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One Page Summary Tuesday, December 16, 2014

In A Nutshell:
In going hunting for bargains in the Italian market, one of the cheapest in the world, a sensitive nose
will pick up Finmeccanica as a large-cap opportunity in Italy with substantial room for price
appreciation. After a scandal caused management heads to roll, a new CEO has come to the helm
with a phenomenal track record and a plan to sell non-core and loss-making divisions, reign in costs
and capital spending, improve margins and begin returning cash back to shareholders. Near-term
sale catalysts represent over 4.00 per share in near-term upside optionality while barely reducing
operating profit (these divisions represent 4% of the LTM EBITDA). Prior to all of these value-creating
levers being pulled, the sum-of-the-parts valuation is nearly triple the current stock price, and the
company has the cheapest valuation in the aerospace and defense industry. With plans about to be
detailed to the investing public in late January, early February, we think timing here (as well as
valuation) couldn't be better. European and Italian headwinds are calming down and will at some
point turn into tailwinds. Even before they do, we believe shares of Finmeccanica will take flight as a
result of a very able pilot guiding the ship back to more favorable air currents and shedding
unnecessary pounds. Weve got our carryons stowed and our seat belts on. Starting with the sale of
AnsaldoBreda and Ansaldo STS, we anticipate take-off any day now.
Share Price
7.62
All figures in billions, except

per share amounts
EV
Multiple
LTM
x Shares
578.1
Sales
Valuation Considerations
15.93
56.8%
Sum of the Parts (LTM)

Helicopters
11.83
Defense
9.52
= Market Cap
4.4
EBITDA
1.54
5.88x
Aerospace
5.39
+ Net Debt (Average)
4.6
EBIT
0.91
9.95x
Non-Core Sales
4.02
= Enterprise Value (EV)
9.0
Backlog
36.91
24.5%
Corporate
-1.50
per share
P. 9
P. 12
=
21.23
P. 13
P. 15
Quintessential Special Situations:

New Management: Turn-around-focused CEO with phenomenal track record
Non-Core Asset Sales: Over 50% of current stock price in net realizable value
Cash Returns: Restructuring to raise margins, de-leverage and reinstate dividend
Confusion: Incorrect Financial Information on Bloomberg, Factset and CapitaliIQ, plus weak
businesses masking best-in-class subsidiaries
Restructuring Plans: Upcoming investor day to discuss new CEOs plans

Seven Major Reasons We Think Its Our Next Fiat:
1.
2.
3.
4.
5.
Excellent CEO with a history of turn-arounds, under government involvement

High-quality business units masked by some weaker divisions
Active sales process ongoing for weaker divisions
Restructuring: Significant cost cutting opportunities
EU starkly contrasts to US defense spending, which has only begun to
decline.. Buy Europe, initiatives & rebounding budgets will create slightly
favorable environment.
6. Cheaper than cheap European peers
7. Sum-of-the-Parts nearly a triple before margin expansion and cost cutting
GreenWood Investors LLC
www.gwinvestors.com
Watch the 5m Pitch!
Full Report
Macro & Market Considerations: Fish in a Barrel
Upon arriving at Italys stock exchange in Milan, the Borsa Italiana, any visitor or company
attempting to access the capital markets is greeted by a giant middle finger in the square
directly in front of the entrance. Its a fitting display of art in a
country whose labor workers think about their function in an
incredibly different way than the typical American worker.
US workers will typically be focused on the companys
stock price, the value created, and in a very competitive
manner, seek to outdo their peers at other institutions.
While Italians, particularly in the north, are very proud of
their work output, and typically take pains to ensure all the
small details have been thought of, its a culture that is far
more combative against business owners. As long as they
keep their benefits and job protection, they will typically
produce best-in-class products. While the country is less
than 1% of the worlds population, their dominance in the
world of design and luxury (the finer things in life) seems
to command an over-sized presence on Fifth Avenue or in
the parking spaces of Monte Carlo. Yet, when the
economy turns against companies, the wine turns to vinegar. Its incredibly difficult to fire
employees, and any attempt to make the workforce more efficient is vehemently resisted by a
small minority of unions who try to wreak havoc, with their heads buried firmly in the sand.
In many ways, Italy has deserved the negative reputation it has with global investors, but in so
many circumstances, evidence to the contrary of the bear thesis is totally ignored. Companies with
the same geographic and product mix (like Ford and Fiat-Chrysler) are priced at opposite ends of
the spectrum. Recently its been hard to turn on Bloomberg or CNBC without hearing
some economist talking about how Europe hasnt passed any structural
reforms. We suppose translating Italian in the age of Google Translate was
so hard, that these talking heads simply ignored the significant labor reform
package that passed the Italian legislature in November.1 It is a multipronged bill that goes above and beyond any reform that was passed in the
US during our own recession. According to the Financial Times, A worker
earning 20,000 a year would see net pay rise from 1,200 to 1,350 per
month, while the cost to the employer would drop from 2,200 to about
1,650.2 Additionally, the new law limits the courts influence in
employment matters, particularly in firings, as well as spells out a clearly
limited severance package to be given to fired employees. The goal of the
legislation is both to stimulate after-tax income as well as to strengthen
Mario Montis 2012 labor market reforms that made it much easier for firms to
fire employees for economic reasons.
This pro-business and pro-economic bill is expected to be finalized into law before the end of the
year, yet Italy has already been written off by most of the global investment community. We were
1
Politi, James: Renzis Labour Reforms Clear Hurdle in Italys Parliament
Politi, James and Segreti, Giulia: Italy Has Atomic Bomb to Revive Economy, says Renzi Aide
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looking forward to follow-up meetings with a few companies during the annual November Italian
Market day in New York, but instead ended up receiving messages such as, Unfortunately I had to
cancel my trip to NY. As of today interest in Italian media by the US investor is not really exiting.
Its funny, that in every conversation we have with US-focused investors, each one laments the fact
that its been incredibly hard to find high-conviction ideas that arent crowded shorts. Even the
former energy bulls dont even want to buy oil & gas stocks, except a few steely-eyed GreenWood
Investors! Over the last year, weve been troubled by a similar conclusion on US markets, which is
most concisely conveyed by the markets Cyclically-Adjusted PE (CAPE) Ratio. The CAPE ratio
takes the average of the last 10 years earnings to smooth out the cyclical effects. In the US, it has
only been higher in the tech bubble of the 1990s and in the late roaring twenties, just prior to the
market collapse which kicked off the Great Depression with a thunderous roar.
Exhibit 1: Global CAPE Ratios
35.0
30.0
25.0
20.0
15.0
10.0
0.0
Greece
Russia
Hungary
Portugal
Austria
Italy
Brazil
Ireland
Poland
Czech
Norway
Spain
Turkey
United Kingdom
Korea (South)
Singapore
France
New Zealand
Finland
Belgium
Israel
Australia
Netherlands
Germany
China
Thailand
Hong Kong
Canada
Malaysia
Taiwan
Sweden
South Africa
India
Mexico
Switzerland
Japan
Indonesia
United States
Denmark
5.0
Source: Star Capital
We suggest investors turn their attention to less competitive markets, perhaps to ones that are
being completely ignored because of a behavioral bias similar to that of the US markets in late
2009 and 2010: the availability heuristic. There hasnt been a hopeful headline about Italy or its
economy since the World Cup of 2006. The CAPE ratio of Italys MIB Index still sits at 9x, making it
one of the cheapest markets in the world. As exhibit 1 shows, Italys market is in the Whos Who,
of global markets, with great company in Greece, Russia, Hungary and Portugal. Yet, contrary to
its new peers, Italys economy is diverse and dynamic. Every region in the northern half is equal to
or more competitive than Western Germany and the Netherlands (see exhibit 2). Given the stock
market indexs constituents are generally global companies headquartered in the north, southern
Italy basically only exists for great resorts and transfer payments - it doesnt even play a role in
much of anything anyone could invest in anyway. Before offending half of my family with ties to the
south, I must say, they can grow a great tomato!
While Italys CAPE is among the cheapest in the world, the markets price to sales ratio is bested
only by Hungary. Thanks to the depression the economy has weathered since 2012, the Indexs
operating profit margins have declined to 6.6% from 15.2% in 2006. Investing in Italy is near the
opposite of investing in the US market, with very cheap earnings and sales multiples, trough
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margins and peak unemployment, but at least improving consumer confidence. Also contrary to
the US government over the past four years, its government also has a mandate to enact reforms
and pass pro-economic legislation. On the other side of the pond, were just slapping high fives
because our congress averted another government shut-down.
Exhibit 2: GDP Per Capita by European Region
Source: Eurostat
Exhibit 3: FTSE MIBs Price / Sales Ratio

1.60x
1.40x
1.20x
1.00x
0.80x
0.60x
0.40x
0.20x
0.00x
4/28/06 4/28/07 4/28/08 4/28/09 4/28/10 4/28/11 4/28/12 4/28/13 4/28/14
Data Source: Bloomberg
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If you can buy companies that are trading at cheap levels relative to current operations given the
employment rate and all of the discussed factors hampering Italys economy, what happens when
the economy actually starts to recover? Margin expansion, de-leveraging and higher equity
multiples. The modern triumvirate of outsized stock returns.
Having identified a fully stocked barrel of fish, which ones do you decide to shoot? Our Fiat thesis
has been playing out quite well, and while it still has considerable room to run (our fair value is
currently north of 20 and will rise to north of 30 in the next two years), and it remains our biggest
position. But theres another Italian job that reminds us of Fiat in nearly every way.
Overview of the Multi-Faceted Special Situation
Finmeccanica is a state-suggested rollup that has become a modern Rube Goldberg managed in
the past without a serious concern to shareholders or capital allocation. Historical capital
allocation has been magnificently terrible, which is part of the reason why the trifecta of Capital IQ,
Factset and Bloomberg all calculate the companys financial situation dramatically different than
reality (see Exhibit 29 on page 28). Finmeccanica is similar to Fiat in seven major ways:
1.
2.
3.
4.
5.
Excellent CEO with a history of turn-arounds, particularly with heavy government involvement
High-quality business units being masked by some weaker divisions
Active sales process ongoing for weaker divisions
Restructuring: Significant cost cutting opportunities
EU starkly contrasts to US defense spending, which has only begun to decline. Buy Europe,
initiatives, rebounding budgets will create slightly favorable environment.
6. Cheaper than the cheapest European peers
7. Sum-of-the-Parts gets you nearly a triple before segment margin expansion and cost cutting
The idea represents a special situation in nearly every sense of the word: its literally a turn-around
CEO focused on unwinding 66 years of government-influenced investments and is instead
implementing a Jack Welch strategy of focusing on the company's strengths. Many of the
divisions that have been flagged as non-core are money-losing and have near-term catalysts, as
the sales process has been quite active recently. His stated goals of improving profitability, ROIC,
leverage, and cash returns to shareholders will reward investors if he achieves them. While
Finmeccanica is cheaper than its European and US peers, the discount alone doesnt justify buying
the stock. A favorable investment will rely upon a very capable CEO to restructure weaker parts of
the business, and to end the companys history of capital mis-allocation and repetitive writedowns. Given the Italian government owns 30% of the company, and the ministry of defense is a
large and important customer, restructuring such an entity with entrenched interests everywhere
requires an incredibly shrewd manager. Thanks to a bribery scandal involving the Indian
government (Italians and Indians accepting or receiving bribes? Oh, the chances!), management
heads have rolled and Finmeccanica has found itself with perhaps its most capable CEO it has had
in a very long while.
1. Excellent CEO
It's hard to imagine a more Byzantine and sclerotic culture than the Italian government
bureaucracy. If lean and efficient corporate America has a true opposite in this world, perhaps the
culture can be found somewhere along the banks of Fiume Tevere. In September 2006, when the
Italian economy was nearing its peak, the passenger rail system was heavily leveraged with
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negative EBITDA and was on the verge of bankruptcy or a state rescue. An insider named Mauro
Moretti assumed the role of CEO in September of the year and embarked on an ambitious
turnaround plan in the face of negative rail traffic in his first full year on the job. Despite the
headwinds both traffic and the Italian economy would create, Moretti managed to de-leverage the
organization (taking net leverage down from 43x EBITDA in 2005 to 5x in 2013), substantially raise
profitability and generate a un-leveraged incremental return on invested capital of nearly 11% in his
first four years on the job, a level roughly equivalent to the ROIC of CSX, Norfolk Southern, and
Kansas City Southern. This was partially achieved by reducing annual capital spending from
around 8 billion a year to under 4 billion in his fourth year as CEO- a level which has been
sustained as margins continue to expand.
Exhibit 4: Morettis Profitability Turnaround at TrenItalia
30.0%
Moretti becomes
CEO Sept 2006
20.0%
10.0%
0.0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-10.0%
EBITDA Margin
-20.0%
EBIT Margin
10% EBIT margin
acheived 2 years
ahead of plan
-30.0%
-40.0%
Ones first thought upon hearing this impressive turnaround of financial profile of the rail network in
Italy is that he must have had an easy job raising price, as there are no alternate passenger rail
operators in Italy. It is, in fact, a monopoly. Yet it's a heavily-regulated monopoly, with doubtless
intervention from the government in many aspects. Exhibit 5 shows just how meaningful Morettis
10% operating margin achievement has been. He has managed to turn TrenItalia into a best-inclass operator, beating the financial profile of always-on-time, Swiss and Germany rail operators.
Given the heavy involvement of European governments in Finmeccanicas business lines, Moretti's
experience restructuring a government-owned enterprise should prove invaluable as he goes to
execute a plan that certain managers and unions will inevitably dislike. Additionally, since the
government owns 30% of the company, navigating these investment curtailments, asset sales and
restructuring will require a politically-savvy manager to navigate all of the special interests. Early
efforts and actions have proven his experience at TrenItalia is coming in handy, after several months
of union protests, the sale of the companys bus manufacturing division, BredaMenarinibus to a
Chinese company has recently closed.
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Exhibit 5: Operating Profit Margins at Monopolistic Rail Networks

20%
10.3%
10%
3.7%
3.5%
3.2%
SBB
Deutsche
Bahn
SNCF
0%
TrenItalia
-10%
-20%
Renfe
Amtrak
-19.3%
-30%
-40%
-43.1%
-50%
Sources: CapitalIQ, Amtrak 2012 Annual Report
In the first couple of minutes of Morettis first conference call with investors in August, he provided
a glimpse into his approach and assessment of the company. Weve pasted portions of his
introductory remarks, as its telling how focused he will be on concentrating investment in the
highest-return areas.
I am very clear that is a company that needs to move more aggressively to deliver
sustainable profitability and cash to its shareholders. It is absolutely our need to have the
confidence of our shareholders. It is my challenge to deliver that, and I accepted this role
because I don't usually accept challenges that I am not able to manage. My experience
in my previous role as CEO of the Italian Railways -- and you know that the railways business is
very tough, in Great Britain particularly, showed me that business that may appear to be
challenged can be revitalized and repositioned. And also, you must be prepared to
take tough decisions to focus your eort and achieve your targets. And we can achieve
our objectives at Finmeccanica if we commit to what I have described as positive mix of
continuity and discontinuity. Positive continuity means making the most of the strength of
Finmeccanica. Positive discontinuity means being decisive with radical changes, where and
when they need to be made, without any hesitation.
So first, let us look at what is apparent from the recent record for the growth over the last few
years. You can see that there has been a resilient commercial performance. Finmeccanica is a
diverse group with some robust businesses, delivering high-quality products and technologies
to its customers. Our helicopters is world class. Our train business is state-of-the-art and very
well positioned to capture share in the growing markets: Israel, Poland, Singapore and so. And
having already met and spoken to many of our largest commercial industrial partners, I have
seen that our business is underpinned by some world-class technologies and capabilities. Look
at the track record in orders and revenues over the 4 years in tough market condition. This is
reflected in a book-to-bill ratio that has exceeded 1x every year, apart from 1. And as per our
guidance, we aim this year to maintain it at this level. More can be done
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Finmeccanica is also a company that has gone through some challenging moments. And
clearly, a lot more has to be done to improve our low profitability. A decline in revenue
environment and the number of specific operating challenges is reflected in declining EBITA.
Against this backdrop, a lot has been done to improve our margins in the last 2 years. And if
we deliver our guidance, there will be further improvement for 2014. But we must raise
profitability to a more satisfactory level. I know perfectly that we are more or less at
the lower position compared to our peers. And that means reducing the cost base,
especially SG&A costs
And a lot more has to be done to reduce the volatility of our net results. We need to
reduce the volatility in the result we achieved from our existing operations with a more stable
earning profile, and that also means we need to achieve a higher quality of earnings with
less dependence on extraordinary gains and fewer impacts for extraordinary losses.
We need to work to increase the group's cash generation. In the recent years, this has
been very weak And finally, we need to reduce our level of indebtedness in order to
strengthen our strategic and financial flexibility.
So what do we need to address now? Defense budgets are under pressure, and civil business,
the competitors are very tough. And having spent deep in the business the last 2.5 months, I
will share the following central profile -- priorities. You cannot respond eectively in this
environment with a too-diversified portfolio. It's incredible. When I faced for the first time
our portfolio, I was astonished.
Finmeccanica is involved in too many sectors, products, service, businesses, and investing in
too many technologies. It's impossible to make this -- to do this in the best way. We don't have
enough resources to invest in all the businesses.
A key driver for the future success of the group is how and where and when to invest.
At the moment it's not absolutely clear, the investment policy. So we must decide where to use
our resources, not only financial resources but particularly the human resources.
For this purpose, we are carrying out a deep review and analysis of the entire product portfolio
of every company of the group, looking at every single line of business, ranking them based on
cost and opportunity toward the investments in order to decide whether to invest or to shut
down or exit. We will share the result of this review as part of the new industrial plan.
While Moretti won't be presenting his turnaround plan to investors until early 2015 (late January /
early February), these comments provide visibility to his priorities, all of which sound to us like all of
the main levers any management team can pull to generate significant returns. Later, we show all
of the probable non-core assets that will likely go on the block, if they aren't already there, and
have tallied them up to over half of the company's stock price, while the sales would only
reduce the group's EBITDA by 4%. Many of the joint-ventures or non-core assets contribute
negatively to the groups financial metrics, so any sales will be significantly accretive to an already
cheap valuation.
William Thorndikes The Outsiders profiled eight CEOs who started every project with one question,
what is the return? Finmeccanicas recent past illustrates how important this question is,
particularly in the defense & aerospace industry, with incredibly long time horizons used in the
planning process. The company should be generating incredibly healthy margins from supplying
critical carbon fiber components (the fuselage and the tail stabilizers) for the Boeing 787, yet Alenia
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operates this program at a break-even margin due to over-investment in infrastructure to correct

early quality control issues. Given the longer time horizons the industrys programs require, having
a rational capital allocator is of utmost importance. Its no coincidence that two of the eight CEOs
profiled in The Outsiders ran aerospace & defense companies. The industry provides near
unlimited R&D opportunities and a large number of ways to destroy significant amounts of capital.
No former politician sitting on the board of one of Finmeccanicas divisions will ask what the returns
of the program are at the inception of the discussion. Now that those boards have been
eliminated, Moretti has direct control over capital and development spending at each unit. So
while the industry offers numerous ways to destroy significant amounts of capital, it also offers
numerous ways to differentiate great leadership in capital allocation.
Moretti has already demonstrated the ability to overcome government involvement with headcount
reductions at TrenItalia, and transformed the rail network into the most profitable monopolistic rail
network on the continent. He significantly cut annual capital spending, helping to significantly lift
the operators return on invested capital. His rsum suits Finmeccanica perfectly, as he will have
to overcome over sixty years of political involvement in order to streamline divisions, workforces
and special pet projects, that have large hurdles to generating sustainably attractive returns.
With the sales of just a few poorly-performing businesses, the financial profile of Finmeccanica will
be transformed into a best-in-class aerospace and defense player as the strength of some of its
segments will finally no longer be masked by multiple anchors that have accumulated over time.
2. High-Quality Businesses
Finmeccanica has some very well-respected and high quality divisions wrapped up inside the
conglomerate, and Moretti has stated he views them to be core to the group. Helicopters,
Aerospace, Defense and Electronics will remain central to the company. Much of everything else
will either be sold, shut, or transformed. As longer-term shareholders, its important to review what
the company will look like after some of these restructuring levers are pulled.
AgustaWestland
Finmeccanicas helicopter division is the crown jewel of the groups profitability and value.
AgustaWestland was born in 2000 as a result of the merger of Finmeccanicas Agusta helicopter
division with British GKNs Westland helicopters. The company was operated as a 50:50 joint
venture until 2004, when Finmeccanica bought out GKNs interest for 1.064 billion3 (1,609.5
million). In 2004, the company ended up generating 291 million of EBITDA, so the final take-out
valuation was 11.04x EBITDA. Clearly the asset has performed very well since the take-out, with
2013 EBITDA north of 700 million. Using the same multiple than the take-out valuation,
AgustaWestland would be worth nearly the entire enterprise value today, with every other division
(generating 12 billion in revenue) owned for free in the hypothetical monetization of
AgustaWestland. While the market will not give AW a take-out valuation, given its one of the few
divisions the company doesnt intend on monetizing, the four major competitors (TXT, UTC, AIR FP,
BA) trade at 9.1x EBITDA, which would suggest AgustaWestland is worth just over 6 billion, or
10.43 a share. Yet the division is out-competing its rivals, with a very robust book to bill of 1.27x
over the last twelve months and the highest margins of its peer group, as exhibit 6 demonstrates.
BBC News: GKN sells its stake in Westland
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Exhibit 6: 2013 Operating Profit Margins at Helicopter Divisions (Ex-Unusuals)

16.0%
13.8%
14.0%
12.7%
12.0%
10.3%
10.0%
9.2%
8.0%
6.0%
6.0%
4.0%
2.0%
0.0%
AgustaWestland Bell Helicopter
Sikorsky
Boeing Military Airbus Helicopter
Source: Company Reports
This industry-leading margin is set to potentially expand even further as AgustaWestland has been
focusing its Research & Development of the division on adopting a family approach to its
helicopters in multiple different classes (4.5-8.5 tons). Despite having a different interior and
exterior design, the family approach has begun sharing the same architectural blueprint in order
to share components, maintenance and training programs, thereby reducing production and
operating costs
Exhibit 7: AgustaWestlands Financials at a Glance
Backlog!
Orders!
Revenue!
Change!
Book/Bill!
EBIT-Adjusted!
Margin!
EBITDA!
Margin!
2010!
12,162!
5,982!
3,644!
4.7%!
2011!
12,121!
3,963!
3,915!
7.4%!
2012!
11,876!
4,013!
4,243!
8.4%!
2013! LTM 9/30/14!

11,928!
12,197!
4,384!
5,218!
4,076!
4,114!
-3.9%!
1.64x!
1.01x!
0.95x!
1.08x!
1.27x!
413!
11.3%!
542!
14.9%!
417!
10.7%!
552!
14.1%!
473!
11.1%!
619!
14.6%!
562!
13.8%!
701!
17.2%!
539!
13.1%!
661!
16.1%!
While the US military order book for helicopters has been the strongest over the past few years,
the entire industry has benefitted from increased demand from both commercial and military
customers - of which both roughly split the industrys total demand for helicopters. It has been a
rising tide for all players, which has created a source for debate, as some predict a diminished
industry outlook as payback, from healthier selling levels. If there will be any payback, we believe
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10
itll be from the source which has generated the most outsized demand over the last decade, the
US government. AW is less exposed to this than is Sikorsky (United Technologies) and Bell
(Textron). During the United Technologies investor day on December 11, 2014, the CEO
highlighted probable weakness to come from the oil & gas sector, to which it is slightly more
exposed given Sikorsky excels at the larger helicopters the industry typically demands. Yet, even if
the order book from oil & gas were to drop to zero, commercial demand for helicopters, according
to Honeywells demand outlook, would still be flat to up. Potentially offsetting some of this
potential weakness, is the fact that lower oil & gas prices will likely boost GDP and demand from
many other commercial helicopter customers.
Exhibit 8: Honeywells Commercial Helicopter Demand Outlook
Source: Honeywell Helicopter Demand Outlook
Thus, while the helicopter industry has enjoyed years of robust demand, and many are prepared
for lower growth going forward, we havent heard anyone ringing the bell on industry demand. The
two most likely sources for demand weakness are unlikely to wreak havoc on AgustaWestlands
order book, which continues to grow. The backlog represents three years of full production (in all
actuality, the backlog stretches for longer than three years), and continues to grow, as the book to
bill has recently accelerated. Given AgustaWestland has the highest margins in the industry, and
the family approach is likely to continue to lift margins even further, we believe the division is
worth at least as much as the public market valuation of its peers (9.1x EBITDA), if not even higher.
For such a business, with such good visibility and competitive barriers, the 11.0x buyout valuation
from 2004 is probably justified for AgustaWestland, which suggests using LTM EBITDA, the division
is worth between 6.0-7.3 billion, or 10.43-12.62 per FNC IM share. While we discuss cost
cutting opportunities in a later section, we would also note that these historical financial results
exclude any impact from the ambitious restructuring plan Moretti is about to enact. Thus, despite
a weaker presence of the oil & gas industry in the market, we believe the risks are to the upside for
AgustaWestland.
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11
Defense Electronics & Systems

The most valuable and largest part of Finmeccanicas Defense Electronics segment is Selex ES,
which manufactures a wide array of electronics used in the defense, aerospace and space
industries. The units products and services are diverse and range from traffic management
systems for aircraft and airports (as well as maritime and rail customers) all the way to optical/
infraredsurveillanceand targeting systems. Selex ES also makes display, navigation and
communication equipment for airplanes and ships. Aside from more traditional military and
aerospace products, the company provides battlefield intelligence gathering and electronic warfare
systems to protect both government network infrastructures as well as airplanes.
Exhibit 9: Defense Electronics at a Glance
Backlog!
Orders!
Revenue!
Change!
2010!
11,747!
6,783!
7,137!
6.2%!
2011!
9,591!
4,917!
6,035!
-15.4%!
2012!
8,831!
5,136!
5,754!
-4.7%!
0.95x!
0.81x!
0.89x!
1.01x!
1.09x!
735!
10.3%!
890!
12.5%!
471!
7.8%!
630!
10.4%!
384!
6.7%!
558!
9.7%!
221!
4.5%!
400!
8.2%!
155!
3.3%!
360!
7.7%!
Book/Bill!
EBIT-Adjusted!
Margin!
EBITDA!
Margin!
2013!
LTM 9/30/14!
8,494!
8,456!
4,952!
5,088!
4,892!
4,675!
-15.0%!
The electronics segment has a smaller backlog relative to sales than most of FNCs other
businesses, as contracts and awards tend to have shorter lead times than the capital equipment
segments. There have been large awards in the Security & Smart Systems offering that have been
elusive in becoming a firm order, that has led to part of the weakness at Selex ES as some other
contracts in the division have rolled off during the bidding process.
Although it seems to be an electronic jack of all trades for the industry, perhaps the most notable
aspect of the business is its out-sized R&D spend (14% of revenue in the most recent year) relative
to peers in the space. The company was formed by a merger of three separate companies, so
there have been overlaps that needed to be eliminated, and the businesses have been going
through the process of being transformed into one cohesive unit. And while Selex ES has been
going through its own restructuring during the last couple of years, we would expect Morettis
business plan to address at least a portion of this wide R&D spread between Selex ES and peers.
The unit needs to continue to focus its efforts on a narrower line of products and services where it
achieves a higher return on capital.
The performance of Electronics segment has also been negatively affected by its other electronics
and systems unit, DRS Technologies, which receives over 90% of its revenue from the US
government. Due to the strong and direct correlation between DRSs business and the field
presence of US troops in combat, this business has been facing headwinds ever since the
withdrawal of troops from Iraq and Afghanistan. Nearly all of what DRS sells is used to support
troops, everything from computers to power generation systems. In his first two conference calls
with investors, Moretti has indicated this unit will most likely be considered to be non-core to the
group, so its probably going to be sold. Still, in our sum-of-the-parts valuation we provide later in
www.gwinvestors.com
12
the report, we dont ascribe a control premium to the segment, and simply value it at peers trading
multiples today, before any restructuring benefits.
The defense systems segment houses a few assets that manufacture weapons systems, the most
valuable of which is MBDA, but it also has two smaller units which manufacture and sell torpedoes,
and cannons (or mountain guns). MBDA is by far the most valuable unit within the division, as its
one of the largest manufacturers of missiles in the world. FNC owns 25% of the company, which
unfortunately doesnt report full financial information, while Airbus and BAE Systems both own
37.5% of the venture. Given the more limited competitive landscape in missile manufacturing, we
believe the unit is likely highly profitable. When the division reported its 2013 revenue, orders and
backlog, its book to bill ratio was a solid 1.43x as it booked 4.0 billion in orders against a very
successful year of 2.8 billion in revenue.4 At the end of 2013, the backlog stood at 10.8 billion.
If we were to use these two metrics to value FNCs stake in MBDA, the stake would be worth
between 800 million and 2.2 billion, as shown in exhibit 10. While one could drive a truck
through the middle of this spread, it's so wide, should MBDA land on the auction block as part of
Morettis re-focusing initiatives, the company will net a material amount of cash relative to todays
stock price.
Exhibit 10: Hypothetical Valuation of MBDA Stake
Peers!
MBDA 2013! 25% Value!
EV/Sales!
1.20x!
2,800!
842!
EV/Backlog!
81%!
10,800!
2,178!
Average!
1,510!
Per FNC Share!
2.61!
Data sources: CapitalIQ and MBDA. Comparable companies include RTN, GY, LMT, ATK
Aeronautics
Look at any Boeing, Airbus, or industry presentation about commercial aircraft demand, and youll
see a lot of hockey stick charts. Its all up and to the right. Better fuel economy for new planes is
fueling replacement demand, which comprises 40% of Airbus order book (the largest in the
industry)5. The balance is coming from growth in passenger traffic, which of course is being fueled
by GDP growth and rising incomes. Finmeccanicas aeronautics division is comprised of two
separate subsidiaries, Alenia Aermacchi and ATR. Alenia is the result of a rollup of smaller
aeronautic and defense divisions within Finmeccanica over the years, and as a result, its operations
run the gamut across the industry.
Alenia manufactures training planes for defense customers, of which the latest and greatest is its
M-346 model, which it has sold to Italy, Poland and Israel. Both Poland and Israel are very
demanding customers, so the export sales were good wins for the company. Alenia has created a
venture with General Dynamics to develop a variant of the M-346 (called the T-100) in order to
compete for the upcoming T-X program the US Military is commissioning. Given most of the
militarys training planes are using a platform introduced in the early 1960s, the US is long overdue
MBDA Missile Systems: MBDA: Global Player, European Champion, Trusted Partner
From Airbuss 2014 Investor Day Commentary
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13
for replacement trainers. The T-X program is estimated to be an $11 billion endeavor6, so clearly
any progress on this front would be material to Alenia.
Another key defense program Alenia plays a substantial role in is the manufacturing of the
Eurofighter Typhoon. Eurofighter is a joint-venture between BAE Systems, Airbus and Alenia, and
the company owns 25% of the program, which makes a fighter jet that first entered into service in
2003. Its been a successful program since its launch, with deliveries to Italy, Germany, Austria,
United Kingdom, Spain, Saudi Arabia and Oman. Somewhat similar to the Eurofighter Typhoon,
Alenia manufactures the wings of Lockheed Martins F35 fighter jet, a major program which will
commercially launch a new family of fighter jets starting in about a year from now. The total
spending associated with the program has been estimated at over $1 trillion over 55 years.7 Alenia
and Italy were recently awarded the maintenance contract for the fighter, which will start
contributing to the groups performance in 2018.8
The company has developed its own drones for research purposes, and is also participating with
Dassault on the development of Europes answer to un-manned flying, which has become wildly
successful in recent years. The Dassault nEUROn program is perhaps the best shot at European
companies competing in the space, but still remains exploratory at this time. The last major
defense product Alenia manufactures is the C-27J transport plane, which has successfully been
sold to an even broader audience than the Eurofighter, including the US military as well as many
European and Latin American countries. In conjunction with its defense manufacturing, it also sells
flight simulators and training platforms.
Exhibit 11: Aeronautics At a Glance
Backlog!
Orders!
Revenue!
Change!
2010!
8,638!
2,539!
2,809!
6.4%!
2011!
8,656!
2,919!
2,670!
-4.9%!
2012!
8,819!
3,169!
2,974!
11.4%!
Book/Bill!
0.90x!
1.09x!
1.07x!
1.19x!
1.06x!
205!
7.3%!
359!
12.8%!
-103!
-3.9%!
18!
0.7%!
104!
3.5%!
233!
7.8%!
182!
5.4%!
346!
10.3%!
169!
4.6%!
374!
10.3%!
EBIT-Adjusted!
Margin!
EBITDA!
Margin!
2013! LTM 9/30/14!

9,014!
7,139!
3,980!
3,874!
3,343!
3,645!
12.4%!
In commercial aeronautics, Alenia supports both Boeing and Airbus in multiple programs.
Unfortunately for the company, they are best known for being part of the massive delay the Boeing
787 faced in being ready for commercial deliveries. Due to problems manufacturing the carbon
fiber sections of the fuselage for the B787, the company was forced to reconfigure and replace
many production systems. This resulted in wasteful over-investment which is unlikely to be
recouped over the life of the contract. Thus, the company is operating this program, one which
should have been a huge rubber stamp of approval for Alenia, at a break-even financial result,
6
Clark, Colin: Northrop Takes The Lead From BAE On $11B T-X Trainer
Wheeler, Winslow: The cost to acquire the F-35 has gone up compared to last years estimate
Shalal, Andrea: Italy, Turkey to service F-35 jet, engine in Europe
www.gwinvestors.com
14
which negatively affects the segments operating profit margin. The company maintains it still has a
good relationship with Boeing, and produces parts for the 777 as well as the 767. As for Airbus,
the company is making sections of the fuselage for the A380 and the A321, as well as parts for the
A330, A320 and the A400M.
After Alenia, the other major asset sitting within Finmeccanicas Aeronautics division is the
companys ATR joint venture with Airbus (both own 50%), which manufactures regional propeller
planes for the commercial market. ATR is a market leader in the segment, in terms of its sales and
deliveries. The only major competitor in the market is the Bombardier Q400. The ATR-72 breaks
even at a 35% load factor, whereas the Q400 breaks-even at 60%9. Clearly for smaller regional
routes, the load factor break-even is the key to profitability, so the competitive dynamics for ATR
are very, very favorable. Although Finmeccanica doesnt own 100% of ATR, this will likely remain a
core program in the Aeronautics division, rather than face the sell-side investment bankers.
Lastly, the aeronautics division owns a stake in a joint-venture called Sukhoi, which is a lossmaking, Russian manufacturer of commercial commuter jets which recently started commercial
sales. Finmeccanica owns 25% of the joint-venture, and Italian media reports have suggested the
stake in Sukhoi will be considered non-core and will likely be sold. Any success Moretti has in this
effort will be accretive to the group and the Aeronautics division, as long as he sells it for a positive
value.
Exhibit 12: Sukhois Financials at a Glance (in millions of USD)
Revenue
EBITDA
EBIT
2008
6.0
(43.5)
(44.8)
2009
7.2
(0.3)
(3.5)
2010
3.9
(141.3)
(145.6)
2011
77.7
(25.7)
(27.6)
2012
197.9
(65.9)
(91.1)
2013
513.8
(113.3)
(144.9)
Net Debt
765.7
1,145.0
1,449.2
1,935.5
2,354.3
2,636.6
3. The Chopping Block: Upcoming Asset Sales

Speaking of Sukhoi, there are a lot of non-core businesses that Finmeccanica has accumulated
over the last seven decades. The only sectors that have previously been identified by Moretti as
core, have been discussed above. Every sector except helicopters contains at least one joint
venture which could end up being monetized, but we would wait for specific direction from the
company on DRS, MBDA and Sukhoi. Until we receive more detail on those smaller divisions,
theyve been valued in the sum-of-the-parts valuation at peers valuation, so any take-over
premium (or removal of losses in Sukhois case) would be accretive to our valuation. Given MBDA
is a highly valuable asset, some of the additional upside could be significant. Outside of these
sectors, Finmeccanica has a struggling Transportation division as well as a profitable, but jointventured Space division. Because media reports dont suggest that the entire Space division will
definitely be sold, weve valued it in line with peers trading multiples, without any upside given to
the possibility a premium valuation is obtained.
Transport
Finmeccanica owns a 40% stake in profitable and respected Ansaldo STS SpA (STS IM), which
designs and builds rail transportation systems, primarily signaling systems. At current market
9
AeroBlogger: Why The ATR-72 Is Outselling The Bombardier Q400
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15
prices (8.25), the value of FNCs stake is worth 660 million, or 1.14 per FNC share. Given the
position is a controlling position, a monetization of FNCs stake will very likely come at a premium
to this current value. In the third quarter earnings call, Moretti guided that the sale process will be
finalized around the end of 2014, or perhaps earlier 2015 should the two interested parties need
additional time to submit binding offers. Moretti is attempting to tie the sale of the stake in Ansaldo
STS to sale of Finmeccanicas trains and subway manufacturing unit, AnsaldoBreda.
AnsaldoBreda, like the other transportation subsidiaries of Finmeccanica, is loss-making. As the
prior CEO of AnsaldoBredas largest customer (TrenItalia), theres no one better to assess the longterm strategic value of the unit than Moretti. While he has stated the unit makes competitive
products, the unit has had its fair share of disappointing results coupled with some high-profile
disputes with customers.
While Hitachi has made a non-binding offer of 1.45 billion for both AnsaldoSTS and
AnsaldoBreda, it has certain follow up items that need to be addressed. Italian media10 have also
recently reported that Chinese companies Insigma-Xinzhu are planning on making a binding offer
for both companies.11 Such competition may help FNC sell the transportation division for a fairly
reasonable price. Given competitors Siemens and Bombardier trade at just shy of 15x operating
come, and Siemens purchased British signaling company Invensys plc at exactly 15x operating
income in late 2012, a controlling stake in STS should fetch roughly 15x. STS stock would be
worth 10.44 per STS share at 15x operating income, which implies that should Hitachis 1.45
billion offer come through, the company would buy STS for a fair take-out price and get
AnsaldoBreda for 0.33x revenue, substantially below peers trading at 0.83x today12.
Even at this fairly cheap valuation, FNC would potentially offload AnsaldoBreda, as it has been a
loss-making division for a considerable amount of time. While the unit is getting closer to
breakeven through the first nine months of the year (operating losses have been reduced by two
thirds), a sale of both companies for 1.45 billion will be highly beneficial for stockholders, as it
would inject the group with cash worth roughly 20% of the companys enterprise value today, while
actually raising trailing EBITDA and operating profit. Operating profit would rise 6-7%, while
EBITDA would rise by 2-3%. Thus, it would be a doubly-accretive sale. Without any further asset
sales, it would make FNCs pro-forma EV/EBITDA 4.4x and EV/EBIT 7.2x, which would be
substantially below any competitor in any of its remaining divisions. The median multiples from its
peer group (including all businesses) are 10.2x and 13.4x respectively. In short, any sale of lossmaking divisions that helps show the higher margin business potential of most of Finmeccanicas
segments would allow for significant equity appreciation as the groups financial profile becomes
clearer to both computers (quant models) and humans that are trading the stock.
Exhibit 13: Train Engineering Company Valuations
Company!
BBD.B CN!
HO FP!
SIE GR!
Average!
EV / Sales!
0.68x!
0.61x!
1.19x!
0.83x!
EV / EBITDA!
10.97x!
6.04x!
10.51x!
9.17x!
EV / EBIT! EV / Backlog!
14.78x!
35.1%!
8.53x!
34.5%!
14.39x!
85.5%!
12.57x!
51.7%!
10
Gerosa, Francesca: Finmeccanica, i dettagli del nuovo piano attirano gli acquisti
11
Dragoni, Gianni: Insigma-Xinzhu expected to submit a binding offer on AnsaldoBreda soon
12
Peers include Siemens, Thales and Bombardier
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16
A small line item housed within the Transport division is Italian bus maker BredaMenarinibus, which
is unsurprisingly another small loss-making division at the company. Italian news has reported that
an agreement has already been finalized in the fourth quarter to sell 80% of the division to Chineseowned King Long Italia for an undisclosed amount.13 While the sale was clearly not material to the
overall size of the company, if Finmeccanica was able to offload any debt or receive net cash for
the sale of the stake, the transaction will be accretive to the groups financial position. As exhibit
14 demonstrates, BredaMenarinibus has been loss-making for the recent past.
Exhibit 14: Selected Historical Financials for BredaMenarinibus
Revenue!
Gross Profit!
EBITDA!
EBIT!
Net Debt!
12/31/08!
49.3!
20.6!
-7.7!
-9.3!
-1.1!
12/31/09!
97.1!
53.3!
18.1!
16.0!
-1.3!
12/31/10!
85.2!
26.7!
-17.4!
-19.1!
-0.2!
12/31/11!
95.0!
30.3!
-26.3!
-29.0!
-0.1!
12/31/12!
33.7!
15.5!
-45.8!
-48.5!
-1.0!
12/31/13!
64.2!
33.1!
-4.1!
-6.3!
-0.1!
While BredaMenarinibuss competitors are larger, profitable enterprises, the comparable valuations
are shown in Exhibit 15. These valuations suggest, on the low-end, the bus divisions could have
netted Finmeccanica 51 million (0.09 per share), using a valuation similar to CNH Industrials
today, based on revenue and gross profit.
Exhibit 15: Comparable Bus Manufacturers Valuations
European Peers!
Scania Take-Out!
MAN GR!
VOLV B!
CNHI!
Average!
!
Median!
Minimum!
!
Data Source: CapitalIQ
EV!
195,092!
14,926!
191,667!
14,362!
Revenue!
86,847!
14,537!
282,111!
33,877!
Multiple! Gross Profit!

2.25x!
22,263!
1.03x!
2,846!
0.68x!
63,193!
0.42x!
6,446!
1.09x! !
0.85x!
0.42x! !
!
!
Multiple!
8.8x!
5.2x!
3.0x!
2.2x!
4.82x! !
4.14x!
2.23x! !
EBITDA!
11,091!
1,252!
19,421!
3,075!
Multiple!
17.6x!
11.9x!
9.9x!
4.7x!
11.01x!
10.90x!
4.67x!
Construction
Why is an aerospace and defense company in the construction business? Oh right, this has been
a state-sponsored rollup for decades. FATA SpA will definitely find a "for sale" sign hung around its
neck in the near future, if a data room isnt already open on it, or it will find its neck in the guillotine
soon. Its by definition non-core to Morettis new strategy of focusing on helicopters, aerospace
and defense. Given FATA specializes in the construction of power plants, and both Italy and
Europe over invested in generation capacity over the last decade, FATA is unlikely to fetch a rich
price in a monetization.
Exhibit 16: Select Historical Financial Information on FATA SpA
Revenue!
Gross Profit!
EBITDA!
EBIT!
Net Debt!
12/31/08!
283.3!
105.1!
4.8!
3.7!
-3.2!
12/31/09!
241.8!
112.7!
2.5!
1.9!
-4.5!
12/31/10!
118.4!
53.9!
-4.8!
-5.2!
-4.2!
12/31/11!
110.0!
61.9!
-2.6!
-3.2!
-3.5!
12/31/12!
160.5!
67.5!
-4.7!
-6.1!
-2.7!
12/31/13!
134.2!
66.5!
-2.1!
-2.8!
-4.5!

13
Bettazzi, Marco: Bredamenarinibus diventa cinese: firmato l'accordo al ministero
www.gwinvestors.com
17
Yet, even using the cheapest European peers, it should at least sell for 0.11 per share based on
its revenue and gross profit. Should it receive a median valuation relative to peers, FATA may be
worth up to 0.21 per share. Perhaps even more importantly, FATA is loss-making, so any sale or
wind-down will be mildly accretive to Finmeccanicas valuation. The company reports the division
within its Transport group, joining Ansaldo STS and Ansaldo Breda on the auction block.
Exhibit 17: European Construction Valuations (EV-Based)
DG FP!
FGR FP!
MT IM!
TRE SM!
SAL IM!
AST IM!
TFI IM!
Average!
Median!
Minimum!
Revenue!
40,676!
14,291!
1,685!
3,039!
3,613!
2,638!
1,124!
!
!
Multiple! Gross Profit!

0.95x!
4,748!
1.18x!
11,734!
0.56x!
419!
0.39x!
1,097!
0.70x!
567!
0.65x!
731!
0.91x!
657!
0.76x! !
0.70x!
0.39x! !
Multiple!
8.1x!
1.4x!
2.3x!
1.1x!
4.4x!
2.4x!
1.6x!
3.03x! !
2.25x!
1.08x! !
EBITDA!
5,643!
2,186!
84!
164!
362!
331!
115!
Multiple!
6.8x!
7.7x!
11.3x!
7.3x!
7.0x!
5.2x!
8.8x!
7.73x!
7.27x!
5.21x!
Space
Both of Finmeccanicas companies housed within the Space segment are just starting to enjoy the
bull market the European Space Agencys (ESA) budget is experiencing. Thales Alenia Space,
which is 33%-owned by FNC, is a leading satellite manufacturer in Europe and benefits heavily
from the ESAs Buy European policy to which it generally tries to adhere. Its sister
business,Telespazio, is also a joint venture with Thales, except FNC owns 67% of this division.
Telespazio operates and manages satellites and provides platforms for TV broadcasting and
telecommunications. Due to the implementation of IFRS accounting standard #11, which was
enacted on January 1, 2014, both joint-ventures are no longer accounted for in FNCs financial
statements under the proportional method. Rather, only equity income is recorded. We have
shown each divisions recent financial results, which clearly reflect the ESAs growing budget.
Exhibit 18: Space Segment Financials & Valuation
Telespazio
Revenue
EBITDA
EBIT
Net Debt
2010
278.0
8.1
(9.2)
(0.1)
2011
246.5
(17.5)
(54.6)
0.0
2012
325.7
40.2
16.6
4.8
2013
356.5
43.0
20.0
3.5
Thales Alenia Space

Revenue
1,535.3
EBITDA
74.2
EBIT
52.0
Net Debt
15.0
1,614.5
112.1
85.3
17.6
1,668.9
131.5
106.0
28.8
1,690.6
132.9
107.3
2.2
Valuing each business in line with the current median revenue, EBITDA and EBIT multiples its peers
currently trade at (ATK, BA, BBD.B CN, GY, HO FP, LMT, MDA CN, ORB), as shown in Exhibit 19,
we can see that Thales Alenia space is worth on average 0.85 per FNC share, while Telespazio is
www.gwinvestors.com
18
worth on average 0.41 per share. Taken together, the Space segment has a current fair value of
1.26 per FNC share without any take-over premium given.
Exhibit 19: Comparable Valuations of the Space Companies
Telespazio
Revenue
EBITDA
EBIT
Comps
0.99x
10.29x
13.25x
Value
353.1
442.1
264.9
Thales Alenia Space

Revenue
EBITDA
EBIT
0.99x
10.29x
13.25x
1,674.3
1,366.9
1,421.3
Telespazio
Average Value
Net to FNC
Per FNC Share
Thales Alenia
1,487.5
353.4
236.8
0.41
490.9
0.85
Just between the rumored 1.45 billion bid Hitachi has made for the Ansaldo entities, and the
potential proceeds from a sale of the two space companies, over the next several quarters,
shareholders of FNC will be exposed to significant upside potential as these units eventually get
sold. Adding any contributions from BredaMenarinibus and FATA, shareholders are exposed to
roughly 4.02 per share in non-core monetizations in the near to medium-term. Such sales
would only reduce group EBITDA by 4% on a trailing twelve month basis, yet it would reduce
the enterprise value (by injecting cash) by 25%, and represents a substantial 53% of the current
market capitalization.
4. Restructuring: Significant Cost Cutting & Cash Return Opportunities
With very little time on the job as CEO, Moretti began implementing a corporate overhead
restructuring, which will have the clear positive effect of lifting the groups profitability, and will more
importantly give him more control over capital allocation decisions at each division. While he
arrived at the company in late Q2, his early restructuring actions have already saved the company
an additional 15-20 million in Q3, above and beyond earlier restructuring actions that had
previously been taken. The savings that started showing up in the first quarter after Morettis arrival
are a result of the elimination of external board members at each division, and corporate overhead
comprised of lower external consulting expenses, reduced travel expenses, and various changes
to employee benefits. While the company hasnt guided to an annualized savings figure as a result
of the changes, these will be above and beyond the 300 million in restructuring benefit the
company has said it will realize between 2014-2015.
In Morettis first conference call with investors (highlighted on page 7), he noted that operating
expenses, particularly administrative costs, need to come down substantially as the group focuses
on raising its profit margins and increasing its cash flow. Given the diverse opportunities the group
has, he noted they needed to focus both their own capital and their human capital on the best
opportunities. One capital-light initiative Moretti is focused on is increasing the mix of revenues
coming from services. Given many of the companys units have substantial installed bases, and
clearly have the skilled human capital with deep understanding in their respective fields, increasing
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19
the companys presence in more predictable, higher-margin, capital-light services business will help
transform the financial profile.
Moretti also noted that the business was too diverse and not focused enough to generate
satisfactory returns. He committed to formulating a more focused (i.e. reduced) plan for
investment in the businesses, which combined with margin expansion and restructuring will raise
the companys returns on invested capital. In the third quarter earnings call, he followed up this
commitment by highlighting his intent to cut research and development (R&D) investments. As
exhibit 20 starkly shows, the company has been investing a substantially greater amount of
revenue back into R&D than its peers.
Exhibit 20: R&D Spending by FNC and Peers, by Division
R&D Average!
FNC (2013)!
Nomralization
Boost!
Helicopters!
4.4%!
12.0%!
Electronics!
4.5%!
14.0%!
Aerospace!
4.6%!
8.0%!
Systems!
3.5%!
20.6%!
Transportation!
4.1%!
3.1%!
314!
446!
123!
210!
N/A!
Space!
2.6%!
5.4%!
Total!
11.4%!
1,093!
While the company is capitalizing roughly 80% of its annual R&D expenditures, the total
opportunity to lift free-cash-flow is substantial should each division converge to similar levels of
spending than their peers. As exhibit 20 demonstrates, if each division converged its R&D
expenses (as a percentage of revenue) to its peers, Finmeccanicas free-cash-flow would improve
by nearly 1.1 billion, or 25% of todays stock price. While no CEO presenting a restructuring plan
would ever publicly share such bullish near-term potential, there is substantial room to cut lowreturn capital spending. Assuming a 10% FCF yield is conservative, the total opportunity
represents roughly 19 per share of additional upside, above and beyond any SG&A cuts
and the sum-of-the-parts valuation, which is already north of 20 per share.
As the group improves its free-cash-flow profile, it will be able to de-leverage the company in order
to get it back to an investment-grade rating (currently Ba1 / BB+). We estimate that if the rumored
1.45 billion sale of AnsaldoBreda and AnsaldoSTS goes through, the companys leverage profile
would again support an investment-grade rating. It also would likely be the catalyst that would
allow the company to resume returning cash to shareholders via dividends or share repurchases.
In Morettis first conference call with investors, he highlighted cash returns to shareholders as a top
priority. The company hasnt paid a dividend since the annual dividend of 0.41 was cancelled in
2012. Should Moretti be successful in selling both Ansaldo stakes to either Hitachi or the Chinese,
we think cash returns will soon be following.
5. Industry Considerations
One of the first things a US investor would think about the defense industry is that weve
completed a long cycle of significant defense spending growth over the last decade, and now with
troop withdrawals from Iraq and Afghanistan, spending is inevitably coming down. Pair the budget
sequestration together with the wind-down of the field presence, and its hard to come up with a
bull scenario for the defense industry barring another geopolitical catastrophe. Even with Russias
slow annexation of Ukraine and the the growing and serious threat from ISIS, its hard to find a
defense bull anywhere. As exhibit 21 shows, the absolute dollar amount of annual spending by the
US government has doubled over the last decade. The only core European countries that have
increased defense spending have been the United Kingdom and Germany, but such increases
have been far more muted than the US governments increase. Netting the top five European
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20
countries together, the last decade has seen a very flat result for European defense companies,
with total spending up less than 5%.
Exhibit 21: Defense Expenditures by Key NATO Members (>90% of Budget)

Italy
800,000
25,000
700,000
600,000
20,000
500,000
15,000
400,000
300,000
10,000
200,000
5,000
100,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
UK
France
45,000
50,000
40,000
45,000
40,000
35,000
35,000
30,000
30,000
25,000
25,000
20,000
20,000
15,000
15,000
10,000
10,000
5,000
5,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
US
900,000
30,000
Germany
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
40,000
14,000
35,000
12,000
30,000
Spain
10,000
25,000
8,000
20,000
6,000
15,000
4,000
10,000
2,000
5,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: NATO; denominated in millions of euros, dollars and pounds
Given Finmeccanicas mix of revenue (only 23% from North America and nearly 60% from Europe),
the company faces less headwinds than US-focused companies facing a declining domestic
budget. Nearly 20% of Finmeccanicas revenue comes from Italy, where government funding has
been significantly reduced. Thus, the current valuation and results already reflect a fairly austere
level of government support. Given the thrifty European states have already committed14 in
September at the NATO Welsh summit to bring back defense spending to the NATO-suggested
14
NATO Wales Summit Declation
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21
2% of GDP over the next decade, its possible that the environment for defense spending in
Europe actually becomes favorable for the longer-term stock holder.
Exhibit 22: 2013 Defense Spending as % of GDP
Big 5 EU!
France!
Germany!
Italy!
Spain!
United Kingdom!
US!
% of GDP!
1.6%!
1.9%!
1.3%!
1.2%!
0.9%!
2.4%!
4.4%!
Source: NATO
If the European under-spenders follow through on their commitment (somewhat doubtful), the total
spending by the top five countries in the EU will rise by 32.3% above and beyond any GDP
expansion over the next decade. Finmeccanica and its European peers will benefit most from any
potential rebound, given the Buy European, policy most countries have, as well as the European
Space Agency. While some countries, including Italy, may end up missing the 2% target, barring
some sort of larger-scale Russian invasion of Ukraine, our main point is that European defense
contractors face tailwinds, not headwinds, as most US companies are currently facing. Many
smart international consultants or strategists weve talked to believe that Putin wont rest until
Russia has fully annexed Ukraine. If these predictions turn true, there are clear risks to the upside
to European spending, as many will be asking, where will he stop? The Russian border would be
inching closer to Germany, Austria and Italy.
On a happier note, the commercial aerospace demand outlook remains very robust, as both
Boeing and Airbus are introducing next-generation planes that are significantly more fuel efficient
than the current airplane installed base. Airbus recently estimated that as much as 40% of its
demand is coming just from replacement demand for fleets upgrading to more efficient planes.
The balance of the growth is coming primarily from passenger growth, and Boeing recently
estimated that to accommodate this increased traffic, the global fleet of airplanes will need to
double by 2033.
Exhibit 23: Boeings Estimated Global Commercial Airplane Fleet
Source: Boeings Current Market Outlook 2014-2033
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22
6. Cheaper than the Cheapest European Competitors

Given the reduction in US defense spending, there are pockets of weakness in the aerospace and
defense industries, which show up in some companies valuations. Some have had to deal with
shrinking backlogs, which typically indicates a more modest future operating profile than today.
Finmeccanicas backlog has been growing, with some choppiness on a quarterly basis, yet at 5.9x
EBITDA, it is priced cheaper than even the cheapest peers in the comparable valuation table.
Exhibit 24: Aerospace, Defense, Space and Transportation Comparable Valuations
EV!
EV / Sales!
AIR FP!
37,430!
0.51x!
AM FP!
9,885!
2.33x!
ATK!
5,290!
1.04x!
BA!
87,298!
0.97x!
BA LN!
15,011!
0.94x!
BBD.B CN!
13,293!
0.68x!
BEAV!
10,131!
2.47x!
GD!
43,747!
1.42x!
GY!
1,585!
0.97x!
HO FP!
8,634!
0.61x!
LMT!
61,062!
1.37x!
MDA CN!
3,996!
2.00x!
MTX FP!
4,135!
1.06x!
NOC!
31,191!
1.30x!
ORB!
1,371!
1.01x!
RTN!
32,484!
1.44x!
SAF FP!
23,783!
1.60x!
SIE GR!
85,501!
1.19x!
SPR!
6,277!
0.93x!
TXT!
14,125!
1.06x!
UTX!
89,003!
1.37x!
VSAT!
3,772!
2.79x!
Average!
1.30x!
Median!
1.06x!
Data Sources: Company Reports, CapitalIQ
R&D %!
EV / EBITDA!
5.41%!
8.1x!
10.82%!
19.8x!
1.16%!
6.7x!
3.49%!
10.2x!
6.57%!
8.2x!
1.63%!
11.0x!
6.53%!
11.6x!
1.01%!
10.2x!
2.63%!
12.5x!
5.06%!
6.0x!
1.56%!
10.4x!
14.9x!
3.38%!
8.0x!
2.11%!
8.5x!
2.40%!
9.6x!
2.06%!
9.5x!
12.95%!
11.9x!
5.65%!
10.5x!
0.49%!
14.0x!
4.90%!
10.1x!
3.90%!
7.4x!
3.92%!
16.3x!
4.12%!
10.6x!
3.43%!
10.2x!
EV / EBIT!
EV / Backlog!
14.0x!
4.9%!
23.3x!
129.9%!
8.0x!
75.6%!
13.1x!
17.8%!
11.0x!
37.8%!
14.8x!
35.1%!
13.6x!
113.8%!
11.7x!
58.8%!
24.0x!
75.5%!
8.5x!
34.5%!
12.0x!
73.9%!
19.7x!
133.2%!
11.6x!
62.7%!
9.7x!
80.9%!
13.4x!
29.2%!
10.6x!
97.7%!
19.7x!
42.3%!
14.4x!
85.5%!
21.3x!
14.3%!
14.7x!
143.9%!
8.9x!
196.9%!
81.8x!
191.0%!
16.9x!
78.9%!
13.4x!
74.7%!
While Finmeccanica is currently the cheapest (using EBITDA) major company in the industry, at the
same time it has the most significant opportunity for improvement. The pessimist could say this is
just indicative of how poorly FNC has been operating, and we wouldnt disagree with him. Our
conviction in being able to realize value from an improving profit and capital return performance lies
in Moretti and his restructuring plan that he is currently formulating. The current cheap valuation
suggests that FNC will continue to be run in an inefficient way, without regard to capital returns, yet
we think the opposite is true. The really neat part of the bull thesis, is that many of FNCs divisions
dont need any significant surgery - their strength is simply being masked by hangovers from past
bad investments or acquisitions. When one finally begins looking at each division separately, the
analyst is able to see that the total value lying within Finmeccanica group is substantially higher
than where it trades today, even before any restructuring plans get implemented.
7. A Sum-of-the-Parts Story that Will Actually Be Realized
Given Finmeccanica historically tried to be everything for everyone in the industrial European
landscape, looking at the group by each sector makes a lot more sense than valuing rocket
science equally to power plant construction. We took the comparable valuations displayed in
exhibit 24 to come up with a sector-level valuation by revenue, EBITDA, adjusted EBIT, and
backlog in exhibit 25. The table shows exactly which companies are included by business line.
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23
Exhibit 25: Comparable Valuations By Sector

Helicopters!
X!
Electronics!
AIR FP!
AM FP!
ATK!
BA!
X!
BA LN!
BBD.B CN!
BEAV!
GD!
GY!
HO FP!
LMT!
Loral Space Systems Sale!
MDA CN!
MTX FP!
NOC!
ORB!
RTN!
SAF FP!
SIE GR!
SPR!
TXT!
X!
UTX!
X!
VSAT!
!
Average!
Median!
Defense!
Systems!
X!
Aerospace!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
Transportation!
Space!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
X!
!
4.4%!
4.5%!
4.6%!
3.5%!
4.1%!
2.6%!
Helicopters!
0.98x!
1.02x!
Electronics!
1.24x!
1.37x!
Aerospace!
1.27x!
1.06x!
Systems!
1.12x!
1.18x!
Transportation!
0.83x!
0.68x!
Space!
1.23x!
0.99x!
8.97x!
9.12x!
9.25x!
9.53x!
10.08x!
10.15x!
8.91x!
9.32x!
9.17x!
10.51x!
10.49x!
10.29x!
EV/EBIT (Adjusted)!
Average!
12.63x!
Median!
13.51x!
11.89x!
10.97x!
13.40x!
11.98x!
11.26x!
11.33x!
12.57x!
14.39x!
20.50x!
13.25x!
61%!
59%!
73%!
63%!
72%!
66%!
52%!
35%!
74%!
74%!
R&D Average!
EV/Sales!
Average!
Median!
EV/EBITDA!
Average!
Median!
EV/Backlog!
Average!
Median!
X!
91%!
81%!
X!
!
X!
One of the really unique things that sets Finmeccanicas Sum-of-the-Parts (SOP) valuation apart
from most other circumstances, is the CEO is proactively selling off divisions that are considered
non-core, as well as anything within the core industries (helicopters, aerospace, and defense) that
the company doesnt have direct control over as it relates to capital allocation. Again, the primary
driver of value in these long-investment-cycle industries is the managements ability to effectively
allocate capital to the highest-return areas.
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24
Exhibit 26: Finmeccanicas Sum-Of-The-Parts Valuation, Trailing Twelve Month Figures

EV/Sales!
Average!
Median!
FNC!
Value!
Per Share!
Helicopters!
0.98x!
1.02x!
4,114!
4,180!
7.23!
Electronics!
1.24x!
1.37x!
4,675!
6,400!
11.07!
Aerospace!
1.27x!
1.06x!
3,645!
3,878!
6.71!
Systems!
1.12x!
1.18x!
1,231!
1,453!
2.51!
Transportation!
0.83x!
0.68x!
1,887!
1,288!
2.23!
Space!
1.23x!
0.99x!
NM!
NM!
NM!
8.97x!
9.12x!
661!
6,031!
10.43!
9.25x!
9.53x!
261!
2,486!
4.30!
10.08x!
10.15x!
205!
2,080!
3.60!
8.91x!
9.32x!
147!
1,367!
2.37!
9.17x!
10.51x!
-39!
-410!
- 0.71!
EV/EBIT (Adjusted)!
Average!
12.63x!
Median!
13.51x!
FNC!
539!
Value!
7,280!
Per Share!
12.59!
11.89x!
10.97x!
155!
1,700!
2.94!
13.40x!
11.98x!
169!
2,024!
3.50!
11.26x!
11.33x!
108!
1,223!
2.12!
EV/Backlog!
Average!
Median!
FNC!
Value!
Per Share!
91%!
81%!
12,197!
9,862!
17.06!
61%!
59%!
8,456!
4,970!
8.60!
73%!
63%!
7,139!
4,478!
7.75!
R&D Average!
FNC (2013)!
4.4%!
12.0%!
4.5%!
14.0%!
4.6%!
8.0%!
Average Value!
6,838!
Less Debt (Average LTM)!
Stock Fair Value!
Per Share!
11.83!
3,889!
!
EV/EBITDA!
Average!
Median!
FNC!
Value!
Per Share!
6.73!
3,115!
!
Corporate!
Total SOP!
1.06x!
-429!
-456!
- 0.79!
16,743!
20.93!
10.49x!
10.29x!
105!
1,078!
1.86!
10.17x!
-69!
-702!
- 1.21!
11,931!
12.61!
12.57x!
14.39x!
-60!
-864!
- 1.49!
20.50x!
13.25x!
84!
1,113!
1.92!
13.43x!
-133!
-1,787!
- 3.09!
10,690!
10.46!
72%!
66%!
3,654!
2,424!
4.19!
52%!
35%!
8,679!
3,044!
5.27!
74%!
74%!
NM!
NM!
NM!
75%!
-696!
-520!
- 0.90!
24,259!
33.93!
3.5%!
20.6%!
4.1%!
3.1%!
2.6%!
5.4%!
1,617!
!
5.39!
765!
!
2.80!
1,095!
!
1.32!
1.9%!
-866!
!
1.89!
- 1.50!
16,453!
-4,642!
11,812!
20.43!
While the current SOP valuation is worth nearly triple FNCs current stock price, given the company
is underperforming peers in its profit margins, perhaps the EBITDA and EBIT valuations of
10.46-12.61 per share are more appropriate, before Moretti enacts his cost restructuring
programs.
Should the company sell its Transportation Division to Hitachi for the rumored 1.45 billion, it would
create even further upside, particularly as it relates to the EBITDA and EBIT valuations shown
above. Exhibit 27 shows a revised concise SOP valuation table, fixing AnsaldoBreda and STS at
1.45 billion valuation. This excludes the proceeds from the sale of the bus division,
BredaMenarinibus, which took place in November 2014, as well as any potential proceeds from
the companys sales efforts for the engineering and construction firm, FATA SpA. As we showed
earlier in exhibit 17, this division should be worth at least an additional 0.11 per share. Both
segments have been reported in the Transportation division.
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25
Exhibit 27: Sum-Of-The-Parts Valuation Pro Forma Potential Transport Sale

EV/Sales!
Average!
Median!
FNC!
Value!
Per Share!
Helicopters!
0.98x!
1.02x!
4,114!
4,180!
7.23!
Electronics!
1.24x!
1.37x!
4,675!
6,400!
11.07!
Aerospace!
1.27x!
1.06x!
3,645!
3,878!
6.71!
Systems!
1.12x!
1.18x!
1,231!
1,453!
2.51!
Transportation!
0.83x!
0.68x!
1,887!
1,450!
2.51!
Space!
1.23x!
0.99x!
NM!
NM!
NM!
8.97x!
9.12x!
661!
6,031!
10.43!
9.25x!
9.53x!
261!
2,486!
4.30!
10.08x!
10.15x!
205!
2,080!
3.60!
8.91x!
9.32x!
147!
1,367!
2.37!
9.17x!
10.51x!
-39!
1,450!
2.51!
EV/EBIT (Adjusted)!
Average!
12.63x!
Median!
13.51x!
FNC!
539!
Value!
7,280!
Per Share!
12.59!
11.89x!
10.97x!
155!
1,700!
2.94!
13.40x!
11.98x!
169!
2,024!
3.50!
11.26x!
11.33x!
108!
1,223!
2.12!
EV/Backlog!
Average!
Median!
FNC!
Value!
Per Share!
91%!
81%!
12,197!
9,862!
17.06!
61%!
59%!
8,456!
4,970!
8.60!
73%!
63%!
7,139!
4,478!
7.75!
R&D Average!
FNC (2013)!
4.4%!
12.0%!
4.5%!
14.0%!
4.6%!
8.0%!
Average Value!
6,838!
Less Debt (Average LTM)!
Stock Fair Value!
Per Share!
11.83!
3,889!
!
EV/EBITDA!
Average!
Median!
FNC!
Value!
Per Share!
6.73!
3,115!
!
Corporate!
Total SOP!
1.06x!
-429!
-456!
- 0.79!
16,905!
21.21!
10.49x!
10.29x!
105!
1,078!
1.86!
10.17x!
-69!
-702!
- 1.21!
13,791!
15.83!
12.57x!
14.39x!
-60!
1,450!
2.51!
20.50x!
13.25x!
84!
1,113!
1.92!
13.43x!
-133!
-1,787!
- 3.09!
13,003!
14.46!
72%!
66%!
3,654!
2,424!
4.19!
52%!
35%!
8,679!
1,450!
2.51!
74%!
74%!
NM!
NM!
NM!
75%!
-696!
-520!
- 0.90!
22,665!
31.18!
3.5%!
20.6%!
4.1%!
3.1%!
2.6%!
5.4%!
1,617!
!
5.39!
1,450!
!
2.80!
1,095!
!
2.51!
1.9%!
-866!
!
1.89!
- 1.50!
17,138!
-4,642!
12,497!
21.62!
While the total SOP value increases modestly, to 21.62 per share, the EBITDA and EBIT
valuations of 10.46-12.61 rise significantly, to 14.46-15.83. Thus, using the companys trailing
twelve months results, which is before all of the identified 300 million in cost savings and the
additional 15-20 million a quarter Moretti implemented in Q3, as well as any further restructuring
actions that he is inevitably planning to present in January or February, the current SOP
valuation for the company is more than double the current stock price, using the most
conservative assumptions (on EBIT and EBITDA as opposed to Revenue and backlog). Given
SG&A, R&D and Capex cuts that will be coming, as well as the companys book-to-bill ratio
remaining above 1.0x (suggesting the backlog is growing, and demand is outstripping deliveries),
we think there are significant risks to the upside from this mid-teens SOP valuation.
Summing it Up: Why Does This Opportunity Exist?
The aerospace and defense industries have significant competitive barriers to new entrants coming
and disrupting the businesses. Perhaps the only potential disrupter to watch is Elon Musk at
SpaceX, who has shown that with hard work, time and thinking outside of the box, one can
actually compete with the established players. Musk has the trust of many important investors that
have given him a cheap cost of capital in which to patiently and thoughtfully develop both his
electric car and his rocket. We admire Musk for taking the long-term view on investment which
seems to be glaringly absent in the capital markets of the past several decades. Elon has
understood that one of the primary barriers to entry in the aerospace and defense industries was
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26
simply the nature of the investment cycle. As Airbus showed in its recent investor day presentation
from December 10, programs in the industry take years to ramp up and generate positive returns.
Exhibit 28: Airbus Illustrative Product Life Cycle Returns
GLOBAL INVESTOR FORUM 2014
8
Product Life Cycle EBIT and Cash Flow Curves
Incremental Upgrades
ILLUSTRATIVE
Extend programme life
Less investment
Less risk
New Development Programmes
Upfront investment
Learning curve brings down recurring costs
EBIT Contribution
Cashflow Contribution
Source: Airbus Group Investor Day Slides
Above and beyond the multiple years of negative cashflows and margins in a program, the bidding
process itself takes quarters, if not multiple years. This is both a blessing and a curse. It keeps
many potential new entrants from entering a competitive bid, and it also provides managers with
very long-range visibility for business plans and investments. The downside is that the more years
of upfront negative cash-flows, the worse a projects rate of return will be. Any oil man knows he
wants to get his cash spent drilling back as soon as possible to ensure high returns. The lengthier
cash-flow cycle of the industry typically means that the companies with the most future growth
potential will be showing lower margins than peers that are under-investing. Even with the lower
general returns on invested capital the industry faces, stockholders today are paying a fraction of
Finmeccanicas invested capital, so the return on our invested capital will be higher than what
Moretti manages to generate.
Finmeccanica has been investing heavily in recent history, and its been doing so with very
lackluster results. Special one-time charges and write-downs of development costs and
acquisitions have made the historical unadjusted financials incredibly volatile. The volatility has
tripped up Bloomberg, CapitalIQ and Factset, as all three companies are reporting widely divergent
financial results for Finmeccanica. We believe this financial mis-information trifecta has hampered
the price discovery mechanism in the market, and partially led to the deep undervaluation of
Finmeccanicas shares. It also highlights just how important having a capital-returns-focused CEO
at the helm is in the aerospace & defense industries.
www.gwinvestors.com
27
Exhibit 29: 2013 Financial Metrics- Truth vs. Falsehood

Factset
Capital IQ
Bloomberg
Actual
Revenue
16,033
16,156
16,033
16,033
EBITDA
839
911
864
1,574
EBIT
128
350
46
949
3,051
3,965
3,973
3,316
Net Debt
Sligh
t Di
eren
ce!
The volatility in the companys historical financial results has likely also scared away investors in the
industry who are used to sleepier financial reporting conditions, similar to a Telecom investor being
used to AT&T and waking up to a Sprint report with massive and unexpected one-time charges.
Because most US investors use one of the three services to research foreign companies, weve
provided the key financial information by segment at the end of this report, in exhibit 30.
Furthermore, as the company has been over-investing in an overly-broad and complex portfolio of
businesses, it has dampened operating profit margins and lowered its return on invested capital.
As he has alluded to in his first two calls with investors, Morettis plan (to be detailed in just over a
month), will concentrate investments on the groups strengths (Helicopters, Defense, Electronics,
and Aerospace), while seeking strategic alternatives for the transportation and Space divisions, as
well as JVs which are not under FNCs direct control. Morettis focus on controlling his own
investment destiny shows that this outsider truly understands the levers that need to be pulled to
restore Finmeccanica back to its respected industrial reputation.
Over the next few months, shareholders will likely see the sale and de-consolidation of its lossmaking transportation division as well as some potential opportunistic sales of non-controlled JVs.
Moretti has been focusing on honing capital spending to only high-return programs, and has
signaled there will be R&D cuts going forward. Thus, shareholders will see the financial results
meaningfully improve over the next several years as a result of the actions Moretti will likely unveil in
late January or early February. Still, its important to keep in mind that any good manager,
particularly a new one, will set lower near-term hurdles to jump over in order to not risk running into
a snafu of missing expectations, and triggering a crisis in confidence. Although Moretti is unlikely
to promise near-term hat tricks, the company is trading at a steep valuation discount to its peers,
and through selective sales of certain subsidiaries and joint ventures, the sum-of-the-parts
valuation has a decent chance of being actualized by investors. Morettis restructuring plans will
only add to the upside of the SOP valuation, which is currently worth roughly triple the current
stock price. With certain asset sales nearing resolution, the upcoming investor day, the rapidity in
which Moretti is cutting costs, and a favorable book to bill in all core businesses, we believe
shares have significant room to appreciate over the next six months, year, and even half decade as
the new CEO fuses focus, accountability and competitiveness back into the nucleus of Italian
industry. Layered on top of Morettis magic is the fact that investors are buying a stock in the FTSE
MIB-Index, in a market that is among the cheapest in the world, with a government that has,
contrary to popular wisdom, begun enacting real economic reforms, and a central bank that is just
beginning its quantitative easing program in hopes of stimulating price inflation. A significantly
weaker euro will help all European defense companies more effectively compete against US
aerospace and defense companies. European and Italian headwinds are calming down and will at
some point turn into tailwinds. Even before they do, we believe shares of Finmeccanica will take
flight as a result of a very able pilot guiding the ship back to more favorable air currents and
www.gwinvestors.com
28
shedding unnecessary pounds. Weve got our carryons stowed and our seat belts on. Starting
with the sale of AnsaldoBreda and Ansaldo STS, we anticipate take-o any day now.
Exhibit 30: Key Divisional Historical Financial Information
Year!
12/31/07!
9,004 !
8,725 !
8,248 !
4,099 !
5,108 !
597 !
1,423 !
Year!
12/31/08!
10,481 !
10,700 !
8,281 !
3,879 !
4,849 !
357 !
1,383 !
Year!
12/31/09!
9,786 !
12,280 !
8,850 !
4,010 !
5,954 !
172 !
1,611 !
Year!
12/31/10!
12,162 !
11,747 !
8,638 !
3,797 !
7,303 !
113 !
2,568 !
Year!
12/31/11!
12,121 !
9,591 !
8,656 !
3,656 !
8,317 !
256 !
2,465 !
Year!
12/31/12!
11,876 !
8,831 !
8,819 !
3,381 !
8,679 !
159 !
2,261 !
37,204 !
39,930 !
42,663 !
46,328 !
45,062 !
44,006 !
42,697 !
Orders!
Helicopters!
Electronics and Security!
Aeronautics!
Defence Systems!
Transportation!
Corporate and Other!
Space!
Total Orders!
3,970 !
5,240 !
3,104 !
981 !
1,786 !
557 !
979 !
16,617 !
5,078 !
4,418 !
2,720 !
1,087 !
1,557 !
113 !
921 !
15,894 !
3,205 !
8,215 !
3,725 !
1,228 !
2,834 !
113 !
1,145 !
20,465 !
5,982 !
6,783 !
2,539 !
1,111 !
3,228 !
105 !
1,912 !
21,660 !
3,963 !
4,917 !
2,919 !
1,044 !
2,723 !
319 !
919 !
16,804 !
4,013 !
5,136 !
3,169 !
1,005 !
2,290 !
(610) !
866 !
15,869 !
Revenue!
Helicopters!
Aeronautics!
Defence Systems!
Transportation!
Other Activities!
Space!
Total Revenues!
2,980 !
3,826 !
2,306 !
1,130 !
1,356 !
-!
(71) !
853 !
13,429 !
3,035 !
4,362 !
2,530 !
1,116 !
1,798 !
386 !
(517) !
994 !
15,037 !
3,480 !
6,718 !
2,641 !
1,195 !
1,811 !
410 !
(640) !
909 !
18,176 !
3,644 !
7,137 !
2,809 !
1,210 !
1,962 !
243 !
(648) !
925 !
18,695 !
3,915 !
6,035 !
2,670 !
1,223 !
1,877 !
305 !
(689) !
1,001 !
17,318 !
4,243 !
5,754 !
2,974 !
1,256 !
1,719 !
347 !
(842) !
1,053 !
16,504 !
Book / Bill!
Helicopters!
Aeronautics!
Defence Systems!
Transportation!
Total Book / Bill!
1.33x!
1.37x!
1.35x!
0.87x!
1.32x!
1.24x!
1.67x!
1.01x!
1.08x!
0.97x!
0.87x!
1.06x!
0.92x!
1.22x!
1.41x!
1.03x!
1.56x!
1.13x!
1.64x!
0.95x!
0.90x!
0.92x!
1.65x!
1.16x!
1.01x!
0.81x!
1.09x!
0.85x!
1.45x!
0.97x!
0.95x!
0.89x!
1.07x!
0.80x!
1.33x!
0.96x!
353 !
442 !
250 !
127 !
126.0 !
(180) !
0!
65 !
122 !
1,305 !
371 !
698 !
241 !
130 !
65.0 !
(127) !
-!
47 !
162 !
1,587 !
413 !
735 !
205 !
107 !
97.0 !
(152) !
-!
39 !
145 !
1,589 !
417 !
471 !
(103) !
146 !
(63.0) !
(149) !
-!
18 !
91 !
828 !
Backlog!
Helicopters!
Aeronautics!
Defence Systems!
Transportation!
Space!
Total
Backlog!
Adjusted EBIT!
Helicopters!
Aeronautics!
Defence Systems!
Transportation!
Other Activities!
Space!
Energy!
Total EBIT!
EBITDA!
Helicopters!
Margin!

Margin!
Aeronautics!
Margin!
Defence Systems!
Margin!
Transportation!
Margin!

Margin!
377 !
427 !
240 !
125 !
(110.0) !
(168) !
84 !
61 !
93 !
1,129 !
471 !
15.8%!
569 !
14.9%!
375 !
16.3%!
154 !
13.6%!
(85) !
-6.3%!
(154) !
216.9%!
Space!
Margin!
Total EBITDA!
Margin!
Net Financial Position!
84 !
457 !
15.1%!
597 !
13.7%!
383 !
15.1%!
164 !
14.7%!
146 !
8.1%!
494 !
14.2%!
868 !
12.9%!
393 !
14.9%!
170 !
14.2%!
89 !
4.9%!
542 !
14.9%!
890 !
12.5%!
359 !
12.8%!
148 !
12.2%!
122 !
6.2%!
(167) !
(111) !
(132) !
32.3%!
17.3%!
20.4%!
90 !
73 !
67 !
552 !
14.1%!
630 !
10.4%!
18 !
0.7%!
181 !
14.8%!
(39) !
-2.1%!
(93) !
13.5%!
54 !
Year!
Quarter!
Quarter!
Quarter!
12/31/13!
3/31/14!
6/30/14!
9/30/14!
11,928 !
12,457 !
12,590 !
12,197 !
8,494 !
8,277 !
8,529 !
8,456 !
9,014 !
7,478 !
7,342 !
7,139 !
3,654 !
1,251 !
1,159 !
1,139 !
8,246 !
7,981 !
8,701 !
8,679 !
(804) !
(712) !
(270) !
(696) !
2,165 ! !
!
!
36,732 !
38,051 !
36,914 !
4,384 !
4,952 !
3,980 !
1,575 !
1,908 !
(230) !
1,002 ! !
17,571 !
1,514 !
731 !
432 !
33 !
222 !
(36) !
1,171 !
1,362 !
572 !
45 !
1,204 !
(66) !
398 !
894 !
525 !
72 !
379 !
(99) !
2,896 !
4,288 !
2,169 !
4,076 !
4,892 !
3,343 !
1,256 !
1,793 !
903 !
914 !
651 !
103 !
434 !
1,138 !
1,240 !
728 !
127 !
487 !
995 !
1,076 !
756 !
96 !
445 !
(378) !
1,051 !
16,033 !
(59) !
!
2,946 !
(109) !
! !
3,611 !
3,312 !
1.08x!
1.01x!
1.19x!
1.25x!
1.06x!
1.10x!
1.68x!
0.80x!
0.66x!
0.32x!
0.51x!
0.98x!
1.03x!
1.10x!
0.79x!
0.35x!
2.47x!
1.19x!
0.40x!
0.83x!
0.69x!
0.75x!
0.85x!
0.65x!
473 !
384 !
104 !
164 !
(67) !
(127) !
562 !
221 !
182 !
143 !
(114) !
(139) !
112 !
16 !
28 !
3!
6!
(19) !
84 !
65 !
1080!
94 !
!
7!
!
949 !
153 !
619 !
14.6%!
558 !
9.7%!
233 !
7.8%!
194 !
15.4%!
(44) !
-2.6%!
(75) !
8.9%!
117 !
701 !
17.2%!
400 !
8.2%!
346 !
10.3%!
176 !
14.0%!
(91) !
-5.1%!
(85) !
22.5%!
127 !
151 !
(16) !
46 !
23 !
19 !
(35) !
116 !
36 !
74 !
2!
13 !
10 !
! !
198 !
134 !
174 !
14.8%!
95 !
3.9%!
71 !
8.8%!
108 !
10.9%!
112 !
14.8%!
5!
14.8%!
27 !
4.9%!
13 !
21.3%!
11 !
13.5%!
24 !
2.5%!
17 !
4.9%!
(5) !
3.8%!
(22) !
8.5%!
14 !
20.2%!
7!
-25.0%!
10 !
18 !
9.8%!
9.1%!
8.0%!
7.2%!
5.4%!
11.1%!
12.1%! !
1,414 !
1,670 !
1,976 !
1,996 !
1,303 !
1,602 !
1,574 !
10.5%!
11.1%!
10.9%!
10.7%!
7.5%!
9.7%!
9.8%!
9.2%!
10.2%!
12.7%!
1,158 !
3,383 !
3,070 !
3,133 !
3,443 !
3,382 !
3,316 !
4,849 !
5,061 !
4,800 !
4,840 !
4,700 !
5,349 !
4,642 !
LTM Average!
www.gwinvestors.com
227 !
15.4%!
48 !
5.1%!
(23) !
9!
153 !
15.3%!
47 !
(56) !
270 !
369 !
422 !
29
This article has been distributed for informational purposes only. Neither the information nor any opinions
expressed constitute a recommendation to buy or sell the securities or assets mentioned, or to invest in any
investment product or strategy related to such securities or assets. It is not intended to provide personal
investment advice, and it does not take into account the specific investment objectives, financial situation or
particular needs of any person or entity that may receive this article. Persons reading this article should seek
professional financial advice regarding the appropriateness of investing in any securities or assets discussed in
this article. The authors opinions are subject to change without notice. Forecasts, estimates, and certain
information contained herein are based upon proprietary research, and the information used in such process
was obtained from publicly available sources. Information contained herein has been obtained from sources
believed to be reliable, but such reliability is not guaranteed. Investment accounts managed by GreenWood
Investors LLC and its aliates may have a position in the securities or assets discussed in this article.
GreenWood Investors LLC may re-evaluate its holdings in such positions and sell or cover certain positions
without notice. No part of this article may be reproduced in any form, or referred to in any other publication,
without express written permission of GreenWood Investors LLC.
Past performance is no guarantee of future results.
www.gwinvestors.com
30
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One Page Summary Tuesday, December 16, 2014

All figures in billions, except

Sum of the Parts (LTM)

+ Net Debt (Average)

= Enterprise Value (EV)

Quintessential Special Situations:

Cash Returns: Restructuring to raise margins, de-leverage and reinstate dividend

Restructuring Plans: Upcoming investor day to discuss new CEOs plans

Excellent CEO with a history of turn-arounds, under government involvement

Watch the 5m Pitch!

Politi, James: Renzis Labour Reforms Clear Hurdle in Italys Parliament

GreenWood Investors LLC

Source: Star Capital

GreenWood Investors LLC

Exhibit 3: FTSE MIBs Price / Sales Ratio

Data Source: Bloomberg

GreenWood Investors LLC

GreenWood Investors LLC

Exhibit 5: Operating Profit Margins at Monopolistic Rail Networks

operates this program at a break-even margin due to over-investment in infrastructure to correct

BBC News: GKN sells its stake in Westland

GreenWood Investors LLC

Exhibit 6: 2013 Operating Profit Margins at Helicopter Divisions (Ex-Unusuals)

Boeing Military Airbus Helicopter

Source: Company Reports

2013! LTM 9/30/14!

Source: Honeywell Helicopter Demand Outlook

GreenWood Investors LLC

Defense Electronics & Systems

GreenWood Investors LLC

From Airbuss 2014 Investor Day Commentary

GreenWood Investors LLC

2013! LTM 9/30/14!

Shalal, Andrea: Italy, Turkey to service F-35 jet, engine in Europe

GreenWood Investors LLC

3. The Chopping Block: Upcoming Asset Sales

AeroBlogger: Why The ATR-72 Is Outselling The Bombardier Q400

GreenWood Investors LLC

Dragoni, Gianni: Insigma-Xinzhu expected to submit a binding offer on AnsaldoBreda soon

Peers include Siemens, Thales and Bombardier

GreenWood Investors LLC

Multiple! Gross Profit!

Data Source: CapitalIQ

Bettazzi, Marco: Bredamenarinibus diventa cinese: firmato l'accordo al ministero

GreenWood Investors LLC

Multiple! Gross Profit!

Data Source: CapitalIQ

Thales Alenia Space

Thales Alenia Space

Source: NATO; denominated in millions of euros, dollars and pounds

NATO Wales Summit Declation

GreenWood Investors LLC

Source: Boeings Current Market Outlook 2014-2033

GreenWood Investors LLC

6. Cheaper than the Cheapest European Competitors

Exhibit 25: Comparable Valuations By Sector

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Exhibit 26: Finmeccanicas Sum-Of-The-Parts Valuation, Trailing Twelve Month Figures

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Exhibit 27: Sum-Of-The-Parts Valuation Pro Forma Potential Transport Sale

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Product Life Cycle EBIT and Cash Flow Curves

Extend programme life