EADS Cassidian Mulls Moves After Merger Collapse


This article first appeared in Aerospace Daily & Defense Report.

PARIS -- The scuttled merger of EADS and BAE Systems has Europe's largest aerospace and defense contractor weighing strategic options for its Cassidian defense business.

Munich-based Cassidian reported steady revenue for the first nine months of 2012 at €3.5 billion ($4.4 billion), a slight boost over the same period last year, and order intake at €3.4 billion for the period is significantly higher compared with €2.6 billion in the first nine months of 2011, despite a challenging market environment.

EADS CFO Harald Wilhelm says Cassidian's new management team, installed in September and led by CEO Bernhard Gerwert and CFO Julian Whitehead, will shore up margins in the company's core businesses, including Eurofighter, missiles and radar. A year ago, under the former management team led by ousted CEO Stefan Zoller, Cassidian set an earnings before interest and taxes (EBIT) margin goal of 8% by 2015.

However, Cassidian saw EBIT decrease to €156 million in the first nine months of 2012, compared with €170 million for the same period last year, and the company's operating margin fell to 4.4% of revenue compared with 4.9% in the first nine months of 2011. For the quarter, EBIT was 5.2% of revenue this year, compared with 6.3% in the third quarter last year. But EADS' Wilhelm says 8% is still achievable.

"I see no reason to deviate from the ambition level," Wilhelm told investors during a Nov. 8 conference call. "There's no reason why Cassidian should not be able to come back, not in 2013, but over time to benchmark profitability and margin level."

Wilhelm said underlying performance in the business is good, "even if you see in Cassidian a slight headwind in terms of profitability in the first nine months of 2012."

The company is in the process of a strategic review that is expected to conclude by year's end. Wilhelm says no new merger or acquisition activity is expected in the near-term, despite the goal of achieving a 50/50 balance between civil and defense activities.

"Let me say 50/50 is not a dogma," he said. "Cassidian's objective is to offset the risk of home-country budget decline through globalization and new business, in order to keep the topline flat in the years to come. This means from an organic point of view, a significant increase in defense activities is challenging and difficult."

In the meantime, Wilhelm says there is no urgent need to settle Cassidian's fate.

Credit: BAE Systems

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