RPT-Fitch: Finmeccanica deal aids leverage, won't change outlook yet
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Oct 8 (Reuters) - (The following statement was released by the rating agency)
Finmeccanica's sale of its Ansaldo Energia stake will improve leverage and help management focus on the core business, but in itself is not yet enough for a revision of the Negative Outlook on the group, Fitch Ratings says. A revision to a Stable Outlook would be likely to require a continued improvement in underlying earnings and cash flow in the company's core aerospace and defence operations.
The long-awaited sale is a positive development for Finmeccanica, with the final price broadly within Fitch's expectations. We estimate that the sale will reduce Finmeccanica's funds from operations (FFO)-adjusted leverage by around 0.5x via the initial EUR273m cash payment and the de-consolidation of EUR220m of group debt. This should lead to leverage between 3.5x and 4x at end-2013, which is still high for the 'BB+' rating.
The sale of the energy business will also be positive for Finmeccanica's business profile as it should enable management to focus on continuing the turnaround at the core aerospace and defence operations.
But the transaction is unlikely to have any immediate positive impact on the group's margins because the Ansaldo EBITA margin of around 9% is broadly in line with the rest of the group. Free cash flow (FCF) generation will also remain under pressure in the short term due to an uncertain defence market outlook and high capital expenditure needs.
A return to the 'BBB' rating category would be possible in the medium term if the group can sustainably reduce its FFO-adjusted leverage to less than 2.5x. Other rating positives would include an adjusted FFO margin sustainably above 10% (11.3% for the 12 months to 30 June 2013), FCF/revenue consistently above 2% (-1.3% for the 12 months to 30 June 2013) and evidence of an improvement in corporate governance.
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