Finmeccanica Predicts Cash Drain on Suspended Helicopter Payment

Finmeccanica SpA (FNC), Europe’s most indebted defense company, predicted a cash outflow for this year amid suspended helicopters payments and a sluggish rail business, prompting the stock to drop the most in a month.

The company said late yesterday that it will see a cash outflow of 350 million euros ($469 million) to 450 million euros in 2013, compared with a 100 million-euro inflow previously anticipated. The cash drain in part reflects India suspending payments for helicopter following a bribery investigation that shook up top management earlier this year.

“The downgrade to free cash flow guidance is a material negative credit development for Finmeccanica that, in our view, could provoke further negative ratings action,” Darren Hook, a London-based analyst at Barclays, said in a note and cut the rating on the company to “underweight” from “overweight.”

The revised target deepens a crisis at the Italian manufacturer, which is still reeling from a bribery investigation that felled former Chairman Giuseppe Orsi and the head of the helicopter unit in February. Finmeccanica said yesterday it will require a deeper review of its train unit after it failed to meet targets.

Finmeccanica slumped as much as 48 cents, or 8.8 percent, to 4.95 euros in Milan, clipping this year’s gain to 16 percent.

Objectives Missed

Earnings before interest, tax, and amortization will fall 5 percent to 10 percent short of a 1 billion-euro objective, the Rome-based company said after the market closed yesterday. The third quarter net loss was 73 million euros, after the company had a 74 million euro gain in the year-earlier period. Finmeccanica still projects to post a profit for the year.

“AnsaldoBreda did not achieve any of the objectives given,” Finmeccanica said, and announced plans to further redefine its structure to reflect a reduced backlog. The aerospace and defense activities, which Finmeccanica considers central to its operations, reached targets in the first nine months, it said.

Net debt rose to 5.2 billion euros, 300 million more than the year-earlier period.

The results no longer reflect Finmeccanica agreed a sale of most of its 40 stake in Ansaldo Energia to Italian state lender Cassa Depositi & Prestiti SpA last month. Finmeccanica will retain 15 percent, with the bank also acquiring the 45 percent share held by private-equity firm First Reserve.

Finmeccanica will gain initial proceeds of 273 million euros when the deal is completed, probably this year, with additional funds due through 2017, it said Oct. 4.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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