Blair