Finmeccanica SpA, Europe’s most indebted defense company, predicted a cash outflow for this year amid suspended payments for helicopters and a sluggish rail business, prompting the stock to drop the most in nine months.
The company said yesterday that it will see a cash outflow of 350 million euros ($469 million) to 450 million euros in 2013 instead of an anticipated 100 million-euro inflow.
“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 Plc, wrote in a note. Barclays cut its rating on the company to underweight from overweight.
The revised target deepens a crisis at the Rome-based 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.
The cash drain in part reflects India suspending payments for helicopters following a bribery investigation. Three helicopters built for India and not yet delivered have now been sold to another customer, Chief Executive Officer Alessandro Pansa said on an investor call today.
Finmeccanica slumped as much as 8.8 percent, the most since February. The stock traded 5.8 percent lower at 5.115 euros at 12:18 p.m. in Milan, clipping this year’s gain to 18 percent.
Earnings before interest, tax, and amortization will fall 5 percent to 10 percent short of a 1 billion-euro objective, the 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 a profit for the year.
“AnsaldoBreda did not achieve any of the objectives given,” Finmeccanica said. The company plans to further redefine the structure of its trainmaking unit to reflect a reduced backlog. Restructuring steps will be “significant and immediate,” Pansa said.
Finmeccanica, which had aimed to sell the unit that makes rail rolling stock bundled with its Ansaldo STS SpA rail signaling holdings, will now tackle Breda on a standalone basis, Pansa said. All actions will be considered short of those creating social disruption, he said.
The aerospace and defense activities, which Finmeccanica considers central to its operations, reached targets in the first nine months, the company said.
Net debt rose to 5.2 billion euros, 300 million euros more than the year-earlier period. Nevertheless, Pansa said the company is in talks with potential partners about buying the share in Avio’s space activities Finmeccanica does not already control.
The results no longer reflect the agreed sale of most of Finmeccanica’s 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. Cash from the disposal of its stake in aircraft engine maker Avio, being sold to General Electric Co., will likely be booked next year, Chief Financial Officer Gian Piero Cutillo said.