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UPDATE 1-Italy's Leonardo pledges to improve free cash flow by year-end

(Adds executives’ quotes, details)

MILAN, Nov 5 (Reuters) - Italian defence group Leonardo said it was committed to getting payments from large government and military clients to improve its cash flow in the final part of the year.

Through September, free operating cash flow (FOCF) was a negative 2.6 billion euros, pushing the company further away from its 2020 guidance of neutral FOCF.

The negative free cash flow was partly linked to seasonal issues and partly due to a build up in inventories as the coronavirus pandemic delayed deliveries for both civil and military contracts.

In particular, payments related to a multi-billion contract signed in 2016 with Kuwait for the production of 28 Eurofighter jets were running behind schedule, the company’s executives said in a post-results conference call.

“We have paid suppliers (for the Kuwait contract) but we are still waiting to be paid,” CFO Alessandra Genco said.

Genco added the company was talking with Kuwait to reach the contract’s planned milestones and get the money by year-end.

“The customer wants to receive the products and is focused on achieving progress on the payment schedule,” Genco said.

The group stuck to its guidance of reaching neutral FOCF this year, although the negative free cash flow in the first nine months was more than double the prior year period.

“We have a solid financial position... we have no need to raise capital nor to further refinance debt,” CEO Alessandro Profumo said.

Sales for the first nine months were almost flat compared with last year at just over 9 billion euros, with a fall in the helicopter business being offset by expected higher volumes of the Kuwait deal and of its U.S. unit DRS.

Turboprop maker ATR, which Leonardo co-owns with France-based Airbus, only delivered one aircraft so far this year and its aerostructures division was weak.

Earnings before interest, tax and amortization (EBITA) came in at 497 million euros, down 28% year-on-year. (Reporting by Francesca Landini, editing by Giulia Segreti and Cynthia Osterman)

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